The Monadelphous Group Limited (ASX: MND) share price is soaring today in response to the company’s FY20 result. At the time of writing, Monadelphous shares have jumped 16% to $9.80.
Monadelphous is a Perth-headquartered engineering group that provides construction, maintenance and industrial services. The company has a major office in Brisbane and projects, facilities and workshops across Australia, New Zealand, China, Mongolia, Papua New Guinea and the US.
The 5 key points
- $1.2 billion of new contracts were secured during FY20 – down from $1.35 billion in FY19;
- Revenue rose 2.6% to $1.65 billion;
- EBITDA was $90.2 million, down 13.8% from FY19
- Net profit after tax (NPAT) came in at $36.5 million, a decline of 27.8% on FY19; and
- A final dividend of 13 cents per share was declared.
Monadelphous’ earnings result came in ahead of Bell Potter’s estimates, with analysts expecting NPAT of $27.9 million. Analysts surveyed by Bloomberg were expecting NPAT of $36.2 million.
Monadelphous said its FY20 results reflect a significant increase in shutdown and maintenance work across the resources sector, especially in the first half of the financial year, and the commencement of a number of large resource construction projects.
The company’s Maintenance and Industrial Services division recorded annual revenue of $1.05 billion, up 5.1% on the prior year. FY20 marks the first time the maintenance division has achieved annual revenue in excess of $1 billion.
Monadelphous noted that the second half of FY20 was affected by the economic and social impacts of COVID-19. The company estimates that roughly 10% of its annual revenue has been deferred into subsequent periods.
Looking at the bottom line, Monadelphous said its NPAT result was significantly impacted by the disruption caused by COVID-19, as well as disappointing levels of profitability in its Water Infrastructure business.
In May 2020, the company warned that several water projects approaching completion had experienced an escalation in contract disputes and declining profitability. This resulted in a before tax provision of $14 million for project underperformance and costs relating to a restructuring of the Water Infrastructure business.
Monadelphous’ dividend
Monadelphous declared a final dividend of 13 cents per share (cps), down 43% compared to the 23 cps final dividend declared in FY19.
This takes full-year FY20 dividends to 33 cps, representing a payout ratio of around 91% of NPAT.
At the time of writing, Monadelphous shares last changed hands at $9.80, meaning shares are trading on a dividend yield of 3.37%.
Now what?
Managing director Rob Velletri said the company entered the new financial year with a solid forward workload and was well-positioned to capitalise on opportunities and deal with the challenges ahead.
While the global economic outlook in the wake of COVID-19 remains uncertain, Monadelphous expects the resources sector to provide a steady flow of opportunities over the coming years.
Mr Velletri added that the outlook for Australian iron ore investment remains solid, supported by a strong iron ore price and demand from China actively ramping up.
However, the company said maintenance activity is expected to recover slowly from the effects of COVID-19 and will continue to be impacted by domestic travel restrictions and physical distancing requirements in the short-term, particularly in the oil and gas sector.
Longer-term, Monadelphous remains confident that the demand for maintenance services will grow on the back of aging assets and customers deferring non-essential work in prior periods.
