Macmahon Holdings Limited (Macmahon, the Group, ASX: MAH) is a diversified contractor with capabilities in mining, civil construction, infrastructure and resources engineering. The Group is based in Perth and today employs 9,676 people. Macmahon was founded in 1963 by Brian Macmahon, an Adelaide engineer, and listed on the ASX in December 1983.
Strategic exposure to infrastructure and renewable energy sectors
Macmahon appears to be successfully executing on its strategy to build a more resilient business with a less concentrated resources and commodity exposure. The Group’s strategic focus is tilting toward the less cyclical non-mining civil construction sector, including renewables and government infrastructure projects.
This shift in focus follows the acquisition of Decmil Group for an Enterprise Value of $127 million in August 2024. Enterprise Value is measured as net debt plus equity value, which in this case included net debt of $17.5 million.
The Decmil business complements the Macmahon service offering by providing integrated civil construction and infrastructure solutions to the resources, infrastructure and renewable industries across Australia. Decmil’s core operations provide exposure to the renewable and government infrastructure sectors, with a well-defined growth trajectory. This includes major public infrastructure assets such as railway networks and airports, and road and bridge projects throughout Australia.
Decmil has a 40-year operating history and is a respected brand in the civil infrastructure space. This is why Macmahon decided to operate Decmil as a wholly owned subsidiary and retain its Chief Executive Officer. The Decmil integration is 90 percent complete with the Macmahon civil business now part of Decmil and with expected synergies of $3 to $5 million per annum.
The Decmil acquisition also provides earnings diversification as Macmahon seeks to accelerate its long-term civil infrastructure revenue target of $1 billion per annum, to represent one third of Group revenue.
Lower capital-intensity to support higher payout ratio
Macmahon has committed to increase the cash return to shareholders by raising the previous dividend payout ratio range of 10 percent to 25 percent of earnings per share to 20 percent to 35 percent from FY25.
This outcome has been achieved by expanding the business into the lower capital-intensive services of underground mining, and civil infrastructure activities. This long-term expansion program seeks to provide an equal one third spread of revenue between the capital-intensive surface mining activities and the less capital-intensive underground mining and civil infrastructure businesses. This objective is being driven by some tactical acquisitions and the execution of a highly filtered tender pipeline. Currently 50 percent of Group revenue is sourced outside of surface mining, and this shift is largely attributable to the Decmil acquisition.
FY25 priorities and earnings guidance
FY25 revenue is expected to be in the range of $2.4 to $2.5 billion and FY25 EBIT in the range of $160 to $175 million. In FY24, revenue was $2 billion, and FY24 EBIT was $140 million.
This positive outlook is supported by $2 billion of revenue already secured for FY25.
Although skilled labour shortages persist, contract structures provide protection against rising input costs with one third of the order book being alliance style contracts. Alliancing is a co-operative form of contracting where the contract parties enter an alliance which is designed to align the commercial interests of both participants. This means that if unanticipated wage or non-controllable costs move outside an agreed range, then compensatory measures are actioned.
A more targeted approach on capital-light services offered, combined with a strong forward order book, should see steady earnings and dividend growth over the medium term.
