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Maas Moves In On Melbourne Market

Small Caps | Dec 12 2022


Maas Group undergoes further strategic acquisition, expanding into the Melbourne market with the purchase of Dandy. 

-Goldman Sachs believes Maas Group is in a transitional period, with earnings benefits to emerge on the other side
-The company is set to acquire integrated construction materials business Dandy
-The purchase aligns with the company’s east coast focus through expansion into Melbourne

By Danielle Austin

Mass Group ((MGH)) could be in a transition phase that will see higher quality real estate income become the company’s largest source of earnings over the next three years, if predictions made by Goldman Sachs are to be accurate. 

The broker (Buy, target price $4.20) recently initiated coverage on the property, construction and infrastructure solutions provider. Goldman believes the market is largely undervaluing Maas Group’s residential development business ahead of an anticipated housing slowdown, and feels the company’s best in class characteristics should support returns even in a more difficult economic environment. 

Strategic acquisitions have been key to Maas Group’s strong organic growth since its inception, and the company has recently announced its latest purchase with the acquisition of integrated construction materials business Dandy, marking Maas Group’s expansion into Melbourne. 

Dandy operates five concrete plants in south-east Melbourne, alongside a sand quarry and a hard rock quarry. The $85m purchase will be largely cash-funded, and is expected to be earnings accretive from FY24. Further, Maas has indicated it will no longer pursue a second construction materials business acquisition. 

Alongside the acquisition announcement, Maas revised its full year guidance to $150-180m, from 180-200m, noting this number did not include impact from acquisitions under consideration. 

Acquisition makes sense given east coast focus, says brokers

Morgans (Add, target price $4.00) finds the Dandy acquisition in line with the company’s east coast focus, expanding operations across Queensland, New South Wales and Victoria. With improved disclosure from the company around the purchase, and Maas Group’s decision not to pursue a second construction materials business, the broker lowers its net debt assumption to $325m in the first half of FY23, from a previous $365m. 

The broker finds this to equate to a reasonable net debt to earnings ratio, and allays fears around the gearing outlook for Maas. Despite this, the broker expects investors will need to see a return to growth and a consolidation of operations ahead of re-rate for the stock. 

Macquarie (Outperform, target price $3.40), which last reported on Maas Group prior to the company’s acquisition announcement, described Maas as retaining strong long-term fundamentals despite recent wet weather impacts. It largely found the company well placed to execute on business strategy and to retain a strong competitive advantage in many of its markets.

Outside of the FNArena broker database, Wilsons (Overweight, target price $4.01) described the acquisition as allowing Maas to establish a presence in a market with a robust growth outlook. The broker sees growth potential in increased quarry production and external sales, and reiterated its positive view on Maas' vertically integrated business model as a construction services and equipment provider. 

Also outside of the database, Moelis (Buy, target price $3.92) iterated similar sentiments. 

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