Macmahon Holdings Expands with Strategic Acquisition of Decmil to Diversify into Infrastructure & Renewables

Macmahon's acquisition of Decmil boosts infrastructure, renewables, and dividend growth prospects...

November 6, 2024

Macmahon Holdings tilts strategic focus to civil construction activities, including renewables and government infrastructure projects. Macmahon is seeking less exposure to cyclical mining resources and commodities.

  • The $127 M Decmil Group acquisition in August accelerated this exposure shift
  • Civil infrastructure construction is lower capital-intensity than surface mining
  • Lower capital-intensity enables higher payout ratio to the range of 20 – 35 percent from FY25.
  • FY25 revenue forecast is $2.4 B to $2.5 B range; FY24 revenue was $2 B
  • $2 B of Group revenue already secured for FY25
  • FY25 EBIT forecast is $160 to $175 M range; FY24 EBIT was $140 M
  • A more targeted approach on capital-light services should see steady earnings and dividend growth over the medium term.

 

 

About Macmahon Holdings Limited

Macmahon Holdings Limited (Macmahon, the Group, ASX: MAH) is a diversified contractor with capabilities in mining, civil construction, infrastructure and resources engineering. The Group is based in Perth and today employs 9,676 people. Macmahon was founded in 1963 by Brian Macmahon, an Adelaide engineer, and listed on the ASX in December 1983.

Strategic exposure to infrastructure and renewable energy sectors

Macmahon appears to be successfully executing on its strategy to build a more resilient business with a less concentrated resources and commodity exposure. The Group’s strategic focus is tilting toward the less cyclical non-mining civil construction sector, including renewables and government infrastructure projects.

This shift in focus follows the acquisition of Decmil Group for an Enterprise Value of $127 million in August 2024. Enterprise Value is measured as net debt plus equity value, which in this case included net debt of $17.5 million.

The Decmil business complements the Macmahon service offering by providing integrated civil construction and infrastructure solutions to the resources, infrastructure and renewable industries across Australia. Decmil’s core operations provide exposure to the renewable and government infrastructure sectors, with a well-defined growth trajectory. This includes major public infrastructure assets such as railway networks and airports, and road and bridge projects throughout Australia.

Decmil has a 40-year operating history and is a respected brand in the civil infrastructure space. This is why Macmahon decided to operate Decmil as a wholly owned subsidiary and retain its Chief Executive Officer. The Decmil integration is 90 percent complete with the Macmahon civil business now part of Decmil and with expected synergies of $3 to $5 million per annum.

The Decmil acquisition also provides earnings diversification as Macmahon seeks to accelerate its long-term civil infrastructure revenue target of $1 billion per annum, to represent one third of Group revenue.

Lower capital-intensity to support higher payout ratio

Macmahon has committed to increase the cash return to shareholders by raising the previous dividend payout ratio range of 10 percent to 25 percent of earnings per share to 20 percent to 35 percent from FY25.

This outcome has been achieved by expanding the business into the lower capital-intensive services of underground mining, and civil infrastructure activities. This long-term expansion program seeks to provide an equal one third spread of revenue between the capital-intensive surface mining activities and the less capital-intensive underground mining and civil infrastructure businesses. This objective is being driven by some tactical acquisitions and the execution of a highly filtered tender pipeline. Currently 50 percent of Group revenue is sourced outside of surface mining, and this shift is largely attributable to the Decmil acquisition.

FY25 priorities and earnings guidance

FY25 revenue is expected to be in the range of $2.4 to $2.5 billion and FY25 EBIT in the range of $160 to $175 million. In FY24, revenue was $2 billion, and FY24 EBIT was $140 million.

This positive outlook is supported by $2 billion of revenue already secured for FY25.

Although skilled labour shortages persist, contract structures provide protection against rising input costs with one third of the order book being alliance style contracts. Alliancing is a co-operative form of contracting where the contract parties enter an alliance which is designed to align the commercial interests of both participants. This means that if unanticipated wage or non-controllable costs move outside an agreed range, then compensatory measures are actioned.

A more targeted approach on capital-light services offered, combined with a strong forward order book, should see steady earnings and dividend growth over the medium term.

 

 

 

A Portrait photo of Michael Kodari, the guest author of this article. Michael Kodari is the KOSEC Founder

Michael Kodari is a globally recognised investor, philanthropist, and leading financial markets expert, renowned for his exceptional performance. With a strong foundation in financial markets, Michael has advised leading financial institutions and governments.

Atturra Limited Expands Market Position with Acquisition of ComActivity for ERP Solutions in Manufacturing
Ampol Secures A$600 Million in Subordinated Notes to Boost Financial Flexibility and Future Growth
GWA Limited (ASX: GWA): Strengthening Plumbing Solutions for Future Growth
Adherium Partners with Tenovi to Enhance Remote Monitoring
Hello,
how can we help?
Or call us on 1300 854 151
Phantom X Home
DAILY PRE & POST MARKET WRAP
daily stock market icon gold
Daily News Articles
daily stock news icon gold
Boardroom Talk
boardroom icon gold
Opportunity Alert
notification icon gold
Week-in-Review Report
review icon gold
The KOSEC Show
mice icon gold
Monthly Report
calendar icon gold
Comany-in-focus Report
Education
education icon gold
Gems
Thematic Stocks
Thematic stocks icon gold
LOTUS BLUE
lotus icon gold
BUFFETT 2.0
buffet icon gold
LIVERMORE AI
livermore icon gold
PORTFOLIO SCREENER
portfolio screener icon gold
Watchlist
watchlist icon gold
Compound Calculator
calculator icon gold
Account Settings