Monadelphous Group Limited (MND)
BUY

Upbeat outlook

 24 Aug 2022
Sector: Industrials

FY22 RESULT

Need to know:

  • +10% earnings and dividend beat
  • No formal guidance, management reiterated outlook remains 'strong' in core markets
  • Labour constraints to continue into FY23 although seen as an opportunity to refine earnings profile.

Investment implications

MND FY22 Result: Comfortable earnings and dividend beat. Operating cash flow came in below consensus which was attributed to working capital and timing issues.  Management remains upbeat on FY23 outlook albeit labour supply will remain an issue into the new year.

Result details: Revenue $1,930m vs $1854m market. EBITDA $111m vs $105m market. EPS $0.55cps vs $0.52cps market. DPS $0.49cps vs $0.44cps market. Operating cash flow $65m vs $88m market.

Labour issue: Skilled labour constraints remain a core challenge for FY23 however management is confident they can work through by: 

  • focusing on better employment policies.
  • obtaining better/more accretive contracts.
  • Benefitting from the reintroduction of the non-domestic skilled labour force.

Management suggests this is a strong opportunity to refine the quality of earnings, being more selective on the choice of jobs (given there is an abundance). Interestingly EBITDA margins expanded to 5.8% vs 5.7% in 1H and 5.6% in pcp.

Supply chain: Capacity constraints driven by supply chain issues remain a challenge; a strategic approach will be taken for new work to minimise this risk. This includes introducing partnerships earlier and stretching the time frames.

Outlook: No formal guidance which is typical. Management reiterated the confident outlook for FY23. Revenue will be dependent on the timing of awards and commencement of new projects, skewed to the 2H.

Revenue guidance to be given at November AGM. Market looking for +8% revenue growth.

Summary: Market taking the earnings beat positively. The increase in the EBITDA margin will be taken positively given the improvement suggests new contracts are coming through at a higher margin despite labour cost issues.

MND remains well placed to grow earnings given the buoyant operating environment and ageing assets across key customers.  We reiterate our Buy rating.

This commentary reflects our initial view. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.

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Stock overview

Key properties

Financial Forecasts

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Company overview

Monadelphous Group Limited is an Australia-based engineering company. The Company is engaged in providing construction, maintenance and industrial services to the resources, energy and infrastructure sectors.

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