When I went to search for this company on Strawman, it wasn't coming up in the drop down menu for me. Probably because it is newly listed but I thought I would look into it a bit given my involvement in the industry.
Overview
I know IPOs make notoriously bad investments, but I have done a bit of a deep dive into civil construction company Symal as it looks like a company to watch. It isn’t everyday you get companies listing on the ASX which already earn $700 million in revenue over its past two financial years.
Before I go into a bit of a deep dive on the company’s history, the tldr summary is that Symal is construction company that provides services across civil infrastructure, equipment hire, material sales, and recycling.
Its focus is on delivering major infrastructure projects which represents the majority of its revenue (60%). However, the prospectus, company website and public relations releases talk a lot about its focus on ‘sustainable solutions’ and its focus on renewable energy, recycling and the like.
Company History
For those unfamiliar with the company, the PR line is that it was founded by Joe Bartolo back in 2001 as a one man landscaping business. “One man, one wheelbarrow”. Whilst there may be some truth to that, the business quickly morphed into a concrete and paving business for private clients in the residential space.
It seems to have expanded quite quickly in the early 2000s when it founded ‘Civilex’. At this point, as I understand it, the business started to move into the major infrastructure space.
2010 appears to be a bit of an inflexion point for the business. It was probably the time when Joe started to think about the direction in which he wanted to take the business. It was probably a highly profitable and successful business for him back then, but he dreamed of something bigger. He created an ‘advisory’ board and brought Ray Dando and Andrew Fairbairn into the business as shareholders.
In 2018 the business made a very significant acquisition of Grampians Excavations. The purpose of this acquisition was to vertical integrate the business. Grampians provided plant and equipment hire, bulk earthworks, and logistics solutions. The acquisition allowed Symal to manage multiple project aspects internally, reducing reliance on external contractors and improving efficiency. This has definitely been a key aspect of the business’s success.
In 2020, Symal established Wamarra, an Aboriginal-owned and operated civil contractor that is part of the Symal Group. Symal’s website states it has always “focused on creating a more inclusive and meaningful future for construction”. However, the cynic in me unfortunately thinks this was more about ticking a government tender box than actually promoting indigenous employment.
In 2023, it created Sycle, which concentrates on recycling construction and demolition waste, transforming it into high-quality, reusable materials for new projects. This further increases the business’s vertical integration. A good summary of its products is below:
All aspects of the business have now been consolidated or “Unyted” and the company listed on the ASX on Thursday.
Operations
Across all brands, the company employs over 1,000 staff across four states. Although as I’ll elaborate on, its primary operations are in Victoria and NSW.
So as outlined above, essentially the business has multiple arms:
However, don’t be fooled, the majority of the business’s revenue (60%+) is earned from its contracting on major infrastructure projects. To this end, it is perhaps unsurprising that the company was founded in Australia’s major infrastructure capital, Victoria.
Its flagship project is definitely the Eastern Freeway upgrade in Melbourne (which is part of the North-East Link Project). The other major infrastructure Project it promotes in its various materials is the Hunter Power Project in New South Wales.
But make no mistake about it, this business has had some very lucky tailwinds behind it since its inception. If you think about the original conception of the business, even when it was a “one man” landscaping business, that quickly moved into concreting, the early 2000s right the way through to 2020 has been the absolute peak of construction in Victoria. Australia is obviously fascinated with Property and over the course of the last two decades, it has become so mainstream and ingrained in our consciousness. There is no better cultural manifestation than the TV show the Block, which coincidentally started around the same time as this company came into existence.
Then, think about the push over the last two decades for governments to spend on infrastructure. How often over the past two decades have we read articles about the sprawling metropolis and the lack of infrastructure to support such developments. While the infrastructure might have not have been implemented in the right places, governments have certainly listened and spent heavily on infrastructure. In fact, Victoria, where the company was founded and is based, is without doubt the Infrastructure Capital.
Without giving too much away, I am lawyer that works in and around the infrastructure space. I was heavily involved in the North-East Link Project, the Metro Rail Project, the Melbourne Airport Rail and now the Suburban Rail Loop Project. Despite the debt and all the numerous rumblings about projects being cancelled or mothballed, the intention is still to progress with the roll out of these projects at scale.
For the first time in about a decade, it appears political pressure is mounting on the Victoria government to cut infrastructure spending, or at least, to spend it more wisely. Despite this, I wouldn’t necessarily call the overall trajectory of infrastructure spending a headwind, but equally, I can understand why the company is looking to expand into other states because the pipeline is likely to dry it up a bit compared to what it has been in recent years.
And while the majority of the revenue is currently earned via these infrastructure projects, the intention is to develop all facets of the business.
Symal’s part of the business is significant here. From the prospectus it appears it leases three quarries from third parties. From these quarries it produces and supplies materials for its various projects. It also generates additional revenue by selling these materials to third party clients.
It also has the ability to recycle and repurpose various materials, while also undertaking remediation on-site.
It will be interesting to see how the distribution of revenue evolves over the coming years.
Management
As stated above, Joe Bartolo, the founder of the business, and its Managing Director, is the majority shareholder (31% shareholding). The other ‘founding’ shareholders who joined the business in 2010, Andrew Fairbairn and Ray Dando each hold a 15.55% shareholding respectively. Together the ‘founding’ partners hold over 60% of the company’s shares.
The prospectus states that the Executive Team’s average tenure is approximately 9 years but I haven’t verified this.
Financials
It’s always difficult to ascertain the true financial performance of an IPO company.
All figures below are taken strictly from the prospectus without any modifications
Revenue
FY22 to FY23: Increased from $579.7 million to $699.3 million, a growth of approximately 20.6%.
FY23 to FY24: Increased from $699.3 million to $769.6 million, a growth of approximately 10.1%.
FY24 to FY25 (Forecast): Expected to increase from $769.6 million to $961.1 million, a projected growth of approximately 24.9%.
EBITDA
FY22 to FY23: Increased from $47.8 million to $53.0 million, a growth of approximately 10.9%.
FY23 to FY24: Increased from $53.0 million to $95.1 million, a growth of approximately 79.5%.
FY24 to FY25 (Forecast): Expected to increase from $95.1 million to $102.3 million, a projected growth of approximately 7.6%.
NPAT
FY22 to FY23: Decreased from $21.3 million to $11.1 million, a decline of approximately 47.9%.
FY23 to FY24: Increased from $11.1 million to $32.8 million, a growth of approximately 195.5%.
FY24 to FY25 (Forecast): Expected to increase from $32.8 million to $41.6 million, a projected growth of approximately 26.8%.
What jumps out at you is the size of these numbers. As I stated at the top, companies with revenue of over $600 million are doing something right.
However, the numbers, particularly the net profit line, demonstrate the issue the business will pose for investors. Lumpy cash flow and the volatile nature of the construction industry. Right now, there are a lot of headwinds for construction generally, but the question is whether being a lead player in the major infrastructure space, with government contracts, is somewhat of a protection from the industry more broadly.
The projections of nearly $1 billion in revenue do seem ambitious at first glance. But if the projection of $41.6 NPAT runs through, then a net profit margin of about 4.15% isn’t unreasonable for a major infrastructure player.
I guess time will tell. Shares opened at $1.85 and they have traded slightly down from there. I do think it is a company to watch.