Australia | Jun 15 2022
This story features MAAS GROUP HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: MGH
Despite recent rain events and covid impacts, brokers remain confident on the outlook for Maas Group after recent confirmation of FY22 guidance.
-Maas Group recently confirmed FY22 guidance
-Diversification leads to a high rate of winning tenders
-Real estate will be a key growth driver
-Post-covid migration to regional areas benefits the group
By Mark Woodruff
Maas Group ((MGH)) operates a vertically integrated business model, with the aim of capturing cost synergies while lessening risks when delivering infrastructure and real estate assets.
Macquarie believes the success of this strategy is shown by the company’s sector leading earnings (EBIT) margin of 21% (FY21 pro forma). It's estimated peers in the ASX-listed Construction Materials sector and the Civil Construction sector have an average margin of 8% and 4%, respectively.
The company operates across four business segments: Civil Construction & Hire (47% of forecast FY22 revenue), Construction Materials 21%, Real Estate 28% and Manufacturing 5%.
This diversified offering underpins a high tender-win rate across all segments, explains the broker. Importantly, the largest segment (Civil Construction & Hire) has around 75% of targeted FY23 growth locked-in, and two pending acquisitions are expected to be earnings accretive.
Demand for the group’s services within its four business segments is primarily driven by infrastructure activity, building activity and mining production, explains Macquarie, which recently initiated coverage of the company. Strong growth over time is attributed to a combination of organic business growth, investment, and acquisitions of complementary businesses, quarries, and residential and commercial development assets.
Having listing on the ASX in early December last year at a float price of $2.00/share, the company’s shares are currently trading at $4.03. Two FNArena database brokers (Macquarie and Morgans) cover the stock and each have Buy (or equivalent) ratings for a consensus target price of $5.40, which suggests 34% upside to the last share price.
Not long after listing, Morgans forecast an EPS compound annual growth rate (CAGR) of 22% for the founder-led business, driven by material growth in quarry sales volumes and increased residential sales. The broker is attracted to positive industry tailwinds and further upside potential from accretive M&A.
Moelis, not one of the seven brokers updated daily in the FNArena database, expects the Real Estate segment to be the key growth driver in coming years.
The broker retained its Buy rating and $5.80 target after the group reiterated full year earnings guidance (late last month), despite recent weather impacts. This is considered a solid outcome, given peer Boral ((BLD)) recently downgraded FY22 earnings guidance by -30% due to rainfall and energy costs.
The group’s regional edge over competitors
As part of an overall national infrastructure pipeline in excess of $200bn, regional infrastructure spend is forecast to grow to more than $15bn in 2023 from around $7bn in 2020, according to Infrastructure Australia.
Macquarie believes Maas Group has built a network of strategic assets uniquely located to leverage this regional spending. Over time the group has built scalable hubs in new regions via the acquisition of strategic quarry and real estate assets, which supports growth for plant hire and civil construction.
The group has land holdings in Tamworth, Rockhampton, Bathurst and Orange, which all have populations similar Dubbo (where the company commenced operations) and could enter larger regional cities around Australia utilising the same strategy, explains the broker.
Moreover, the expected infrastructure pipeline in Australia will be concentrated on the east coast where the group is primarily exposed. New South Wales, Queensland, and Victoria are forecast to make up 87% of the group’s activity over the next five years.
The post-covid migration away from cities to regional hubs has supported the group’s significant land bank, points out Morgans. In addition, a relative absence of Tier 1 contractors in regional locations is expected to leave the group well placed to win contracts and grow market share.
After attending Maas Group’s investor update in Dubbo last month, a key takeaway for Moelis was management’s forecast for continued strong growth in the residential Real Estate business, underpinned by a pipeline of more than 8,000 residential lots.
In addition, the group has a large pipeline of Commercial and Industrial assets that will provide a combination of development profits, ongoing income (assuming some retention of interests) and pull-through demand for its other divisions (along with demand from residential house construction).
As a result, the analyst forecasts the Real Estate segment will comprise around 39% of group earnings (EBITDA) in FY24 and become the main earnings contributor.
Nonetheless, Morgans reminds investors real estate is a cyclical business and growth of the wider Maas Group business is partially contingent on the growth of the Real Estate division via cross-selling. A material slowing in lot volumes or a decline in prices would be expected to impact group profitability.
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