Basic Materials

Macmahon benefits from strong order book

Wed 08 Dec 21, 2:28pm (AEST)

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Key Points

  • FY22 guidance beats some broker expectations.
  • The company appears to have avoided labour shortages.
  • The company is now targeting an earnings margin of 20%.

Having been in the news for all the wrong reasons recently, Macmahon Holdings (ASX: MAH) recent presentation at the Macquarie WA forum reiterated a strong base case for the company going forward.

Several weeks ago, the WA-based small-cap ($377m) mining sector contractor rejected outright attempts by its WA-based rival Perenti Global (ASX: PRN) to merge the two companies together.

More recently CEO Mick Finnegan’s attention to running the business was distracted by a recent WA parliamentary inquiry into numerous incidents of workplace harassment. 

With measures now in place help prevent future sexual harassment cases, Macmahon used its November market update to remind investors of the underlying drivers of the company’s future growth. 

FY22 guidance for revenue of $1.4-1.5bn and earnings of between $95m and $105m appears to be better than some brokers were expecting, and the company looks well placed to benefit from a strong order book.

Labour shortages avoided

Equally encouraging, the company appears to have avoided labour shortages which have plagued Australia’s mining industry. 

The company recently noted: “Macmahon has existing strategies for responding to challenges in the availability of labour, and believes it is well placed to continue to manage this operational issue into the foreseeable future, and to continue to deliver value for its clients.”

FY22 capital expenditure guidance is also below expectations, at $270m.

Underpinned by a positive outlook for the sector, the company secured $2bn of new work in FY21 and this is expected to provide a high level of secured revenue in FY22, FY23 and into FY24.

Tender pipeline $8.2bn

Across the three sectors of the business: Surface mining, underground mining and mining support surfaces the company has an order book of $5bn and estimates its tender pipeline at $8.2bn.

New contract awards include a 5 year $660m surface and underground at Red 5’s (RED) KOTH project (to start January 2022), and a 5 year $500m St Barbara’s (SBM) Gwalia mine (already commenced).

Due to an increase in underground work in the portfolio, earnings (EBITDA) margins increased to 18.5% in FY21, and the company is now targeting an earnings margin of 20%.

There is a Strong Buy consensus rating on the stock and based on Morningstar research has a fair value of $0.30, which is a 76% upside to the current price.

The company is expected to deliver a FY22 dividend of 0.70 cents and EPS of 2.70 cents.

Written By

Mark Story


Mark is an award-winning investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics, a diploma in journalism and has completed the Institute of Directors course. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content.

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