Hi All,
I'm currently reviewing Synertec as a potential investment.
At this stage there is a lot to like:
- the skin in the game from management as well as experience that they hold
- valuation is compelling looking at FCF and considering the cash held on the balance sheet. (If I can pick up shares on around a MC less cash FCF multiple of 5x I think that’s relatively good buying. Currently this ratio is c.5.75x.)
- a lot of the revenue is generated from repeat customers and who in many cases are blue chip companies which would indicate a quality service/offering.
- in my opinion infrastructure is going to a growing theme to generate growth in a low interest rate environment going forward anf you could argue that the business is positioned pretty well to take advantage of this theme.
Now my biggest concern iis that I think management overplays the revenue growth in FY19 a little bit in their announcements where the margin in the business is primarily made from the engineering services side of the business which actually went backwards revenue wise in FY19 $3,1m versus PCP $3.5m. Unfortunately, they don’t show the margins for the separate revenue streams.
In terms of the long case for Synertec has anyone been able to mitigate the above or am I missing something? Looking through the announcements management appears to gloss over it without going into detail as to why there was a decrease in revenue for the high margin portion of their business.
Would love to hear any views on this.
Cheers,
Value Junkie
Michael Carroll (CEO) presented at the Finance News Network the other day which provides a good overview of the SOP business in 15 mins:
https://www.finnewsnetwork.com.au/Presentations/FNN_InvestorEvents_2019/NovMel/SOP/index.html
SOP showing a bit of life lately - volume highest its been in a while and price up a little. Interesting. (Held)
Wini, are you accumulating still?
How about you Andrew - did you ever give any further thought to it?