MAAS Group Holdings Limited

Company Overview: MAAS Group Holdings Limited (ASX: MGH) is a diversified business group with interests in construction materials, equipment, real estate segments, to name a few. The Real Estate vertical is engaged in residential as well as commercial development in New South Wales. Its Civil, Construction and Hire activities specialise in underground, above-ground, electrical equipment & machinery sales. The Construction Materials business unit comprises of fixed and mobile plant quarries, crushing, and geotechnical services within Australia.

MGH Details

Growth in Key Segments Underpins Optimistic Guidance: The company has recently provided an earnings guidance update on its FY22 performance and expects decent growth in EBITDA levels. The management also updated that the results for FY22 will be skewed towards the second half of the year, driven by the settlement profile of residential property, along with an increase in quarry sales due to the establishment of new quarries. The Groups performance in H2FY22 will also be augmented by ramping up of Inland Rail and other projects.

• MGH seems to be bullish on its long-term prospects as it expects a transition in earnings with growth in Construction Materials and Real Estate segments. The company has witnessed continued organic growth in its Construction Materials business unit, and acquisitions provide further space for growth in the future.
• The Civil Construction and Hire segment enjoy a decent business outlook with a substantial pipeline of infrastructure projects over the next 3 to 5 years.
• The Real Estate business segment is also poised for growth over the coming years on the back of strategic investments in the recent past. It also plans to develop its self-storage, industrial, and hotel / serviced apartment portfolio where it has over $380 million of gross development of its projects on the books presently.

FY21 Performance Overview:

The Group reported resilient financial performance during the year with commendable growth in top-line and bottom-line.

• Revenue grew by ~43.4% to $277.56 million in FY21, compared to revenue of $193.44 million in FY20. The growth was primarily driven by an increase in Civil Construction and Hire & Real Estate divisions.
• There has been a significant jump in statutory NPAT by ~67.1% to $34.7 million in FY21, compared to $20.9 million in FY20.
• The company incurred other non-recurring expenses of $3.9 million in FY21, comprising of $1.8 million in IPO costs, $1.2 million in business acquisitions and $0.9 million in restructuring and other costs.

The company ended the year with cash reserves of ~$18 million as of 30 June 2021. The total borrowings stood at ~$157 million, comprising of current & non-current borrowings of $35.6 and $121.3 million, respectively.

Revenue Trend (Source: Analysis by Kalkine Group)

Receipt of Job Keeper Payments:

On 11 November 2021, the company updated that its subsidiary, Macquarie Geotechnical Pty Ltd, has received $426,100 in Job Keeper payments post-acquisition by the Group.

Top 10 Shareholders: The top 10 shareholders together form around 69.97% of the total shareholding, while the top 4 constitute the maximum holding. Maas (Wesley Jon) and Cavanagh (Thomas Paul) are holding a maximum stake in the company at 53.58% and 4.38%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: The company reported an improvement in gross margin to 23.4% in FY21, compared to 14.9% in FY20. There was also an improvement in the asset turnover ratio to 0.41x in FY21, compared to 0.33x in FY20.

Liquidity & Leverage Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Safety Risk: The Group’s line of business makes its prone to the risks of safety for its employees, who have to work on complex projects.
• Financial Risk: The company's operations also make it prone to financial risks which include foreign currency risk, price risk, and interest rate risk.
• Credit Risk: MGH is also faced with credit risks in the scenario that a counterparty fails to honor its contractual obligations, thereby impacting the profitability of the Group.

Outlook: The company seems to be positive in its business prospects and expects Proforma EBITDA to be in the range of $115 million and $125 million in FY22, reflecting a significant rise from $75.9 million in FY21. The earnings are expected to be bolstered by organic growth, as well as a material contribution from the recent acquisitions from FY23 onwards. The Group has also several acquisitions lined up and is in the due diligence stage. MGH expects to close a few transactions before the end of 2021 year-end.

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

Source: 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: As per ASX, the stock of MGH is trading above its 52-weeks’ average levels of $2.300-$6.320. The stock of MGH gave a negative return of ~16.32% in the past one month and a negative return of ~0.87% in the past six months. The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight premium to its peers’ average multiple, considering the robust financial performance, optimistic guidance levels, and positive sector outlook with pipeline of opportunities. For the purpose of valuation, few peers like CIMIC Group Ltd (ASX: CIM), Service Stream Ltd (ASX SSM), Lycopodium Ltd (ASX: LYL) have been considered. Considering the expected upside in valuation, impressive performance in FY21 with growth in both top-line and bottom-line, positive guidance with growth expected across business segments and improvement in balance sheet, we recommend a ‘Buy’ rating on the stock at the current market price of $4.450, as on 15 November 2021, 10:36 AM (GMT+10), Sydney, Eastern Australia.

MGH 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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