Macquarie initiates coverage of Maas Group with Buy: Consensus rerating likely at FY22

Macquarie has initiated coverage on Maas Group Holdings (ASX: MGH) with a Buy rating and target price of $5.20 – 20% above today’s close ($4.14) - and points to upside risk for consensus forecasts, plus M&A optionality.

To the uninitiated, Maas is a large-cap (S&P/ASX 300) rural construction equipment and services provider operating across four business segments: Civil construction & hire (47% of forecast FY22 revenue), construction materials (21%), real estate (28%) and manufacturing 5%.

One of the many things Macquarie likes about Maas is diversification, which the broker believes underpins the group’s high tender win rate across all segments.

Macquarie also likes the fact civil construction & hire - the largest segment - has around 75% of targeted FY23 growth locked-in.

Two acquisitions

The broker also expects two pending acquisitions to be earnings accretive.

Late March Maas announced the acquisition of Blackwater Quarries - operator of four quarries and one concrete plant in Central Qld – for an initial cash payment of $25.75m and the issue of 193,798 shares in Maas.

CEO Wes Maas believes the Blackwater acquisition coincides with a time of growing infrastructure and project development expenditure in the region.

Two months later, Maas announced plans to acquire DPG Civil Pty Ltd and subsidiaries (Garde) - specialist provider of complex installation and maintenance services for underground high-voltage cables and assets in Sydney and NSW - for an initial cash payment of $29.7m and the issue of 731,974 shares in Maas.

Without going into detail, Wes Maas expects the GARDE acquisition – which is highly complementary to the group’s existing businesses - to be earnings per share accretive.

At the half year

Citing strong growth across all of its material business segments, Maas announced a proforma earnings of $40.1m for the half year, compared to $30.4m for the previous period.

The group also paid a 2c/share, fully franked dividend.

While management reconfirmed its previously announced guidance from 9 November 2021 for Proforma earnings of $115m - $125m for FY22, and $25m proforma earning, this guidance excludes recent acquisitions.

Management also noted that company’s second half would represent more than 65% of the group’s annual proforma earnings result.

The future

Within an investor presentation late May, management highlighted an increase in approved on credit core banking facilities to $500m.

Management also announced approved banking facilities of around $300m, with the ability to source an additional $181m of commercial property funding for approved projects.

Other notable highlights included:

• Development of central QLD hub for Construction Materials, Civil Construction and Hire and Residential segments

• Continued expansion of Self-storage business with additional locations acquired

• FY23 Residential settlements continue to grow

• Strong strategic acquisition pipeline actively managed to provide accretive multi year earnings

Maas Group share price over 12 months.