Small Caps | Aug 24 2022
This story features MAAS GROUP HOLDINGS LIMITED. For more info SHARE ANALYSIS: MGH
After delivering a record year, growth remains in Maas Group's line of sight, with the market anticipating both organic growth and acquisitions in the year ahead.
-Maas Group delivered 65% year-on-year earnings growth in its full year result
-Civil Construction earnings grew 27%, Construction Materials 78%, and Real Estate 139%
-Company guides to another strong year of growth across all divisions, targeting up to 60% growth
By Danielle Austin
Having delivered a record earnings result in the year past, Maas Group ((MGH)) has guided to strong growth across all divisions in the coming twelve months, targeting group earnings of $180-200m, reflecting 44-60% year-on-year growth.
The construction materials, equipment and services provider has an integrated business model, with exposure across property, civil, infrastructure and mining sectors. On top of a strong focus in regional New South Wales, the company is also expanding its interests in regional Queensland.
The company’s Civil Construction division delivered 27% year-on-year earnings growth to $50m, the Construction Materials division delivered 78% earnings growth to $29m, and the Real Estate division delivered 139% earnings growth to $54m, while earnings from the Manufacturing division of $2m marked a decline on the previous year.
Civil Construction growth was driven by a combination of organic growth and acquisitions as synergies began to be realised. The outlook for the division looks positive with a number of infra and renewable energy projects in the pipeline over the next three to five years.
The Construction Materials division also reported a healthy pipeline of acquisitions targeting infra projects that analysts anticipate will drive vertical integration, with the company already flagging two upcoming acquisitions for the division. Notably, the performance from Construction Materials in the last year came despite record rain events and covid headwinds.
The company has also recently announced a $105m placement to fund acquisitions. In addition to the Construction Materials’ targets mentioned, which have a combined consideration of $110m and completion of which Maas Group is aiming for in the first half of FY23, the placement will fund the acquisition of an Isaac Region quarry.
Company founders and management collectively contributed $70m to the raising, which analysts note demonstrates confidence in the company’s value.
Preparing for future growth with increased headcount and investment
Of FNArena’s database brokers, both Macquarie and Morgans have updated on Maas Group following the release of the company’s full year results, as has Moelis. These three brokers are all equivalent Buy-rated, and have an average target price of $5.71, ranging from $5.60 at the lower end to $5.90.
Macquarie (Outperform, with a target price of $5.90) finds Maas Group continues to confidently execute on its growth strategy, and expects organic growth will be accelerated by strategic acquisitions moving to enhance the company’s vertically integrated operations.
The broker found the company’s FY22 earnings of $125.1m to be in line with its own expectations, and noted a final dividend of 3.5c per share brought the full year payout for investors to 5.5c per share, up 10% on the previous year.
The broker also noted Maas Group grew its labour force by an additional 600 employees in the year, to a total 1,500, likely to support further growth. The Macquarie analysts note a material softening in regional real estate demand would present downside risk to the outlook. Earnings forecasts have been largely left unchanged.
Morgans (Add, with a target price of $5.60) noted Maas Group delivered a strong result in FY22, with earnings beating the broker’s expectations. This broker is forecasting the company can achieve earnings of $201m in the coming year, which includes a seven-month contribution from announced acquisitions.
The Morgans analysts note uncertainty as to the impact of cost inflation on profitability and the housing market remains, and expect clarity would benefit stocks in the building materials sector.
Morgans lifts earnings estimates 4.5% and 11.9% in FY23 and FY24 respectively based on company guidance, after downgrading earnings per share -9.7% in FY23, accounting for the impact of higher interest rates.
Morgans highlighted while solid effort in growing the business has been reflected in earnings growth, it expects investors will focus more on earnings per share growth moving forward. The broker also noted growth of the wider Maas Group is partly dependent on growth in the more cyclical Real Estate division, and a material decline in volumes or prices would impact on profitability.
Not one of the brokers monitored daily by FNArena, Moelis (Buy, with a target price of $5.62) points out the company delivered a full year result in line with expectations despite weather and covid related impacts.
This broker noted the lower cash conversion rate of just 25%, compared to cash conversion of over 80% in the preceding two years, though ongoing investment to support growth is primarily responsible.
Moelis anticipates post placement and acquisitions, the company retains balance sheet flexibility. This broker forecasts Maas Group will achieve earnings of $190.1m in the coming year, noting its forecast does not account for contributions from any near-term acquisitions, which could offer additional upside.
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