Mobile maintenance and repair contractor, Mader Group (ASX: MAD) yesterday reported its quarterly update, boasting record quarterly revenue of $172.9 million, and record quarterly earnings before interest taxation, depreciation and amortization of $23.5 million, up a whopping 56%.
You can see how Mader’s quarterly EBITDA has grown over the last couple of years, in the chart below.
Not only was this a record quarter, but Mader Group once again came in ahead of its own expectations, highlighting that “FY23 revenue closed at $608.8m (unaudited), exceeding Mader’s twice-upgraded market guidance of revenue of at least $580m (initially $510m+, upgraded in October 22 to $550m+ and further upgraded in February 23 to $580m+).”
At a share price of $6.04, Mader Group has a market capitalisation of about $1.2 billion. Factoring in the net debt of $42.7 million, it has an enterprise value of about $1.24 billion. If we annualise the most recent quarterly EBITDA, we would get an annual EBITDA run rate of about $94 million, putting Mader Group on an EV/EBITDA multiple of about 13.2x.
In the first half, net profit after tax was 51.9% of EBITDA. If that ratio holds steady, the net profit for FY 2023 will be about $38.9 million, but the official guidance remains “at least $37 million.” Using the estimate of $38.9 million, Mader has a FY 2023 P/E multiple of about 31.
Annualising the last quarter suggests a profitability run rate of about $48.5 million. If we assume some further moderate growth from here, then Mader may quite reasonably priced, since it is easy to imagine the company earning more than $60m per year. Of course, there is always a risk that growth will dry up, at some point.
For now, Mader’s growth continues to be very strong, so while growth is certainly priced in, there is no obvious reason to sell the stock. Given the current share price is $6.26, implying strong future growth, it may be sensible to take some profits based purely on valuation. However, concern about the optimistic valuation must be balanced with the old maxim that one should “pull out your weeds, not your flowers”.
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Disclosure: the author of this article does not own shares in MAD and will not trade them for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a 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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