MAAS Group: Regional tailwinds support strong outlook
About the author:
- Author name:
- By Kurt Gelsomino
- Job title:
- Date posted:
- 15 December 2020, 1:00 PM
- Sectors Covered:
- Agriculture, Food & Beverage, Chemicals and Travel
- We initiate coverage of Maas Group Holdings (ASX:MGH) with an Add rating and
updated target price (login to view).
- Over FY20-23F, we forecast MGH to deliver an EPS CAGR of 22% driven by
material growth in quarry sales volumes, increased residential sales and strong
activity levels in civil and infrastructure end markets.
- MGH provides investors exposure to a founder-led business benefitting from
positive industry tailwinds and further upside potential from accretive M&A.
MGH – leveraging infrastructure, real estate and mining tailwinds
MGH is a leading independent Australian construction materials, equipment and services
provider with diversified exposures across civil, infrastructure, mining and real estate end
MGH operates a diversified yet complementary set of businesses, with a core
focus in regional NSW, supported by a growing offshore manufacturing presence.
Real Estate: exceeding near-term expectations; long sales pipeline
MGH has a long dated residential (15 year) and commercial (7 year) property
development pipeline, with a unique concentration on fast growing regional NSW cities.
As at 1-Dec, MGH had sold 197 residential lots and with 7 months remaining in FY21, it
is on track to exceed prospectus forecasts of 208 settlements (vs. 125 in FY20).
expansion into Tamworth on track (c100 lots pa), we forecast lot sales to rise to 300 in
FY22, which underpins our 3-year underlying EBITDA CAGR of 29% for the segment.
Construction Materials: step-change expected from FY22 onwards
MGH has established a dominant network of quarries (20 sites; 9 currently operating)
along the Inland Rail (c5 years of demand) and Newell Highway (c10 years of demand)
corridor in regional NSW.
MGH expects to start supplying into the Inland Rail from 4Q21
onwards, with these projects coupled with local baseload demand (c1mt pa) expected to
support a material increase in quarry sales volumes from 1.0mt in FY20A to 2-3mt over
the next few years.
We forecast an ongoing ramp up in quarry volumes over FY21-23F,
which underpins our 3-year underlying EBITDA CAGR of 22% for the segment.
Civil and plant hire: FY21 contracted; building FY22 order book
The Civil Construction & Hire (CC&H) business has a favourable medium-term outlook
underpinned by Federal and the State Government’s commitment to accelerate
Importantly, high levels of project activity are expected in MGH’s
core market position in regional NSW and the business will also grow off the back of its
Real Estate business.
Pleasingly, this segment is currently exceeding MGH’s FY21
expectations, with plant utilisation high, new contracts recently won, 100% of FY21 work
in hand secured and filling the FY22 order book now underway.
Over FY20-23, we
forecast CC&H to deliver an underlying EBITDA CAGR of 14%.
Underground: currently lagging, but growth potential remains
While MGH’s smallest business unit, FY21 YTD trading has been below internal budgets.
Utilisation levels in EMS have been impacted by the timing of large contracts finishing
(project activity to ramp up in 2H21), while COVID-19 has weighed on VMS.
opportunity to leverage the group’s low-cost manufacturing position in Vietnam and
increase equipment sales remains.
Investment view – Add rating and updated target price
Overall, MGH is tracking to its internal budget. We forecast FY21 underlying EBITDA of
A$75.0m (+16% yoy), with the assets in place to drive further strong growth over FY22/23
Additionally, we think MGH has A$90-130m in balance sheet
capacity to pursue accretive M&A opportunities. Consequently, we initiate coverage with
an Add rating and A$3.05 target price.
MGH provides investors exposure to a founder-led
business (75.4% insider ownership) benefitting from positive end-market tailwinds.
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