Company Overview: MACA Limited (ASX: MLD) is Australia’s leading diversified contracting group which mainly provides services to the mining and construction industries. The company’s operating businesses include – Mining Australia, Crushing, Mining International, Civil Construction, and Maca Interquip. The company specializes in contract mining and crushing, civil construction and infrastructure maintenance, and mineral processing solutions. The company was listed on ASX on 3 November 2010.

MLD Details

Increasing Size of Mining Division and Growing Work in Hand to Support Future growth:

• Expanded Mining Division through Acquisition: In February 2021, MLD completed the acquisition of the Mining West business, which significantly increased the size of its Mining division. Further, the acquisition has provided additional geographical spread, increased scale, capability, and commodity diversification to the company.
• Growing Work in Hand Position: Over the last two years, the company has witnessed significant growth in its work in hand position, rising from $1.3 billion at August 2019 to $3.1 billion at August 2021, supported by various contract wins and Mining West acquisition.
• Organic Growth Opportunities: Across its Mining, Civil & Infrastructure, and MACA Interquip divisions, MLD has a pipeline of organic growth opportunities of $11 billion. From its existing clients, it expects several material opportunities to commence in FY22.

FY21 Results Highlights: For FY21, MLD reported improved underlying results and achieved record levels of revenue and work in hand.

• Rise in Revenue: The total revenue for FY21 stood at $1.174 billion, up 45% on the previous year, supported by the contribution from the Mining West business.
• Increase in Underlying EBITDA: Underlying EBITDA for FY21 stood at $162.1 million, up by 40% on FY20, mainly driven by the rise in revenue.
• Declared Final Dividend: For H2FY21, MLD has declared a final dividend of 2.5 cents per share, taking the full-year dividend to 5.0 cents per share. The dividend has a record date of 3 September 2021 and a payment date of 17 September 2021.
• Cash and Debt Scenario: As at 30 June 2021, MLD had net debt of ~$180.2 million, comprising cash and cash equivalents of $122.3 million and borrowings of $302.6 million.

Revenue Growth (Source: Analysis By Kalkine Group)

Key Metrics: For FY21, the company reported EBITDA margin of 12%, down from 14.9% in FY20. Net profit margin for FY21 stood at 1.6%, up from a negative 2.2% in FY20. EBIT margin for FY21 stood at 3.4%, up from negative 2.0% in FY20. Current ratio for FY21 stood at $1.1x, down from 1.53x in FY20, mainly due to the rise in current liabilities.

Improved Net Profit Margin in FY21 (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 31.35% of the total shareholding, while the top four constitute the maximum holding. Dimensional Fund Advisors, L.P. and Schroder Investment Management (Australia) Ltd. are holding a maximum stake in the company at 6.02% and 5.77%, respectively, as also highlighted in the chart below:              

(Source: Analysis by Kalkine Group)

Key Risks:

• Delay or Cancellation of Contracts: The company is exposed to the risks related to the failure of obtaining contracts, delays in awards of contracts, cancellations or terminations of contracts, and delays in completion.
• Fluctuations in Commodity Prices: The company is also exposed to the risk related to the changes in economic conditions and the volatile and cyclical nature of commodity prices.
• Availability of Labour: The COVID-19 restrictions continue to impact the company’s ability to source candidates domestically and locally.

Outlook: Looking ahead, the company expects robust commodity prices, particularly in gold and iron ore, to generate new opportunities and support further growth. The company’s Civil and Infrastructure businesses are expected to benefit from the increased spending on Government infrastructure programmes. For FY22, the company expects its revenue to be around $1.4 billion, representing a YoY growth of 19% on FY21. The company has already secured $1.2bn of work in hand and is well-positioned to add to its record order book.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

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: Over the last six months, the stock has corrected by ~30.88% and is currently trading lower than the average 52-week price level band of $0.710 - $1.515, offering a decent opportunity for accumulation.  The stock has been valued using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of a low double-digit upside (in % terms). The company can trade at a slight premium to its peers, considering the expected growth in FY22 revenue, decent work in hand position and modest outlook. For the purpose of valuation, peers such as Perenti Global Ltd (ASX: PRN), Macmahon Holdings Ltd (ASX: MAH), and Emeco Holdings Ltd (ASX: EHL), have been considered.  Considering the expected benefits from the acquisition of Mining West Business, decent work in hand position, modest outlook, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of $0.815, as on 25 August 2021, 11:30 AM (GMT+10), Sydney, Eastern Australia).

MLD Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above. 

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.

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