- MACA interim result solid, reports stockbroker DJ Carmichael - New contract, work-in-hand offers upside to forecasts - DJ Carmichael rates MACA as a Buy

By Chris Shaw

Mining and construction services group MACA Limited ((MLD)) reported in late February what DJ Carmichael viewed as a strong interim result. Net profit rose 121% on the previous corresponding period to $15.7 million, achieved on a 140% increase in revenue to $126 million.

Post the result, DJ Carmichael sees the tendering outlook as strong, as evidenced by a contract win for MACA with WPG Resources ((WPG)) worth $285 million. This brings work-in-hand for MACA to a little more than $680 million.

To reflect the new contract as well as the company's strong outlook, DJ Carmichael has lifted earnings forecasts for MACA, lifting FY11 earnings per share (EPS) numbers by 7% to 20.7c and FY12 numbers by 1% to 23.8c. These forecasts compare to EPS in FY10 of 14.3c.

Still, earnings risk appears to be to the upside, DJ Carmichael noting management has indicated second half results are likely to be better than expected given the strong operating performance achieved in the first half.

DJ Carmichael's revised forecasts reflect this, as while full year net profit guidance stands at $23.1 million at present the broker expects a result of $29.6 million. Upside could flow through into FY12 as well if another large contract can be secured, as DJ Carmichael notes 78% of FY12 revenue forecasts are already covered by current work-in-hand.

The changes to earnings forecasts see DJ Carmichael lift its valuation on MACA to $3.10 from $2.46. Price target has been set in line with valuation and implies upside of around 20% from current levels. This supports a Buy rating on MACA.

Relative valuation also supports a positive view, DJ Carmichael noting at current levels MACA is trading on a FY11 earnings multiple of 12.2 times, which is a 13% discount to peers. This discount appears excessive, especially given MACA generates higher margins and return on equity than peer companies.

Finally, DJ Carmichael notes the current work-in-hand position of MACA, plus a potential $196 million in likely contract extensions, underpins high earnings visibility for the next few years. With MACA being added to the All Ordinaries Index there is also likely to be increased attention paid by investors.

This could boost MACA's profile, as the FNArena database currently shows no coverage of the company.

Shares in MACA today are higher and as at 12.15pm the stock was up 3c at $2.51. Over the past year the stock has traded in a range of $1.40 to $2.96.

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