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Post Market Wrap | Macmahon positioned to maintain track record of achieving earnings and revenue guidance

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This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Revenue and EBITDA up 24 percent pa over past five years
  • Recurrent revenue and moderate gearing supports strong capex program   
  • Higher margins forecast for second-half as start-up projects move to steady state
  • Technology and diversification across commodities and mining activities driving earnings growth. 

Overview

Macmahon continues to build on its proven track record of growing revenue and earnings, while maintaining its history of meeting or exceeding market guidance. This includes meeting its year-to-date FY22 guidance.

Both Revenue and Underlying EBITDA have increased by 24 percent pa over the past 5 years to June 2021, despite a period in FY21, when growth was paused due to the impact of COVID. 

In the current financial year, Macmahon has achieved considerable new contract activity across the business. Mining services activity at Gwalia, Foxleigh, Dawson South and Fimiston has ramped up, while new project activity is planned for Warrawoona and King of Hills Underground, in the months ahead. The majority of Macmahon assets are deployed on contracts of 3 or more years. This recurrent revenue enables Macmahon to meet growth capex while at the same time, maintain a robust balance sheet. At December 2021, Macmahon had cash on hand of $61 million and net debt of $242 million, for a gearing ratio of 31 percent.  

Macmahon plans to invest a total of $300 million in capital expenditure during FY21 and FY22, in support of earnings growth beyond FY22. Capital expenditure outlays in the first half of FY22 were $152 million. $80 million of this total is for growth capex for new projects.     

First half-year 2022

The first half-year result to December 2021 was impacted by COVID, resulting in higher input costs, which squeezed the Underlying EBIT(A) margin to 5.8 percent, for a $47 million result. Statutory profit was $3.3 million, down from $43.1 million in the prior corresponding period. The statutory profit outcome included the GBF earn-out cost, Software as a Service costs and the amortisation of customer contract assets that were recognised on historical acquisitions. Normalising these costs, Underlying Net Profit After Tax (NPAT) was $31.7 million, compared to $30.4 million, in the previous corresponding period. 

Underlying operating cash flow conversion was impacted by higher working capital requirements for new project start-ups and higher inventory levels, in response to COVID-related supply chain disruption. The Underlying EBITDA conversion ratio was 70 percent, resulting in cash flow generation of $96.6 million. This compares to cash flow of $96.7 million for a conversion ratio from Underlying EBITDA of 78.8 percent, in the previous corresponding reporting period.   

Macmahon maintains a conservative dividend payout ratio policy of 20 percent of Underlying NPAT.

The interim dividend was 30 cents per share and unfranked. This dividend will be paid to shareholders on April 6.

The FY22 outlook includes several new projects progressing to steady state operations, from the start-up phase, supporting higher margins in the second half year. Full year Underlying EBIT(A) guidance is estimated to be in the range of $95 million to $105 million. Revenue guidance has been increased to be in the range of $1.6 billion – $1.7 billion, up from previous guidance of $1.4 billion – $1.5 billon.   

Image: file

Five-Year Strategy 

The Macmahon business strategy over the coming five years can be summarised as one involving diversification, technology and people.

Currently Macmahon has a 75 percent concentration in precious metals of gold and copper/gold commodities. Over the coming five-year period, other commodities including lithium, nickel, mineral sands and uranium are to be targeted, together with iron ore and metallurgical coal. 

The revenue mix in FY18 was 78 percent surface mining and 21 percent underground mining and just 1 percent of revenue was attributable to mining support services. The current financial year revenue pipeline is targeting 41 percent surface mining, 38 percent underground mining and 21 percent mining support services.     

Partnering with technology specialists to drive efficiencies and productivity improvements is key to Macmahon’s five-year growth strategy. This includes in-cab monitoring using AI, automated data for smart and informed decisioning as well as systems for remote operations and control centres in surface and underground mining activities.

Macmahon is also embarking on a training and development program to develop apprentices by rotating them through domestic and offshore opportunities.

Revenue growth is likely to continue, through exposure to a broader range of commodities, and diversified contract mining services, that includes more underground mining activity and increased exposure to mining support services. Productivity-enhancing technology and a highly trained workforce at a time when labour is becoming scarce, supports higher margins on steadily increasing revenue. These factors point to consistent revenue and earnings growth over the medium-term.

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

"Michael Kodari is one of the world's most consistent, top performing investor. A philanthropist and one of the prominent experts of the financial markets, he has been referred to as ‘the brightest 21st century entrepreneur in wealth management' by CNBC Asia and featured on Forbes. Featured on TV as the "Money Expert", on the weekly Sunday program "Elevator Pitch", he is recognised internationally by governments as he was the guest of honour for the event "Inside China's Future", chosen by the Chinese government from the funds management industry, attended by industry leaders, when they arrived in Sydney Australia, on April 2014. Michael and George Soros were the only two financiers in the world invited and chosen by the Chinese government to provide advice, and their expertise on Chinese government asset allocation offshore. With a strong background in funds management and stockbroking, Michael has worked with some of the most successful investors and consulted to leading financial institutions. He was the youngest person ever to appear on the expert panel for Fox, Sky News Business Channel at the age of 25 where he demonstrated his skillset across a 3 year period forming the most consistent track record and getting all his predictions right over that period. Michael writes for key financial publications, is regularly interviewed by various media and conducts conferences around the world."

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Money

Boeing CEO to depart with lucrative exit package despite chaos

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Boeing CEO Dave Calhoun is set to step down from his position at the end of the year, walking away with a substantial payout despite challenges faced during his tenure.

Here are the key points:

  • Massive Payout: Despite Boeing’s stock price plummeting by 43% since Calhoun took over as CEO in 2020, he is poised to receive a $24 million payment upon his departure.

  • Additional Compensation: Calhoun holds options that could potentially earn him an additional $45.5 million if his successor manages to boost Boeing’s share price by 37%.

  • Comparative Compensation: Calhoun’s compensation during his tenure exceeds that of CEOs in similar industries, despite Boeing’s stock underperforming in comparison.

Boeing CEO Dave Calhoun’s impending departure at the end of the year has sparked controversy as he stands to walk away with a substantial payout, despite the company’s tumultuous journey under his leadership.

READ MORE: Boeing CEO to step down

Despite inheriting a company reeling from the aftermath of two deadly 737 Max crashes, Calhoun’s tenure has been marred by further setbacks, including the recent Alaska Airlines door blowout incident that further tarnished Boeing’s reputation.

Boeing offers CEO $5.3 million incentive to stay through recovery …

With Boeing’s stock price plummeting by 43% during Calhoun’s time at the helm, questions arise about the correlation between executive compensation and company performance, especially in the face of such significant challenges.

‘Raised eyebrows’

Calhoun’s lucrative exit package, valued at $24 million, has raised eyebrows among shareholders and industry observers alike.

Additionally, the potential for Calhoun to earn an additional $45.5 million based on the future performance of Boeing’s shares has intensified scrutiny over executive compensation practices.

This sizable payout contrasts starkly with Boeing’s stock performance, which has significantly underperformed compared to both industry peers and broader market indices, highlighting the dissonance between executive rewards and shareholder value creation.

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Money

It’s been a record year for CEO compensation

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In 2023, Broadcom’s CEO Hock Tan was granted a stock award worth $161 million, propelling him into the realm of highest-paid CEOs.

However, as the company’s share price surged, the value of Tan’s award skyrocketed to approximately $1.3 billion, outpacing even the shareholders’ annual returns.

Tan’s compensation reflects a broader trend among top executives in the tech sector, where awards of restricted stock and stock options surged in value alongside company share prices.

Notably, CEOs like Charles Robbins of Cisco Systems and Shantanu Narayen of Adobe also saw substantial increases in their compensation, doubling in some cases.

The disclosure of such equity growth in executive compensation is a new requirement by the Securities and Exchange Commission (SEC), providing shareholders with insights into the changing value of executives’ awards throughout the year.

CEO pay is on the rise.

New heights

Overall, CEO pay at major S&P 500 companies reached new heights in 2023, rebounding from slower growth in the previous year. The median pay for these CEOs rose to $15.6 million, up from $14.1 million in 2022, reflecting a surge in equity awards.

Broadcom clarified that Tan’s stock award is designed to span five years, with no plans for additional equity grants or cash bonuses during that period.

Tan’s compensation, which amounts to approximately $33 million annually over five years, is contingent upon his continued tenure and specific share price targets.

While the initial valuation of Tan’s restricted shares stood at $160.5 million, the surge in Broadcom’s share price prompted the company to reassess the likelihood of meeting vesting conditions.

This reassessment suggests that Tan may not receive all the shares initially granted.

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Money

Market forecast: weather whirlwinds influencing investments

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Prime conditions for commodity investments arise from global weather shifts, geological tensions, and rising interest rates.

With global weather patterns causing disruptions in traditional supply chains, coupled with geopolitical tensions over natural resource access, and the anticipation of higher interest rates impacting financial markets, the conditions for commodity investments have reached exceptional levels.

Amidst this backdrop, Farrer Capital has emerged as a standout player, leveraging its unique ‘blue ocean’ approach to capitalize on price dislocations and scarce competition in the market.

Mark Wyld from MW Wealth joins the show to share his insights on the inclement weather impacting the market.

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