MAAS Group: Continuing to execute the game plan
About the author:
- Author name:
- By Kurt Gelsomino
- Job title:
- Former Analyst
- Date posted:
- 25 February 2022, 12:30 PM
- Sectors Covered:
- Building Materials, Industrials, Gaming
- MAAS Group's (ASX:MGH) interim result was in line with guidance for EBITDA to be ~35% weighted to the 1H22. A strong liquidity position will support the continued execution of its growth initiatives.
- With FY22 guidance (EBITDA +52-65%) reiterated, organic growth across Construction Materials and Real Estate is set to accelerate over the 2H22.
- M&A is nearing completion, which will provide a strong foundation for the business heading into FY23 and we continue to see scope for Residential Real Estate to organically surprise to the upside over FY23/24.
- We remain attracted to MGH’s strong medium-term growth outlook and maintain our Add rating and (login to view) target price.
Solid 1H22 result
MGH delivered 1H22 pro forma revenue growth of 58%, EBITDA of A$40.1m (+32%) and NPAT of A$16.6m (+6%). The results were slightly (5%) below our EBITDA forecast (A$42.0m) and 18% below our NPAT forecast (A$20.3m), with higher than expected D&A largely explained by A$1.6m of acquisition amortisation.
As expected, earnings growth was underpinned by the contribution from prior year M&A across the Civil Construction & Hire (EBITDA +23%) and Construction Materials (EBITDA +70%) segments. Overall, the result was in line with guidance of a ~35% 1H EBITDA skew.
Reported operating cashflow (outflow of A$0.8m) was impacted by an increase in general working capital (A$9.6m impact) and increase in land inventory held for resale (A$19.8m). Excluding the build in land inventory, operating cash conversion was solid at 72% and we expect solid 2H22 cash generation as its residential lots are settled.
Net debt was A$151.4m (vs. A$126.5m at Jun-21), with trailing leverage of 1.8x comfortably within its 3.5x covenant. MGH retains significant liquidity (pro forma of A$267.5m) to fund its growth initiatives and is carrying ~A$180m of property on its balance sheet across residential property (A$71m), investment property (A$101m) and equity investments (A$8m).
Focus turns to the strong 2H outlook and platform for FY23
MGH reiterated FY22 underlying EBITDA guidance of A$115-125m, +52-65%. The range implies 2H22 EBITDA of A$74.9-A$84.9m, +65%-87% yoy (2H skew of ~65-68%). As a reminder, guidance assumes an equal contribution from prior year M&A (A$20-24m EBITDA uplift) and organic growth (A$19-25m) and continues to exclude the cleansing notice acquisitions.
We understand MGH effectively has ~100% of work in hand to deliver guidance, with the timing of delivery the main 2H watch point.
No change to key 2H drivers
- ~213 residential settlements (inc. 22 build to rent; 67 in 1H22) and materially stronger margins (~A$90k/lot on land only sales) due to ongoing price escalation/evolving sales mix;
- ramp up of delivery into Inland Rail, as well as increased concrete sales and initial precast revenue;
- >A$10m in Commercial Property profits (nil in 1H22; A$9.3m in FY21); and
- continued solid result from CC&H. Manufacturing is expected to deliver an improved result (vs. 1H22), with growth to resume in FY23.
The completion of the targets flagged in its cleansing notice are expected to be completed in coming weeks, with MGH announcing it had entered into an agreements to acquire a Dubbo based Plumbing and Hardware business (A$9m, inc. freehold property) and two CQ leasehold quarry operations (A$4.0m) and is also close to entering an agreement to acquire a larger CQ quarry business (A$30.0m transaction).
Upon completion, these acquisitions are still expected to deliver annualised EBITDA of A$11-14.0m (plus A$2m of synergies) and a potential 2H22 contribution (incremental to FY22 guidance) of ~A$5m was indicated.
We will continue to wait for these acquisitions to be formalised before incorporating them into our forecast. MGH is continuing to assess additional M&A opportunities to complement its core CM, CC&H and Real Estate segments.
Investment view: maintain Add rating
Our FY22 EBITDA forecast rises 1% to A$121.0m, while slightly stronger margin assumptions across Residential Real Estate has seen our FY23/24 forecasts increase 3.0%/3.0%. In FY22, our NPAT forecast has fallen 3.6% due to higher D&A, while are unchanged in FY23/24.
We remain attracted to MGH’s strong medium-term growth outlook, organic upside surprise potential in FY23/24 and strong liquidity position.
Considering these factors, we continue to see its valuation (FY22/23 PE of 20.6x/16.9x) as undemanding and maintain an Add rating.
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