MACA Limited

Company Overview: MACA Limited (ASX: MLD) is a diversified contractor providing services to the mining and construction industries. The company provides tailored solutions to suit the needs of its clients and end-users. MLD specializes in services related to mining, crushing, civil construction, infrastructure, and mineral processing. Under its Crushing business, the company provides complete screening services utilising the latest technology with scalping screens, vibrating and fixed screens and single, double and triple deck screens. The company was listed on ASX on 3 November 2010.

MLD Details

Key Highlights of FY21 Results: During the year ended 30 June 2021 (FY21), MACA Limited delivered improved performance in its underlying business and witnessed a positive recovery in its EBITDA and NPAT. Some of the key highlights of FY21 are as follows:

• Acquisition of Mining West business: One of the important highlights of FY21 was the completion of Mining West business acquisition, which significantly increased the size of MLD's Mining division.
• Rise in Revenue: For FY21, the company reported record revenue of $1.174 billion, up 45% on the previous year, supported by the contribution from the Mining West business.
• Increase in EBITDA: The company’s total reported EBITDA stood at $140.4 million in FY21, up 17% on FY20.
• Improved Operating Cashflows: MLD witnessed strong cashflows during H2FY21 and its total operating cashflow for FY21 stood at $118.8 million, up 3% on the previous year.
• Rise in Net Debt: As at 30 June 2021, the company had net debt of $180.2 million, up by 146% from $73.4 million as at 30 June 2020. Net debt of $180.2 million comprised of cash and cash equivalents of $122.3 million and bank debt of $302.6 million.
• Declared Final Dividend: For H2FY21, MLD has paid a final dividend of 2.5 cents per share, taking the full-year dividend to 5.0 cents per share.

Revenue and Operating Cashflow Trend (Source: Analysis by Kalkine Group)

Key Metrics: For FY21, the company reported EBIT margin of 3.4%, up from negative 2.0% in FY20. Net profit margin for FY21 stood at 1.6%, up from negative 2.2% in FY20. Current ratio for FY21 stood at 1.11x, down from 1.53x in FY20. Cash cycle days for FY21 stood at 38.8 days, down from 50.9 days in FY20.

Net Profit Margin Trend (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 29.27% of the total shareholding, while the top four constitute the maximum holding. Dimensional Fund Advisors, L.P. and Kamon (Kenneth Rudy) are holding a maximum stake in the company at 6.02% and 5.47%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)

 Recent Developments:

• Appointment of New Director: On 8 November 2021, MLD announced the appointment of Ms. Rachel Rees as an Independent Non-Executive Director to the Board. Notably, Rachel is an experienced senior executive who has held CFO and senior executive roles with ASX, TSX listed and private companies across diverse industries.
• Response to Media Speculation: On 1 November 2021, the company responded to the media speculation regarding a potential acquisition of MLD. In its response, the company confirmed that is not currently party to any market transaction.
• Divestment of Bluff PCI Mine: On 26 October 2021, MLD announced that it has signed a binding agreement to divest the Bluff PCI Mine in Queensland to Bowen Coking Coal Ltd (ASX: BCB). The divestment is expected to complete before the end of 2021.

Key Risks:

• Shortage of Skilled Labour: The COVID-19 restrictions continue to cause shortage of skilled labour, which could impact the company’s ability to source candidates domestically and locally.
• Delay or Cancellation of Contracts: MLD is exposed to the risks related to the failure of obtaining contracts, delays in awards of contracts, cancellations or terminations of contracts, and delays in completion.

Outlook: Over the coming year, MLD is expected to benefit from its enlarged Mining Division. Further, the company expects the strong commodity prices, particular in gold and iron ore, to generate new opportunities, which will support further growth. Looking ahead, MLD is focused on pursuing appropriate organic and inorganic growth opportunities and diversification. For FY22, the company expects its revenue to be around $1.4 billion, representing a YoY growth of 19% on FY21. The company has already secured $1.2 billion of work in hand covering mining division and is well-positioned to add to its record order book.

Valuation Methodology: EV/EBITDA 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 six months, the stock has corrected by ~5.42% and is currently trading lower than the average 52-week price level band of $0.645 - $1.515. The stock has been valued using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of a low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the significant rise in net debt position, and risk associated with COVID-19 pandemic. For the purpose of valuation, peers such as Perenti Global Ltd (ASX: PRN), Macmahon Holdings Ltd (ASX: MAH), and Emeco Holdings Ltd (ASX: EHL), have been considered. Considering the expected growth in FY22 revenue, improved work in hand position, benefits from the acquisition of Mining West Business, current trading level, valuation, and key associated risks, we give a “Speculative Buy” rating on the stock at the current market price of $0.780, as on 17 November 2021, 3:30 PM (GMT+10), Sydney, Eastern Australia).

MLD Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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.

Disclaimer

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