MAAS Group Holdings Limited (MAAS Group, ASX: MGH) is an integrated Australian construction materials, equipment and service provider with diversified exposures across the civil, infrastructure, renewable energy, mining and real estate markets.

Leveraged to infrastructure and renewable energy investment

Direct exposure to renewable energy projects in the Australian Government’s Renewable Energy Zones (REZs) are the key to MAAS Group continuing to deliver double digit earnings growth in the foreseeable future.

REZs are designated districts scrutinised by The Australian Energy Market Operator, where clusters of large-scale renewable energy projects can be developed, using economies of scale. In some cases, these REZs are supported by state-based regimes. MAAS has a deliberate operational focus within these REZs that are situated in regional areas on the East coast of Australia. It is here where competition is typically sub-scale and fragmented. MAAS Group’s head office is in Dubbo.

Projects include wind and solar, as well as pumped hydro and battery storage projects. These are long-term projects that drive solid demand for MAAS Group’s Civil Construction and Construction Material businesses. These two businesses combined account for 70 percent of MAAS’ earnings.

The MAAS Group is diversified across several complementary and integrated activities. The Construction Materials segment is experiencing solid demand and accounts for 36 percent of Group EBITDA. This business unit has a concentrated footprint in Greater Melbourne comprising 5 quarries and 9 concrete plants. This dominant market presence means that the Greater Melbourne region will be the largest regional contributor to Construction Material earnings in FY25.

The Civil Construction and Hire business unit delivers 33 percent of EBITDA at a 22 percent margin and an impressive 95 percent profit to cash conversion ratio. A pipeline of infrastructure and renewable energy projects are set to come online over the next 3 to 5 years.

Commercial Real Estate including commercial developments and commercial construction, earns a 28 percent margin and contributes about 17 percent of EBITDA. The FY24 result included the sale of 9 self-storage assets at above book value, for approximately $50 million in FY24. The development project was undertaken in conjunction with National Storage (ASX: NSR). An additional $65 million of properties are contracted for sale, as part of the Group’s capital recycling program. Capital recycling of completed projects will continue in FY25 as MAAS continues to focus on self-storage, childcare and industrial asset classes where demand and pricing remains robust, based on a development maturity of 3 to 5 years.

Residential Real Estate, which includes residential developments, home building, build-to-rent and Land Lease developments, accounts for about 13 percent of EBITDA. Although interest rate uncertainty continues to dampen demand, land gross profit per lot was $100,000, and the business settled 150 lots in FY24, including the disposal of 21 build to rent properties. Developments in Rockhampton, Griffith and Bathurst are proceeding with expected Stage 1 sales in FY26.

Being a Founder-led company with an owner’s mindset, MAAS consistently earns superior margin and returns on projects compared to its peers. This out-performance is, in part, driven by the Group’s in-house capability across the value chain that delivers cost efficiencies, flexibility, and enhanced risk management. The Group diligently manages cash flow and working capital, which explains the respectable 88 percent profit to cash flow conversion ratio achieved in FY24.

27 percent annual profit growth

MAAS has a 20-year history of consistent profit growth, with a notable acceleration since listing on the ASX in 2020. Since listing, the Group has achieved a 27 percent Compound Annual Growth Rate of Net Profit After Tax.

MAAS maintains a strong balance sheet that includes $1.4 billion in tangible assets of its $1.6 billion total asset base. Net debt is $505 million, implying a leverage ratio (Net debt divided by EBITDA) of 2.4 times and an interest cover ratio of 6.1 times. The Group’s residential land bank is conservatively stated and recognised at historical cost.

Strategically positioned for long term growth

The structural tailwinds of renewable energy development and associated infrastructure should ensure continued solid revenue and profit growth in over the next 3 to 5 years. The Group’s network of strategically located quarries in the Greater Melbourne region are positioned to take advantage of key infrastructure and renewable energy projects already commenced and forecast to commence during FY25.

Electrical transmission projects are ramping up across regional Australia in FY25 and beyond, through the Renewable Energy Zones under supervision of The Australian Energy Market Operator. MAAS owns two electrical transmission and distribution businesses, JLE Electrical Group and Garde Group and so should be able to capitalise on these large-scale development projects.

The strong project pipeline across Civil Construction & Hire and Commercial Construction should continue to support higher earnings, while the outlook for residential land lot settlements remains flat given the current interest rate environment.

Management is expected to provide an update at the AGM scheduled for 24 October.

Shareholders anticipate that this update will be positive, and that the Group’s proven history of consistent earnings growth will be sustained by the pipeline of renewable energy infrastructure projects in regions where MAAS has a strong presence.