I first established a position in Tasmea (TEA) last year when it was trading around $3 per share (see previous straws). When the share price shot up over $5 per share I sold. I think the business was looking very expensive at $5.30 per share (23 times FY25 earnings) given it is yet to prove itself as an ASX listed business.

Since then TEA has acquired WorkPac and management has updated guidance. FY26 NPAT is expected to be between $70 million and $72.5 million (+37% YOY growth).

So what happened next? The share price fell to just over $4 per share! This put TEA on a forward FY26 PE of under 15 times. Now it started to look cheap again! I like what I see at Tasmea so I’ve started buying it back (starter position, cost price $4.30).

Taylor Collision Investor Conference Presentation https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-03031036-6A1300574&v=undefined

What I like about Tasmea

• Founder owned and managed.
• Over 58% owned by founders and directors - Stephen Young (39%), Mark Vartuli (17% including Vars Enterprises), Jason Pryde (1.73%)
• Recent insider purchases, late November Stephen Young and Jason Pryde purchase a total value of $1.1 million in shares at $4.50 per share (around the current share price)
• Strong Revenue growth (more than doubled in 3 years)
• Strong EPS growth - 300% in 3 years. Projected FY26 $0.27 (up 17% on FY25 $0.23)
• High ROE - FY25 28%. Projected FY26 28% (based on mid-guidance)
•  New acquisition (WorkPac) will support Tasmea’s organic growth aspirations across the Electrical, Mechanical, Civil and Water & Fluid segments
• WorkPac: 45% implied return on capital (on net ~$40m upfront capital) and approx 10% EPS accretion excluding synergies (pro forma FY26)

Risks

• New to the ASX - Hard to value
• WorkPac acquisition risk
• Debt to equity 60% (high)
• Spend on electrification and renewables could lose favour?
• Needs Contract wins

Valuation

Tasmea listed on the ASX less than 2 years ago (29 April 2024). Given the short historical performance on the ASX, it is difficult for the market to value the business on a PE ratio. There’s nothing much to go by! In fact it appears to be relatively expensive based on its short historical PE ratio. It is currently trading on 20 time FY25 earnings. However, based on mid- NPAT guidance of $71 million the FY26 PE ratio comes back to 17 times. This still doesn’t scream cheap, but it looks reasonable given the fundamentals.

Using McViven’s valuation formula and assuming shareholder equity of $0.95 per share, FY26 ROE of 28% ($0.27 NPAT / $0.95) 53% of earnings reinvested, 2.8% fully franked dividends, and a required annual return of 12%, I get a valuation of $4.50 per share. Given TEA is now trading around $4.50 per share I will likely only add more shares if the price pulls back from here.

Held IRL (small)