For those who don’t know Maas, it is a diversified construction company (materials, equipment and services) with operations around much of Australia and current market cap around $1.3b. It is still majority owned by its founder Wes Maas. It has grown very quickly through acquisitions in recent years with revenue increasing 4x over last 4 years.

At the recent H1FY25 results briefing, Maas reported a significant downgrade in guidance of ~15% and suffered ~20% share price drop. I first started purchasing at $2.37 back in Oct 2022 with the thesis that it was cheap for the amount of growth in pipeline. The investment had been looking solid and is still well above my original purchase price. But I had been averaging up with ongoing purchases, and with the recent drop it is now back close to my average purchase price.

Here’s my latest bull case, bear case and thesis.

Bull case

• Although revenue was flat in H1FY25, recent guidance at H1FY25 briefing was for FY25 $215-$245m EBITDA; if achieved will be ~10% annual growth with about half organic and half from acquisitions.
• Midpoint of guided EBITDA will produce ~$80m stat NPAT, putting Maas on a forward PE around 18, a reasonable value for a company with expectations of 10% organic growth plus ongoing acquisitions.
• Key execs are well motivated to perform. CEO Wes Maas and wife own >60% of company, and Wes takes relatively small base salary. CFO and an Executive Director (Tanya Gale) both own >$0.5m shares. Key execs have a healthy incentive system contingent on improving EPS >7.5% pa and achieving ROE >15%.
• Maas has established itself as a construction partner for Queensland’s Renewable Energy Zones (REZs). When/if REZs develop momentum kicks in, Maas is well positioned for a lot of work in Qld and other States.
• Past acquisitions have shown good capital management. Outstanding shares have grown ~50% since 2021 to support acquisitions, but this has been well covered by 4x revenue and 2x NPAT in that time.
• A bull case could see 16% 5-yr revenue CAGR based on 10% organic growth plus recent and future acquisitions; with 9% NPAT, a PE of 25, 2% dividend yield, allowing for 25% dilution, and discounting 10% pa, a fair price is $6.40, providing a 23% pa ROI at current share price of $3.70.

Bear case

• The H1FY25 briefing reported a significant guidance miss on revenue and EBITDA, ~15% below expectations: FY24 AGM guidance (in Oct) was 10% organic revenue growth and $215-245m EBITDA EXCLUDING recent acquisitions that would have added ~15%; at H1FY25 briefing (in Feb), H1FY25 revenue was stagnant, and the same guidance was given for EBITDA but now INCLUDING acquisitions.
• The biggest drag for Maas has been significant delays in civil construction and hire division for work associated with Qld’s renewable energy zones (REZ). Clearly a lot of ongoing revenue expectations are resting on these projects progressing. Past delays are a reasonable predictor for future delays, so this revenue stream may not be as forthcoming as previously forecast.
• In recent years Maas has substantially increased in complexity, with a much wider range of products and services, from ongoing acquisitions, across more locations; it’s not clear that this growth and complexity has achieved synergies.
• Dividend yield ~2% is lower than peer average because of strategic goal of growth through acquisitions.
• A bear case could see 7% 5-yr revenue CAGR based on 5% organic growth plus recent acquisitions; with 6% NPAT, a PE of 12, 2% dividend yield, allowing for 5% dilution, and discounting 10% pa, a fair price is $1.70, providing a -6% (negative) pa ROI at current share price of $3.70.

Thesis

• Financial model:
• Roughly 20% of revenue = underlying EBITDA; ~35% underlying EBITDA = stat NPAT = ~7.5% revenue.
• Forecasts for construction industry growth, and across competitors, is around 7-10% pa.
• My base case is 12% 5-yr revenue CAGR based on 7% organic growth plus recent and future acquisitions; with 7.5% NPAT, a PE of 20, 2% dividend yield, allowing for 15% dilution, and discounting 10% pa, a fair price is $3.65 (about current price), providing a 10% pa ROI.
• Given the asymmetric upside, weighing across the above 3 scenarios, I get a fair price of $3.90 and 12% pa ROI.
• Overall I see current price as fair. I currently hold, and will do so at least for the short-term, but it is a candidate to be replaced if I find conviction in an alternative with higher ROI.
• Minimum expectations for FY25:
• $1b revenue
• $215m underlying EBITDA
• $75m stat NPAT