Short-Term Labour Shortages Restrict Monadelphous' Fiscal 2021 Margins; FVE Maintained

We maintain our fair value estimate of AUD 13.35 for no-moat-rated Monadelphous following the release of fiscal 2021 results. Full-year adjusted EBITDA margins of approximately 5.0% were roughly 90 basis points below our expectations. State and international border restrictions are reducing the availability of skilled labour in Australia, and this is affecting costs and productivity. While these conditions are a headwind, we forecast a reduction in border restrictions during fiscal 2022 beginning to alleviate shortages. Owing to the unfavourable labour market settings, we reduce our fiscal 2022 adjusted EBITDA margin by 90 basis points to approximately 6.1% and assume margin recovery from fiscal 2023 to around 8% at midcycle. Our midcycle EBITDA margin assumes an end to border closures and the relatively free movement of labour within Australia. Monadelphous routinely achieved EBITDA margins near 10% and above last decade, but our midcycle margin forecast remains below those heydays with no repeat of the commodities boom expected.