Small Caps | Mar 02 2012
– Moelis initiates on MACA with A Buy rating
– Earnings growth and valuation are attractions
– Good visibility of earnings provides confidence
By Chris Shaw
MACA ((MLD)) is a contract mining company, offering loading and hauling, drill and blast and crushing and screening services to the iron ore and gold sectors in particular. The company also has a civil division, where work-in-hand is continuing to grow, with $28 million secured as at the end of December 2011.
Stockbroker Moelis has initiated coverage on MACA with a Buy rating and a price target of $2.70, seeing significant scope for earnings growth in coming years and an attractive valuation on the shares at current levels.
Earnings visibility is a key factor in support of Moelis's positive view, as the broker notes the average duration of MACA's $1.4 billion of work-in-hand was 38 months as at the end of the 1H12. Most of MACA's work is for the mid-tier mining sector, which includes the likes of Regis Resources ((RRL)) and Atlas Iron ((AGO)).
While this means MACA misses out on work from some of the sizable expansion plans of the majors, Moelis sees an advantage of less competitive pressures and the ability for MACA to grow as clients expand.
The focus on iron ore and gold is also a positive as Moelis sees a robust medium-term outlook for demand in both markets, which is expected to underpin expansion plans for the mid-tier miners. The other factor seen as a positive for Moelis is capacity constraints among mining services companies due to strong demand from major miners should improve the competitiveness of MACA within its target markets.
This suggests solid earnings growth, which is factored into Moelis's forecasts. In earnings per share (EPS) terms the broker expects 22.7c this year and 26.4c in FY13, up from the 19.6c achieved in FY11. There is little basis for comparing the forecasts of Moelis, as none of the brokers in the FNArena database offer coverage on MACA. This is no great surprise given a current market capitalisation of around $365 million.
Moelis's forecasts imply earnings multiples of 10.7 times in FY12 and 9.7 times in FY13, while yield is reasonable at an expected 4.3% for FY13.
Shares in MACA today are unchanged as at 10.40am with a last sale price of $2.32. This compares to a range over the past year of $1.74 to $2.85.
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