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This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Revenue and EBITDA up 24% per year over the last five years
  • Recurring revenues and moderate debt support a solid investment program
  • Higher margins forecast for second half as start-up projects move to steady state
  • Technology and diversification into commodities and mining drives earnings growth.

Overview

Macmahon continues to build on its proven track record of revenue and earnings growth, while maintaining its track record of meeting or exceeding market forecasts. This includes meeting its guidance for the year 22 to date.

Revenue and underlying EBITDA grew 24% annually over the past 5 years to June 2021, despite a period in FY21 where growth was halted due to the COVID impact.

In the current fiscal year, Macmahon has achieved significant new contract activity across the business. Mining services activity at Gwalia, Foxleigh, Dawson South and Fiston has increased, while new project activity is planned for Warrawoona and King of Hills Underground in the coming months. The majority of Macmahon’s assets are deployed on contracts of 3 years or more. These recurring revenues allow Macmahon to face growth investments while maintaining a solid balance sheet. As of December 2021, Macmahon had cash of $61 million and net debt of $242 million, for a leverage ratio of 31%.

Macmahon plans to invest a total of $300 million in capital expenditures in FY21 and 22 to support earnings growth beyond FY22. 22 amounted to $152 million. $80 million of this total is for growth investments for new projects.

First semester 2022

H1 result to December 2021 impacted by COVID leading to higher input costs, which reduced underlying EBIT(A) margin to 5.8%, for result of 47 million of dollars. Statutory profit was $3.3 million, down from $43.1 million in the prior corresponding period. The statutory profit result included the cost of the GBF earnout, software as a service costs and amortization of customer contract assets that were recognized on historical acquisitions. Normalizing for these costs, underlying net profit after tax (NPAT) was $31.7 million, compared to $30.4 million for the prior corresponding period.

Underlying operating cash flow translation was impacted by higher working capital requirements for the start-up of new projects and higher inventory levels, in response to COVID-related supply chain disruption . The underlying EBITDA conversion ratio was 70%, which generated cash flow generation of $96.6 million. This compares to a cash flow of $96.7 million for an underlying EBITDA conversion ratio of 78.8%, in the prior corresponding reporting period.

Macmahon maintains a conservative dividend payout ratio policy of 20% of the underlying NPAT.

The interim dividend was 30 cents per share and duty free. This dividend will be paid to shareholders on April 6.

The outlook for FY22 includes several new projects progressing to steady-state operations from the start-up phase, supporting higher margins in the second half. Underlying EBIT(A) forecasts for the full year are estimated between 95 and 105 million dollars. The revenue forecast has been raised to between $1.6 billion and $1.7 billion, up from the previous forecast of $1.4 billion to $1.5 billion.

Five-year strategy

Macmahon’s business strategy over the next five years can be summarized as a strategy involving diversification, technology and people.

Currently, Macmahon has a 75% concentration in the precious metals of gold and copper/gold. Over the next five years, other commodities including lithium, nickel, mineral sands and uranium will be targeted, along with iron ore and metallurgical coal.

The revenue mix in FY18 was 78% surface mining and 21% underground mining, and only 1% of revenue was attributable to mining support services. The current year revenue pipeline is 41% surface mining, 38% underground mining and 21% mining support services.

Partnering with technology specialists to improve efficiency and productivity is key to Macmahon’s five-year growth strategy. This includes in-cab monitoring using AI, automated data for intelligent and informed decision-making as well as systems for remote operations and control centers in surface and underground mining operations.

Macmahon is also embarking on a training and development program to develop apprentices by rotating them through national and international opportunities.

Revenue growth is expected to continue, driven by exposure to a broader range of commodities and diversified contract mining services, which include more underground mining activities and increased exposure to mining support services. Productivity-enhancing technology and a highly-skilled workforce at a time when labor is scarce, enable higher margins on ever-increasing revenues. These factors point to steady revenue and earnings growth over the medium term.

This Post Market Wrap is presented by Kodari Securities, authored by Michael Kodari, CEO of KOSEC.

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