Metarock Group Limited

Company Overview: Metarock Group Limited (ASX: MYE), is a mining contractor, which was listed on ASX in 2010. MYE offers mine development, mine operation and all support service and products to tier one mine operators and niche asset owners. Its projects include Ulan West Mine, Aquila Mine, Integra Mining Service, Broadmeadow, Grosvenor, Wambo Mine and Moranbah Mine.

MYE Details

Operational Updates: As per the recent update released on 28^th April 2022, the company has informed about its ongoing business activities:  

• PYBAR Prospective Revenue Contribution: Its subsidiary, Hard Rock (“PYBAR”) has reported the resolution of problematic contract flagged in the half year results and gained a seven-month raise boring contract on the Kidston Pumped Storage Hydro Project. The project will commence in September and is expected to yield ~$7.00 million of revenue for FY23. On the other hand, mobilization on its Malabar Project is scheduled to start in 2QFY23.
• Coal Contracting: Mastermyne’s Coal Contracting division is functioning on full run rate through all its contracts and backed by the long tenure of order book (supported by its clients), MYE maintains a strong position. Furthermore, its ground consolidation business - Wilson Mining’s outlook remains decent as it produced strongest performance, since acquisition.
• Mine Operations: Cook Colliery contract is progressing with the delivery of its first coal and plans its full production in 1QFY23. Whereas the first mining equipment was received for Crinum Mine Project and has scheduled its first coal date in 1QFY23.
• Underground Mishappening: Due to fatally injury of Mastermyne employee on 25^th March 2022, the company will be undergoing an independent investigation into the facts around the incident at the Moranbah North mine.

 (Source: Analysis by Kalkine Group)

Top 10 Shareholders:

The top 10 shareholders together form around 51.50% of the total shareholding, while the top 4 constitute the maximum holding. Rouse (Paul Spencer) and Watts (Andrew Dominic) are holding a maximum stake in the company at 11.71% and 9.36%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: The company closed its half-yearly accounts with the total current assets at the end of 31^st December 2021 as ~$107.40 million versus ~$72.40 million at the end of 30^th June 2021. Its top line has shown a rising trend and marked a revenue of ~$178.7 million for 1HFY22.

Top Line & Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19: Travel restrictions and lockdowns due to COVID-19 might hold down its operations of mining and thereby affecting its earnings, cash flow and financial position.
• Commodity Risk: As the company’s business involves commodity prices, it might get affected by the changes in demands, currency fluctuations and commodity price differences.
• Regulatory Risk: The company is exposed to a more complex regulatory environment; any failure in the same could lead the business to fines, penalties, etc.
• Technology & Labor Risk: The business is quite dependent on the technology it applies and availability of labors. Hence, failure of regular upgradation and labor costs might affect the operations and profitability.

Outlook: With the tendering pipeline of over $2.0 billion (Coal Contracting contributing $0.6 billion, Mine Operations $1.0 billion and Hard Rock Contracting $0.4 billion), its forward order book has grown from $1.1 billion to $1.9 billion. The company reaffirmed its inline working with the objective of tripling its revenue over ~18-month period from work already contracted and has re-instated the revenue guidance of $450-$480 million, normalized EBITDA guidance of $37-$43 million.

MYE seems hopeful and expects its subsidiary PYBAR secured Maxwell Drifts Project to contribute ~$55-$65 million revenue over 12 months, where Kidston Pumped Storage Hydro Project contract will contribute ~$7.00 million of revenue for FY23. Moreover, MYE has various activities like first coal date at Crinum Mine Project and full production at Cook Colliery lined for it 1QFY23, where the latter will expectedly contribute ~$70 million p.a. average revenue.

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: The stock of MYE gave a negative return of ~15.13% in the past year and the stock is currently trading lower than the 52-weeks average price level band of $0.465 - $1.260. The stock has been valued using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the decent fundamental performance, improved order book and prospective revenue generations from various projects, the company might trade at a slight premium to its peers’ EV/EBITDA multiple median. For the purpose of valuation, few peers like Macmahon Holdings Ltd (ASX: MAH), Base Resources Ltd (ASX: BSE), Red River Resources Ltd (ASX: RVR), and others have been considered. Given the fundamental uptick on topline side, prospective revenue generation from various projects, order book performance, inline functioning with the guidance, favourable acquisition aftermath, current trading levels, upside indication by valuation, and key risks associated with the business - like labor injury, we give a “Speculative Buy” recommendation on the stock at the closing market price of $0.510, as of 6^th May 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

MYE 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.

Disclaimer

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