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Why this top fund manager likes Macmahon Holdings Limited

Investors who consistently manage to beat the market over the long-term are well worth paying attention to.

Warren Buffet has been the best stock picker over the past fifty years, with a long-term return of around 20% per annum during that time.

Therefore, anyone who can demonstrate returns per annum close to that over a period of three years or longer is clearly a very capable investor.

The Forager Australian Shares Fund (ASX: FOR) has generated returns of 18.26% and 19.87% per annum over the past three and five years respectively. Clearly, the Forager investment team know what they’re doing.

In Forager’s latest monthly update for November 2017 it was revealed that Macmahon Holdings Limited (ASX: MAH) was 9.7% of the portfolio. Forager profess to identify and invest in unloved gems.

Macmahon offers mining services to miners in Australia and South-East Asia. It identifies surface mining, underground mining and plant & maintenance as its three main service areas.

Mining service companies are having a bit of a resurgence with commodity prices recovering and commodity businesses starting to invest again. Investing at the bottom of the cycle in a cyclical business seems like a smart move to me.

Macmahon has already seen its share price grow by 500% since June 2015. Over the last year the Macmahon share price has grown by 140%.

Revenue is expected to almost double from $359.6 million in FY17 to between $620 million to $680 million in FY18.

Macmahon has signed a number of agreements during FY18, which should see the company hit its revenue target and should hopefully generate earnings before interest and tax (excluding one-off costs) of between $40 million to $50 million.

Foolish takeaway

Macmahon doesn’t strike me as a long-term buy, but it could generate market-beating returns according to Forager. It’s not my type of stock, but that’s exactly why it’s worth considering if Forager thinks it’s good, or perhaps worth it to buy Forager shares instead.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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