Mader Group (ASX: MAD) Sets Another Record For Q1 FY 2024

Industrial repairer and maintenance provider Mader Group Ltd (ASX: MAD) showed further momentum in its quarterly for Q1 FY 2024. The Mader update posted a record quarterly revenue of $185.1m, a 37% lift relative to Q1 FY 2023. In percentage terms, North America was the biggest contributor with an 84% jump in revenue to $48.5m. The Australia segment increased its revenue by $27.1m to $133.7m for the quarter, the biggest driver on an absolute basis. Earnings before interest taxation, depreciation and amortisation (EBITDA) lifted by 51% to $23.8m relative to Q1 FY 2023, resulting in a slight increase of 1.2% in EBITDA margins to 12.9%.

Source: Mader update for Q1 FY 2024

Most importantly, the Mader update revealed management’s reassurance of its confidence in meeting its FY 2024 revenue and net profit after tax guidance of $770m and at least $50m respectively. With the current market capitalisation of around $1.25 billion at around $6.25, the current price implies a FY 2024 P/E ratio of no more than 25.

Core mechanical services primarily drove revenue in Australia along with ancillary services as existing customers demanded more services across multiple industry verticals. This included infrastructure maintenance and rail service offerings. The project pipeline appears solid for its newest maintenance centre in Perth. Growth opportunities outside of Australia also appear to be encouraging.

Mader management flagged that North America experienced strong margins as the division provided more specialist services across multiple states. This potentially suggests Mader is not only building a larger and more diverse workforce but also managing to attract staff who possess specialist skills. As I explained in my Mader update in May 2023, one of Mader’s potential competitive advantages is its ability to offer a flexible workforce at scale. Management seems to be making the right moves in strengthening its competitive advantage.

In Canada, Mader is preparing to launch an underground division, which presents an opportunity to further diversify its workforce to fulfil a significant unmet demand. The energy division across North America continues to grow as evidenced by the deployment of an additional fleet of Dodger RAM 2500 trucks. As I flagged in the Mader update earlier in May, whilst growth is great, investors ought to monitor the capital expenditure requirements. As Mader takes on more and bigger projects, it will need more trucks, so it’s reassuring that management noted the truck fleet was supported by more capital-light and economical vehicles. The ultimate question is whether all this growth is creating wealth for Mader in the form of free cash flow.

Given Mader is trading at a trailing twelve months price-to-earnings multiple of nearly 34 times, investors appear to be optimistic about strong growth ahead. On the positive ledger, Mader is diversifying its revenue streams and the project pipeline remains buoyant. However, Mader still possesses a net debt balance of $40.4m and capital expenditure remains elevated.

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Disclosure: the author of this article does not own shares in or have a position in Mader Group. The editor of this article does not own shares in or have a position in Mader Group. 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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