Overview: MACA Limited (“MACA”, “the Company”) is an Australian services company providing contracting, infrastructure and civil services to the resources industry. The company operates predominantly in the civil and contract mining industry in Western Australia and Brazil. As of 31 December, the Company had an order book totalling $1.15 billion.
Catalysts: MACA is generating free operating cash flow and its order book of ~2x revenue provides good financial visibility at bottom of the industry cycle. The Company has a strong history of rewarding shareholders via high yield dividend distributions. A strong balance sheet enables countercyclical acquisitions while increasing focus on gold projects positions the Company to benefit from any cyclical recovery.
Hurdles: Continuation of recent contraction in the mining industry could significantly impact the Company’s ability to procure new contracts and sustain dividend payments at current levels. Any recent and future acquisitions are subject to integration risks.
Investment View: MACA offers profitable exposure to a turnaround in the resources sector. We are attracted to the company’s order book, balance sheet strength, and increasing focus on the gold industry. While further contraction of mining activity could impact MACA’s ability to procure new contracts, there is no guarantee that management can sustain dividend payments at current levels. However, management has a strong track record of delivering shareholder returns and financial liquidity provides scope to grow via acquisitions. We initiate coverage with a ‘buy’ recommendation for MACA’s turnaround potential.
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