Monadelphous Earnings: Sales Hold Up, but Labour Shortage an Issue

We maintain our AUD 14.25 per share fair value estimate for no-moat Monadelphous MND. Fiscal 2023 sales of AUD 1.829 billion, down 5% on last year and at the upper end of management guidance, beat our forecast by 1.5% due to stronger-than-expected engineering construction. Adjusted net profit after tax of AUD 52 million, or AUD 0.51 per share, disappointed by 4% on a weaker-than-expected EBIT margin of 4%. It was broadly flat on fiscal 2022, but missing by 4.3% on our forecast. Shares appreciated modestly with earnings and trade in 3-star territory at a 6% discount to our fair value estimate.

Monadelphous paid a final dividend of AUD 0.25 per share, as expected, bringing the fiscal 2023 total to AUD 0.49—flat on last year. This equates to an earnings payout of 96% and a fully franked 3.6% yield at the current share price. The fiscal 2023 payout ratio was above management’s 70%-90% target, and we assume it moderates to the upper end of the range in fiscal 2024 and remains there for our forecast horizon.

Monadelphous’ maintenance and industrial services division performed strongly. Sales rose 11% to AUD 1.297 billion as expected, as energy and resources producers—taking advantage of elevated commodity prices—demanded maintenance and continuing capital works. Looking ahead, we forecast broadly flat segment revenue for the next five years but expect gradual EBITDA margin improvements to a midcycle level of around 7% as labor shortages ease, up from an estimated 6.4% in fiscal 2023.