Mastermyne Group Ltd: Game Changing Contract(S) = Re-Rating Potential
Mastermyne Group Ltd
Game changing contract(s) = re-rating potential
Mastermyne Group Ltd (ASX:MYE) is the leading specialist provider of critical underground Metallurgical Coal mining services in Australia, employing over 1,150 people at December 2020. FY21 was the first down revenue/earnings year since FY16 with COVID-related shutdowns causing the biggest decline in Metallurgical Coal demand (used for steel making) and exports since at least 1971. Fast forward 12- months and demand is recovering, prices are 100% higher than the December 2020 lows and a number of “care & maintenance” mines are being re-evaluated. The recently announced $600m+ Whole of Mine (WOM) Gregory Crinum contract for MYE is just one example, while MYE is also doing early work at Dysart East (Bengal Coal) and Cook Colliery (QCoal). These contracts are potential gamer changers for MYE offering 6–7 year revenue visibility, a doubling in the order book, client diversity and improved margins, a catalyst for a “re-rating”. Overlaying this company specific contract outlook is a potential “re-rating” of the Australian small to mid-cap mining services sector. We suggest the “peer group” multiple has room to expand given current commodity prices/activity and CAGR sales growth of 30%, EBITDA growth of 31%, EBIT growth of 49% and a reduction in debt/EBITDA from 1.0x to 0.6x between FY16 and FY21.
Business model
MYE provides a range of contracted services and equipment hire to major underground Metallurgical Coal owner/operators. These services include underground roadway development, conveyor installation, longwall relocation & maintenance and supply and installation of ventilators. Such services require the recruitment of human resources and efficient management of both human resources and equipment for hire. The business charges a margin on top of the cost of labour/equipment to derive revenue and earnings.
Everything in place for earnings growth and a re-rating
FY21 was the first down revenue/earnings year for MYE since FY16 as COVID-related industrial shutdowns impacted the demand for steel and therefore Metallurgical Coal. Off this reduced base, MYE is poised to deliver strong growth into FY22 and beyond, with much improved Metallurgical Coal prices driving new mining activity. The recently announced Gregory Crinum $600m WOM contract is an example of this trend, and there are prospects of similar contract announcements near-term. This is potential game changer for MYE in terms of order book, revenue visibility, client diversity and margins.
A number of small-mid cap peers and the sector looks “cheap”
Mastermyne is a people and equipment intensive business servicing the mining sector, albeit in a very specialised service (underground Metallurgical Coal). There are a number of long ASX-listed small to mid-cap mining services companies that have similar attributes/business models which provide good historical data and relative multiple comparisons. Suggested peers include NHW, EHL, MAH, MLD, GNG, LYL and MSV in mining services and SSM and BSA outside. An analysis of key variables across both qualitative and quantitative measures suggests MYE deserves a premium rating to the average peer multiple.
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- Mastermyne Group Ltd: Game Changing Contract(S) = Re-Rating Potential13 Aug 2021