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Date : 21/02/2022

Maca Limited

ASX :

MLD

Market Cap : $254.57 Million

Dividend Per Share : $0.05

Dividend Yield : 6.62 %

Buy

52 Week Range : $0.645 - $1.355

Share Price : $0.755

Maca has delivered a bumper result. We recommend a 'Buy' as tailwinds carry the firm and sector.

Company Analysis

Maca (ASX: MLD) is one of Australia’s leading diversified contracting groups, with operations across Australia and globally. They are essentially a partner to the mining and resources sector, specialising in Mining, Crushing, Civil Construction, Infrastructure, and Mineral Processing activities. Maca is thus incredibly diverse, and they offer a range of services to these industries.

As we are amidst a mining boom that currently has no end in sight given the supply and demand imbalances that exist in most industries, Maca has been a benefactor of the increased mining activity.

Today, Maca delivered a fantastic result for the half-year FY22. The highlights of which are:

  • Revenue of $841 million – up 80% over pcp.
  • Organic growth of 24%.
  • EBITDA of $101 million – up 73% on pcp.
  • Operating cash flow conversion was 77%.
  • Half-year EPS of $0.061, compared to $0.062 for full-year FY21.
  • Interim dividend of $0.025 per share.

This result has been delivered against the backdrop of tight labour markets, with the COVID-19 border closures continuing into the second half of the financial year.

Maca reported increased revenue and earnings in the first half of the financial year, primarily due to the Mining West acquisition, which was completed on 1 February 2021. The first half has also featured a very strong pipeline of opportunities coupled with a difficult labour market. The labour market has remained tight for skilled workers, resulting in margins remaining flat on the June half.

Maca expects to see this ease somewhat upon relaxing WA’s border entry requirements. Margin compression has been offset by increased revenues and profit contribution from additional low CAPEX areas of the business to deliver a 42% growth in earnings per share for the half.

Mining Segment

Maca undertook contract mining operations in the gold, iron ore, and battery metals sector during the period. The contracts included some of the biggest companies on the ASX, such as Fortescue Metals and also included other stellar names such as Regis Resources, Ramelium Resources, FQM Nickel Australia, etc.

Maca ramped up mining operations internationally at the Okvau mine for Emerald Resources in Cambodia. Maca continues to wind down its presence in Brazil following the cessation of operations in January 2020, with associated administration costs recognised in discontinued operations.

Crushing

The crushing division continued crushing and screening works for BHP at Mining Area C and Eastern Ridge and crushing of stemming materials for BHP’s Western Australian Iron Ore operations in the Pilbara. This was extended for a further 12 months in the half.

Maca continued crushing operations at the Iron Ridge project for Fenix Resources during the period, Fortescue Metals Group at their Iron Bridge and Eliwana operations for stemming material, and other minor projects for gold producers.

Civil & Infrastructure

The Civil & Infrastructure business remains an important element to Maca’s growth and diversification strategy.

This division will continue to benefit from the increased scale of the Maca business. During 1H-FY22, the WA Civil division performed works packages for Sino Iron, Roy Hill, Modium and First Quantum. Maca continues to deliver South West Gateway Alliance Bunbury Outer Ring Road (of which Maca is a 10% participant).

Interquip

The segment focuses on delivering the Engineering, Procurement and Construction contract for Red 5 Limited at the King of the Hills gold project in Western Australia, with expected completion in 2H-FY22.

Maca Interquip also won projects for Norton Gold Fields and Wiluna Mining Corporation in the half, along with several minor works packages and equipment sales to various clients.

Operating Performance is Strong

Operating cash flow for the period ending 31 December 2021 was $77.4 million (up from $24.1m in the six months to December 2020). Maca’s operating cash flows in H1-FY22 reflect a steadier state of operations in the mining division, following the acquisition of the Mining West business in FY21 and the commencement of four mining projects in the same period.

Net debt increased to $208m at the end of the period. However, debt is expected to decrease over the second half due to reduced CAPEX requirements. CAPEX for the first half of FY22 was $63.9 million relating to plant and equipment primarily to support the ramp-up of operations on several existing projects. Maca’s cash balance as of December 2021 was $116m with net debt of $208m.

Outlook

The record pipeline of opportunities for the Mining division allows Maca to take a disciplined approach to project selection based on labour availability, capital requirements and profitability, focusing on existing clients. The labour market in the WA resources sector is expected to ease with the pandemic’s current wave, and borders are open.

The Mining Division has entered 2022 with strong work in hand position of $2.5bn and a high proportion of revenue already secured for the balance of FY22 and into FY23.

The Civil and Infrastructure businesses in Western Australia continues to benefit from increased activity in the resource sector, alongside the State Government’s infrastructure programmes.

We expect opportunities to continue to present themselves over the remainder of FY22. Whilst Victoria has been challenged due to the impacts and restrictions of COVID19, the division enters 2022 with positive Alliance style civil contracts, and we are pursuing several long-tenured material opportunities for the division.

Maca Interquip has entered 2022 with a strong focus on the successful delivery of the Red 5 King of the Hill project alongside the delivery of several smaller projects. After completing King of the Hill, Maca will be looking to leverage its ability to deliver a major EPC contract in the current operating environment to secure additional work.

Maca has entered the second half of FY22 with strong work in hand position of $2.8 billion as of December 2021. This, together with strong prospects across all of its business units, has Maca poised to grow revenue and modest improvement in margin is expected.

At this stage, the Company expects revenue for FY22 of approximately $1.6bn, which as of February 2022 is largely secured. Of course, this guidance does come with a caveat that the pandemic’s effects do not escalate and disrupt operations.

Our detailed earlier report can be accessed by clicking here.

Recommendation

Maca has had a bumper result for 1H22, and with the outlook that the industry has, Maca’s operations are highly sought after, especially here in Australia. All of Maca’s business segments are performing well and have a positive outlook for the remainder of the year.

Maca has also delivered another strong dividend of $0.025 – taking its current dividend yield to over 6% at current prices. We continue to recommend investors to “Buy” Maca when there are significant tailwinds for the industry and the business.

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