Ann: Monadelphous Reports 2022 Half Year Results, page-11

It was a result that exceeded my expectations (which, admittedly, were not exactly sanguine) by a considerable way.

The real surprise to me was the leap in the operating margin, during a period which would certainly have been tough, operationally and in terms of costs, given WA was still in self-isolation from the rest of the world.



I fully expected the margin to remain under pressure, for at least the DH2021 and even the current half, too, before MND would be in a position to re-price contracts to recoup the input cost inflation it would certainly be experiencing.

But I was wrong; they have already started to achieve it in the previous half-year, which is quite some feat, given the extraneous circumstances.


Valuation-wise, whenever I've owned MND, it has been predicated on the business generating $150m EBIT at some point during the cyclical upswing in its business.

(It is unlikely to require getting EBIT margin back to the 9% level seen during the last commodity boom; a mere 6% EBIT Margin on $2.5bn of Revenue will do it... and there certainly is going to be enough work going around over the next 3 years for MND to be doing $2.5bn worth of work... its currently doing an annualised run rate in excess of $2.0bn @4.6% EBIT margin, so its already within reach of the $100m EBIT mark, and the cyclical upswing has only  just begun.)

Capitalising that $150m EBIT at a conservative 8x EV/EBIT (it averaged around 9.5x during the previous cyclical high period between 2010-2013), yields an EV of $1.2bn.

Add to that the $150m-odd in Net Cash and you get an Equity Value of ~$1.35bn, or around $14.20 per share, so 25% potential investment return, with a high level of conviction

From my vantage point, which sees a challenging investment environment in which extraneous risks are elevated, 25% upside with high conviction is an attractive risk-adjusted investment return.

Can't see the broader equity market putting on another 25% over the next 12 to 18 months.

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