Mining and energy maintenance services provider Mader Group (ASX: MAD) again recorded strong growth in Q2 FY 2024 after posting record results in the first quarter. Despite this, the Mader share price is down today.
Mader recorded revenue growth of 2.5% since last quarter, primarily sourced from Australia but North America declined by 5.7% from $48.5m in Q1 FY2024 to $45.7m in Q2. On a prior corresponding period comparison, both Australia and North America produced strong numbers with jumps of 26% and 47% respectively. Most importantly, the bottom line for 1H FY 2024 is $24.2m, representing a 38% lift compared to 1H FY 2023.
Source: Mader Q2 FY 2024 Update
Previously, I was a bit concerned with Mader’s growing debt position but management has kept their word with a $7.4m decrease in debt to $35.3m. Management advised they’re aiming to reduce this to zero over the medium term. The management team tend to underpromise and overdeliver when delivering guidance, which provides some confidence in their intentions with managing debt.
Management also seems confident in achieving their initial FY 2024 guidance of at least $770m revenue, and at least $50m in net profit after tax. These are impressive numbers especially when net profit is set to quintuple within six years. However, great historical results often bring about hefty expectations.
Despite maintaining guidance and recording strong results this quarter, the Mader share price is down slightly today. As I highlighted in May 2023 when the Mader share price was hovering around $5 per share, market assumptions about growth are fairly aggressive. After updating my discounted cash flow model, my view remains the same.
At the current Made share price of $6.36 the market cap is around $1.265 billion. Based on Mader’s guidance of $50m profit, that would put the stock on around 25 times earnings.
Disclosure: the author of this article does not own shares in Mader. The editor of this article does not own shares in Mader. This article is not intended to form the basis of an investment decision and is not an official recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).
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