The Mac Services (MSL) offers a unique exposure to the mining sector through accommodation services. Demand for accommodation in east coast coal fields looks likely to outpace the development of new supply, creating a significant opportunity for MSL. With substantial growth in earnings and cashflow forecast we initiate coverage with an Accumulate rating and $5.00ps target price, according to Shayne Heffernan of Ebeling Heffernan.

Late cycle exposure with a twist

Growth in demand for accommodation units in the QLD and NSW coal fields looks to substantially outpace the development of new supply. This creates an opportunity for MSL, which has the capacity to add 5,500 rooms to current stock. Gladstone LNG, the completion of the Goonyella-Abbot Pt rail link (2012) and final investment decision around Xstrata’s Wandoan coal deposit (2011) are all catalysts for further growth in earnings beyond the targeted 1,000 units over the next 12 months.

High growth and cash generation

Historically MSL has secured take-or-pay contracts over 60-65% of a new development. This not only ensures a relatively quick cash payback period (avg. 5yrs) but also ensures earnings are far less cyclical than other mining service providers. This model should attract a premium to other contractors. MSL generates an impressive ROE while offering an attractive double digit earnings growth profile with high conversion of earnings to cash. We initiate coverage with an Accumulate rating and a target of $3.00ps.

Shayne Heffernan www.livetradingnews.com

Posted by Shayne Heffernan on Jul 30th, 2010and filed underAsia, Equities, Latest News, Markets, News & Events.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site