Maas Group (ASX:MGH): Why investors should keep a keen eye on it in FY25!

It is a tough time to be a construction company, but Maas Group (ASX:MGH) hasn’t fared that bad all things considered. This company, which is roughly double its IPO price, recorded another good FY24 result, and investors took note of it. But the company is still very reasonably priced.

Meet Maas Group

Maas Group is an industrial company that offers property development services, construction materials and equipment. Being vertically integrated in this way enables the company to capture additional margin opportunities, cost synergies and provides the ability to mitigate risks across all points of the business cycle.

Maas’ clients include regional councils, state governments and several key construction companies, including Lendlease and Fulton Hogan. Projects to which Maas has contributed include the WestConnex, the Brisbane Cross River Rail and the Melbourne Metro Tunnel – in each instance providing equipment. But it also undertakes work in regional areas, especially in NSW.   

It is based at Dubbo and is named after its founder Wes who retains a stake of over 50% in the business. Maas Group listed just before Christmas 2020 in a deal that capitalised the company at $529.9m. It is now capitalised at more than $1.5bn. 

Maas (ASX:MGH) share price chart, log scale (Source: TradingView)

A good performance since listing

Since its listing Maas has had minimal disruption to its operations due to COVID-19 and has benefited from several factors, including government stimulus, the resources boom and strong demand for regional property. Many companies benefited from just one of these factors, but Maas has gained from several factors all at once because of its broader exposure.

Furthermore, it has not been as badly impacted by supply chain issues as some of its peers, again a testament to its broader exposure, but also to its strategic acquisitions. For instance, the Dubbo-based Astley’s Plumbing and Hardware business which the company singled out as one that would provide supply chain security in relation to building materials.  

In FY21, Maas achieved $283.4m in revenue, a $39.7m NPAT and $75.9m EBITDA on a pro forma basis, all up by an average of 22%. In FY22, it made $539.1m (up 90%) and made a $61.6m NPAT (up 77%). In FY23, it made $801m in revenue (up 49%) and a $68.9m profit (up 13%). Finally in FY24, the company made $881.9m in revenue (up 11%) and an $84.3m profit (up 22%). It paid a dividend of 6.5c per share, reflecting its policy of a 20-40% NPAT payout.

Sounds good doesn’t it? Granted, the revenue growth was slower in FY24 than the preceding years, but we’d still take that in light of the industry’s struggles. Of course, different divisions have had different fortune. Earnings in construction materials and commercial real estate were solid, but residential real estate has been struggling due to reduced land settlements.

For FY24, the company has told shareholders trading was forecast to be ‘broadly consistent’ with its 2H23 run rate. Consensus estimates expect $988.3m in revenue (up 22%) and a $85.6m profit (up 30%. Looking ahead to FY25, consensus estimates expect $1.1bn in revenue (up 12%) and a $107.7m profit (up 26%). And you can obtain this growth for just 11.9x P/E for FY24 – meaning a PEG multiple of just 0.5x.

At its recent AGM, the company told investors to expect $215-245m EBITDA, up from $206m in FY24. Earnings are expected to be skewed to the second half of the year due to certain project deals. This is subject to a normalised weather outlook, stable competitive intensity and improved momentum in the renewables sector. It is expecting $100m in cash proceeds from capital recycling.

Consensus estimates call for the company to surpass $1bn in revenue for the first time in FY25, at $1.06bn, and a $95.7m profit. This generates a P/E of 15.7x and a PEG of 0.93x. We value Mass a $7.16 per share, using a DCF model and 8.9% WACC with consensus estimates.

Our view of Maas Group

We acknowledge construction sentiment is quite low at the moment and this is a big risk with the stock as interest rates have risen so much and remain elevated. But we take heart in the fact that while construction companies are dropping like flies, Maas Group is thriving.

Other risks include safety issues and ESG impacts. But we take heart in the fact that it is developing a number of sustainability initiatives such as sustainable asphalt production, recycling concrete production and a new trial to use hybrid hydrogen as fuel replacement.

The bottom line is, this is an impressive company that is thriving at a time many of its peers are not. So keep your eye on it.

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