Maas Group acquires construction materials business for $85m
Wet weather continues to pose earnings risk for Maas Group
Source: Unsplash
Mentioned
KEY POINTS
- Maas Group buys Melbourne-based construction materials business Dandy Premix for $85m
- Dandy is expected to be EPS accretive and contribute strongly to earnings in FY24
- Maas has increased in its debt facilities to $600m from $500m
Six weeks after Maas Group (ASX: MGH) cited wet weather and slower residential real estate sales for cutting its full year earnings to $150-180m, from $180-200m, the construction material, equipment and service provider has confirmed the acquisition of Melbourne-based construction materials business Dandy Premix for $85m.
Dandy operates five concrete plants, a sand quarry and a hard rock quarry in south east Melbourne, which collectively produce more than 300,000m of concrete per annum.
EPS accretive in FY24
Due to the expected timing of completion (late December) the acquisition it is not expected to provide a material contribution to the midcap stock’s earnings (EBITDA) in FY23 but is expected to be earnings per share (EPS) accretive and contribute strongly to earnings in FY24 and beyond.
Maas’s CEO Wes Maas notes the acquisition represents a significant step in the expansion of the construction materials business, establishing a new hub for the company in Victoria.
“The Dandy acquisition gives us a strategic, integrated position in the Melbourne market at a time when it is experiencing record levels of infrastructure investment and a favourable outlook for construction materials,” Maas noted.
Capital management
Management advised investors that it still has additional acquisitions in the pipeline and is currently progressing several capital management initiatives including capitalising capital recycling opportunities.
Subject to the same covenants, the group has received approval from its credit provider to increase in its Australian debt facilities to $600m from $500m.
Current utilisation of the corporate debt facility is $381m with additional current cash reserves of $30m.
Maas also retains the consent of its Australian banking group to source separate commercial property funding of up to $200m for commercial property projects.
What happened at full year FY22?
Driven by strong growth in Construction Materials (77.6%), Civil Construction and Hire (26.7%) and Real Estate (138.8%) Maas delivered FY22 earnings of $125.1m, up 64.8% on the previous period.
Earnings growth represented approximately 40% organic and 60% through acquisitions.
Net profit was up 78.0% to $61.6m.
The group paid a full year dividend per share of 5.5 cents, up 10% increase on the previous year.
During the year, the group announced a capital raising of $105m.
What brokers think
The group’s share price is down -42% over 12 months and has been on a downtrend since early September.
Consensus is Strong Buy.
Based on Morningstar’s fair value of $4.05 the stock appears to be undervalued.
Based on the two brokers that cover Maas (as reported on by FN Arena) the stock is currently trading with 48% upside to the target price of $3.70.
While guidance has decreased -13% at the midpoint, Macquarie notes the wider range reflects uncertainty as wet weather continues to pose a risk to earnings.
The broker retains an Outperform rating and the target price decreases to $3.40 from $3.55. (17/11/22).
Following the group’s FY23 guidance downgrade, Morgans lowers its target price to $4.00 from $4.20 and retains an Add rating.
Maas Group share price over 12 months.
