Monadelphous Group Ltd (MND) – NEUTRAL
|Date of Report||ASX||Price||Price Target||Analyst Recommendation|
|Date of Report|
|Sector : Industrials||52-Week Range: A$13.46 – 19.81|
|Industry: Engineering Services||Market Cap: A$1.337.3m|
We rate MND as a Neutral for the following reasons:
- Decent pipeline of contracts secured with major clients in resources and energy sectors.
- Strong commodities price increases in the last 6 months expected to continue in oil and gas and moderate in iron ore.
- Diversifying services (via new categories such as renewables and infrastructure), and by geography (international) to support margins.
- Net cash position and solid balance sheet. Strong balance sheet will support investment in new business opportunities especially in infrastructure.
- Strong cash generation.
We see the following key risks to our investment thesis:
- Further deterioration in global macro-economic conditions.
- Project cancellations.
- Deterioration in commodity prices especially oil and gas and iron ore.
- Integration issues with acquisitions resulting in added costs offsetting any synergies.
Figure 1: MND revenue by segment
Figure 2: Engineering Construction revenue by customers split
Figure 3: Maintenance & Industrial revenue by customers split
Monadelphous Group Ltd (MND) posted lackluster results which missed the majority of analysts’ estimates on all fronts, even though the company saw a +41.1% increase (over the previous corresponding period, pcp) in revenue to $1.78bn, predominantly driven by growth from infrastructure markets and strengthening demand for maintenance services across both the resources and energy sectors.
Over the year, MND made solid progress in their infrastructure business (increasing activity levels in the renewable energy and water and irrigation markets) and overseas markets (such as via acquisition of and securing contracts with Newcastle-based maintenance and irrigation service businesses, and award of packages of work on the Oyu Tolgoi Underground Project in Mongolia). MND secured new contracts and additional work valued at ~$600m since the beginning of the financial year.
Management expects maintenance activity to remain positive, bolstered by a
1. production ramp up on newly commissioned LNG projects;
2. increasing required levels of maintenance and support on aging resources;
3. increases in capital projects announced or under feasibility studies; and
4. stabilizing commodity prices. MND trades largely in-line with our valuation and multiples of 17.5x PE20, 3.9% yield – Neutral.
- FY18 Key results – highlights: Over the pcp:
1. Group revenue up +41% to $1.78bn.
2. EBITDA up +21.2% to $119.0m.
3. EBITDA margin down -1.09pp to 6.67%.
4. NPAT up +25% to $71.5m.
5. EPS up +24% to 76.1cps.
6. Full year dividend at 62cps (up +14.8%), fully franked (div payout ratio 82%).
7. Strong balance sheet with cash balance $208.8m, cash flow from operations of $51.6m and cash flow conversion ratio of 69.4% (down 61.4pp).
- Divisional highlights: Over the pcp:
1. Engineering Construction (53% of EBITDA) reported sales revenue up +54.4% $949.9m, driven primarily by an increase in oil and gas construction activity and growth in water and renewables. MND’s heavy lift services business also expanded fleet and opened a new facility.
2. Maintenance and Industrial Services (47% of EBITDA) reported record sales revenue of $841.1m (up +28.9%) due to increased levels of demand for services in both resources and energy. The division also benefited from broadened services and geographic diversification.
- Outlook signals recovery and growth. While management did not provide quantitative guidance, they reiterated the improvement in the long-term outlook for resources and energy, especially potential improvement in its project pipeline visibility with several major iron ore projects having entered early stages of development. However, the company is forecasting lower construction revenues in 2018/19 due to the significant revenue contribution earning from the Ichthys project in the pcp. Nonetheless, the company is currently experiencing “high levels of tendering activity, with planned major resources construction projects expected to generate significant revenue opportunities in 2019/20 and beyond”. MND continues to focus on productivity improvements as “competition levels in the industry remain high and customers remain focussed on cost competitive solutions”.
MND FY18 RESULTS
Figure 4: MND Results Summary
Figure 5: MND Financial Summary
Source: BTIG, Company, Bloomberg
Monadelphous Group Ltd (MND) comprises of two divisions
1. Engineering and Construction; and
2. Maintenance and Industrial Services. MND is predominately engaged in mining and process industry maintenance, mining equipment refurbishment, process plant maintenance, project management and construction, labor and plant equipment hire predominately to the resources, energy and infrastructure sectors.
Recommendation Rating Guide
|Recommendation Rating Guide||Total Return Expectations on a 12-mth view|
|Speculative Buy||Greater than +30%|
|Buy||Greater than +10%|
|Neutral||Greater than 0%|
|Sell||Less than -10%|
Reach Markets Disclaimer
Reach Markets Pty Ltd (ABN 36 145 312 232) is a Corporate Authorised Representative of Reach Financial Group Pty Ltd (ABN 17 090 611 680) who holds Australian Financial Services Licence (AFSL) 333297. Please refer to our Financial Services Guide or you can request for a copy to be sent to you, by emailing [email protected].
Read our full disclaimer here >
This publication contains general securities advice. In preparing the advice, Reach Markets Australia has not taken into account the investment objectives, financial situation and particular needs of any particular person. Before making an investment decision on the basis of this advice, you need to consider, with or without the assistance of a securities adviser, whether the advice in this publication is appropriate in light of your particular investment needs, objectives and financial situation. Reach Markets Australia and its associates within the meaning of the Corporations Act may hold securities in the companies referred to in this publication. Reach Markets Australia does, and seeks to do, business with companies that are the subject of its research reports. Reach Markets Australia believes that the advice and information herein is accurate and reliable, but no warranties of accuracy, reliability or completeness are given (except insofar as liability under any statute cannot be excluded). No responsibility for any errors or omissions or any negligence is accepted by Reach Markets Australia or any of its directors, employees or agents. This publication must not be distributed to retail investors outside of Australia.
It is recommended that you seek independent advice and read the relevant Product Disclosure Statement before making a decision in relation to any investment. Any advice contained in this communication is general and has not taken into account the investment objectives, financial situation and particular needs of any particular person.
Banyan Tree Disclaimer
This document is provided by Banyan Tree Investment Group (ACN 611 390 615; AFSL 486279) (“Banyan Tree”).
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy, or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and Banyan Tree is not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Banyan Tree does, and seeks to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Banyan Tree, its associates, officers, directors, employees and agents. Except for any liability which cannot be excluded, Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Banyan Tree is not liable to recipients in any matters whatsoever otherwise recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Banyan Tree does not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Banyan Tree.
This document has been commissioned by Reach Markets Australia Pty Ltd and provided by Banyan Tree Investment Group (ACN 611 390 615; AFSL 486279) (“Banyan Tree”).