MAAS Group: Strong medium-term ambitions

About the author:

Kurt Gelsomino
Author name:
By Kurt Gelsomino
Job title:
Former Analyst
Date posted:
06 December 2021, 9:00 AM
Sectors Covered:
Building Materials, Industrials, Gaming

  • MGH’s Investor Day highlighted the company’s strong medium-term outlook and capability across its broader management team.
  • Near-term M&A is nearing completion and is expected to add ~9.5-11.7% to our FY23 EBITDA forecast. Bank facilities have also been increased and provide additional liquidity to execute its growth strategy.
  • We continue to see organic earnings upside potential in the Residential Real Estate business over FY23/24, while the development of the existing Commercial property pipeline is expected to generate meaningful value. Add rating maintained.

Key Investor Day takeaways

Vertical integration maximises margin capture: The rationale of MGH’s focus on vertical integration was clearly outlined, with its ability to supply/perform most stages of the construction process maximising its margin capture. The Residential and Commercial Real Estate businesses are key pillars of the strategy, which pull through demand for Construction Materials and Civil Construction & Hire.

Organic growth remains strong: In line with our expectations, FY22 EBITDA guidance for 52-65% growth is expected to be supported by an equal contribution from FY21 acquisitions (A$20-24m uplift) and organic drivers (A$19-25m) from its past capacity/property investment in Construction Materials, Real Estate and Civil Construction & Hire. We forecast organic FY22 EBITDA growth of 29%.

Near-term M&A nearing completion: The two operating quarry businesses, residential construction business and building supplies business are expected to deliver annualised EBITDA of A$13-16.0m (inc. A$2m synergies) and represent 9.5-11.7% upside to our FY23 forecasts (implies pro forma EBITDA of A$147-52m). The update was in line with the A$12-20m range we initially estimated per the cleansing notice disclosure. MGH has established an internal M&A team, with a pipeline of additional opportunities remaining in CM and Real Estate.

Bank facilities increased further: MGH’s core Australian debt facilities will increase to A$300m (from A$200m), which will provide for forma liquidity of A$133.3m (inc. all acquisitions FY22 YTD). Additionally, it has received consent from its banking group to source up to A$200m (from A$100m) to fund its nominated commercial development projects (A$178.1m liquidity at present). The facility expansion and existing asset backing provides MGH with a strong position to continue to execute its growth strategy.

Residential Real Estate: As flagged, geographic expansion has enabled MGH to provide stronger than expected medium-term Residential Real Estate settlement targets (FY24 target of ~500-550 lots vs. MorgansF 425 lots). While no explicit margin targets were provided, we continue to expect the combination of material property price appreciation, increasing mix of house and land sales and greater vertical integration provides scope to deliver all-in avg. EBITDA returns per lot in the range of A$115-135k over FY23/24. This would present meaningful upside risk to our group forecasts if achieved (EBITDA +2-8% in FY23; 9-15% in FY24). 

Commercial Real Estate: The recent acquisition of the Dubbo mixed-use RAAF site, Orange CBD property and quantification of the Spacey’s Self Storage growth opportunity has seen the GDV of MGH’s commercial development pipeline reach A$423.7m (vs. A$380m at its AGM and A$230m at FY21). The development of these assets over the next 5-6 years will create a meaningful rental income stream for MGH (MorgansE ~A$25m pa) and we expect the company will continue to expand its development pipeline with the acquisition of further property over time.

Strong capability throughout the group: The Investor Day also highlighted the strength of MGH’s broader management team across each of its business units. COO, Andy Letfallah, joined the business in 2019 from Brambles and recent appointments have been made in CM (from Boral and Holcim) and Real Estate.

Investment view

We incorporate our estimate of the development potential of the Commercial Real Estate portfolio, partially offset by a reduction in peer multiples, in our (login to view price target) SOTP valuation and target price. Our forecasts remain unchanged and will be reviewed with the completion of its near-term M&A targets.

MGH’s Investor Day highlighted its strong medium-term growth outlook as it continues to execute its strategy, as well as the capability and ambition across the broader management team. Past asset/capacity investments and pending M&A has laid a strong foundation for the business over FY23/24.

With potential for organic earnings surprise and strong liquidity levels, we maintain an Add rating.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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