Macmahon Holdings Limited

MAH Details

Appointment of New Company Secretary: Macmahon Holdings Limited (ASX: MAH) is a diversified contractor mainly involved in providing a complete package of mining services to miners throughout Australia and Southeast Asia. On 2^nd December 2021, MAH announced the resignation of Mr. Greg Gettingby from the post of Company Secretary. Ms. Sophie Raven, who has extensive experience in corporate governance of listed entities, has been appointed as the new Company Secretary.

Macquarie Western Australia Forum Highlights:

• New Work Secured: At the Macquarie Western Australia Forum, MAH highlighted that the company has secured $2bn of new work in FY21, which is underpinning a positive outlook.
• Improved Underlying Earnings: For FY21, MAH reported underlying earnings before interest and tax (EBIT(A)) of $95.2 million, up 4% on the previous year.
• Commenced New Projects: The company also highlighted that in recent months it has commenced 5 new projects and it is currently placed to meet resourcing requirements for Warrawoona and King of the Hills.
• FY22 Focus Areas: In FY22, the company is focused on improving its scalability through diversifying earnings in underground and other mining support services. Further, the company is also focused on maintaining disciplined management of capital.

EBIT(A) Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Skilled Labour Shortage: The company is exposed to the risks related to the shortage of skilled labour, caused by various border restrictions.
• Foreign Currency Risk: Due to its international operations, MAH is exposed to fluctuations in the value of the Australian dollar versus other currencies

Outlook: For FY22, the company expects its revenue to be in the range of $1.4 - $1.5 billion, higher than the revenue of $1.35 billion in FY20. Further, the company expects its EBIT(A) to be between $95 – $105 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has corrected by ~19.99% and is trading lower than the average 52-week price level band of $0.170 and $0.280. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering risks associated with the availability of skilled labour and the uncertainty surrounding the COVID-19 pandemic. For valuation purpose, peers such as Perenti Global Ltd (ASX: PRN), Monadelphous Group Ltd (ASX: MND), and NRW Holdings Ltd (ASX: NWH), have been considered. Considering the new work secured, improved underlying results in FY21, modest outlook, current trading level, indicative upside in valuation and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.180, as on 13 December 2021, as on 13 December 2021, 12:30 PM (GMT+10), Sydney, Eastern Australia.

MAH Daily Technical Chart, Data Source: REFINITIV

Medusa Mining Limited

MML Details

Dividend Update: Medusa Mining Limited (ASX: MML) is a gold production company focused on growth in the Philippines and the Asia Pacific Region. The company’s Co-O Gold Mine is located in Central Eastern Mindanao in the Republic of the Philippines. For H2FY21, the company has paid an unfranked dividend of A$0.02 per ordinary share on 19 November 2021. On 30 November 2021, MML announced that it has applied for quotation of 83,000 ordinary fully paid shares.

Key Highlights of 2021 AGM:

• Production Update: During FY21, the company’s Co-O Gold Mine delivered 95,193 ounces which was the guidance of between 90,000 to 95,000.
• Maintained Costs: Despite operating under COVID-19 restrictions at a site level during most of FY21, MML was able to keep its costs under control, with All-In Sustaining Costs (AISC) for the year being in line with guidance at US$1,231 per ounce.
• Improved Profitability in FY21: Underpinned by decent operating performance, the company’s net profit after tax (NPAT) grew by 59% YoY to US$47.3 million in FY21.

NPAT Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Gold Price Fluctuations: MML is exposed to the risks related to the fluctuations in the prices of gold, as it could impact its financials.
• COVID-19 Uncertainties: MML is exposed to the uncertainties surrounding the COVID-19 pandemic, as it could impact its operations.

Outlook: In FY22, the company expects its production to be in the range of 90,000 to 95,000 ounces with an AISC of between US$1,250 to US$1,300 per ounce. During FY22, MML expects to incur an expenditure of approximately US$15 million on the construction of the Tigerway Decline Project.

Stock Recommendation: Over the last three months, the stock has corrected by 11.65% and is trading lower than the average 52-week price level band of $0.655 - $0.990. On a TTM basis, the stock is trading at a price to book multiple of 0.6x, lower than the industry (basic materials) median of 2.4x, thus seems undervalued.  Considering the company’s decent production and cost performance in FY21, improved profitability in FY21, decent outlook, valuation on TTM basis, technical levels mentioned below, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $0.710, as on 13 December 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

Technical Commentary:

On the daily chart, MML price witnessed a selling pressure from the higher level. Currently stock prices are hovering near the horizontal trendline support level and sustaining above the same. The momentum oscillator RSI (14-period) is trading near an oversold zone at (~35.03 level), which indicates the possibility of rebound in the stock from the current levels. An important support level for the stock is placed at AUD 0.64 while the key resistance level is placed at AUD 0.81.

MML Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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