I warmed to the SRG story before the "merger" with GCS (Global Construction Services), and the code change to GCS and then back to SRG (and the company name became SRG Global), and then all of the GCS people left and I started to wonder if David Macgeorge (SRG's MD/CEO) was getting paid too much for a fair bit of underperformance.

It's a long fall from over 70 cps down to 20 cps. Around -70%. And down approx. -78% from their peak (of just over 90 cps).

I held on for a couple of years, but sold out before they bottomed. They're back up now to around the same levels they were at at the time of the merger back in 2018. Tony Hansen at EGP Capital has held SRG through the entire period in his Concentrated Value Fund (CVF) - you can read his July 2023 report here: https://egpcapital.com.au/wp-content/uploads/2023/08/2023_07.pdf

Page 4 of that July report for the EGP CVF shows that SRG was the fund's 8th largest position (4.7% of the fund, excluding cash). Tony has clearly enjoyed the SRG uptrend from early 2020 onwards. While it's clear this company is no market darling, as very few people know of it or talk about it, it's also worth noting that they've moved from 20 cps to almost 80 cps in the past 3.5 years, so I would say they've done alright lately.

Back in 2019 I was communicating with Tony by email and he mentioned that he was going to meet with David Macgeorge to talk about the company (SRG), as he does fairly regularly with all of the MDs/CEOs/management teams of the companies that he holds in his fund, and I passed on a couple of questions for DMG. One of my questions was about low margin work to fill their order book, because their order book had been quite lumpy, and I was concerned he was going to take on lower margin work to fill it up and risk losing money on contracts that had wafer-thin profit margins. DMG's response was that they had clear hurdles that prospective work had to clear, including adequate margins, and he said that the company was not going to pursue tenders for work where those hurdles were not met, even if that meant having no work at times for some of their departments. He said, to be clear, that they would rather not work at all than work for next to nothing and risk losing money if costs blew out or unexpected things happened.

SRG Global's Managing Director, David Macgeorge (or DMG as I have called him).

SRG are very niche operators with some of the work that they do.

One example is high rise building façades - the external skin that covers the outside of high rise apartment blocks or office towers - it was expected that this work would be in high demand if the government passed the necessary legislation to force the replacement of highly flammable ACP (Aluminium Composite Panel) cladding after some deadly fires proved very hard to control once they took hold. Composite cladding and ACPs have, up until recently, been hailed as a cheaper alternative to other cladding products, but many ACP products have been sourced from overseas, and do not meet Australian Standards, or make false claims about compliance. Typical ACPs consist of two thin sheets of aluminium, with a polyethylene core sandwiched between them. It is this polyethylene core that is to blame for the severity of many recent tower fires. Polyethylene is a highly flammable material, combusting easily as soon as it is hit by fire, and thus allowing flames to race up the sides of buildings. Australian state governments have been conducting state-wide audits over the past few years to identify buildings containing this unsafe, flammable material, and have it removed from homes as quickly as possible.

However, while SRG are regularly announcing new specialist façade contracts - such as this one: https://www.srgglobal.com.au/projects/atlassian-central-development-specialist-facades/ ...the tsunami of work that some were predicting they should be in line for hasn't really been there, or not to the extent that many had hoped.

Further Reading: Architectural & Facade Products | Engineered products - SRG Global

Another example is ground anchors. SRG Global are world leaders in the design, engineering and installation of ground anchors that improve the stability of dams. See here: Water Infrastructure | Sectors We Serve - SRG Global

They had a JV with North American-based Traylor Bros, announced back in 2017 - see page 4 of this: https://announcements.asx.com.au/asxpdf/20171010/pdf/43n37wv8kh8zhc.pdf

...that was supposed to target the ageing water infrastructure assets (dam walls) across the USA and in Canada, where Traylor Bros already had licenses to operate in almost every state and territory. However that JV appears to have fizzled out without any substantial work being awarded to them.

A third example is large structures that have enormous weight but a relatively small footprint. SRG are global leaders at the design of such structures and they supply the ground anchors and a lot of the other building hardware (other than the concrete and steel beams) that make it all work. One example of this is the North-South Motorway in Adelaide that joins the north end of South Road to the Northern Expressway.

The SA Government built a 6-lane expressway over the top of a 4-lane main road, as shown below, first image facing South, next image facing North, third image from up on the 6-lane expressway facing North.

Facing South on South Rd under the North-South Motorway:

That (above) is the Regency Park ARB 4WD store (red building) on the right.

Below, is 180 degrees from the same point, so facing South:

That's a 6-lane motorway up there supported by those V shaped "legs" that are only about 3 metres wide at the base, and around 1m deep (i.e. 3m x 1m footprint).

The following is the view from up top:

That's looking North, away from the city, at the three lanes heading south towards the city (and towards the Google Maps Streetview capture car which was recording these 360 degree views). The three north-bound lanes are to the left on the other side of the concrete barrier.

Point being that SRG specialise in these sort of designs. They have also been involved in engineering buildings that are smaller at ground level and larger at the top, including some that have impressive extensions jutting out at the highest levels. My understanding is that a lot of the designs are based on a ground anchor system with large capacity steel cables running through the structures and encased in concrete throughout the structures. Obviously the cables are attached to the ground anchors. It seems to work. These things aren't falling down. However, while they are good at what they do, the work that SRG win seems to be quite patchy/lumpy.

The good stuff:

1. They are focused on decent margin work, no rubbbish/fillers.
2. They are good at what they do, especially in certain niche areas where they are the best at what they do.
3. Their metrics are heading in the right direction.
4. The company is growing, now with a market cap of circa $380 million and with over 3,200 employees across three operating segments of Asset Maintenance, Mining Services and Engineering & Construction, yet not many people know about them or talk about them. Still unloved, but perhaps partly due to being unknown.
5. They have reasonably good communication with the market, announcing most decent contract wins via the ASX announcements platform. They also used to have a company newsletter you could subscribe to, but that may have been discontinued now.
6. They provide links from their company website to all current broker reports on them - which you can find here: Broker Reports | Investors Information - SRG Global [Euroz Hartleys, July 2023] [Shaw & Partners, June 2023] [Barrenjoey, May 2023] [Argonaut, February 2023].

The bad or not-so-good stuff:

1. Their work can be quite patchy so they can have lumpy revenue and earnings. They do have a core of construction material sales and ongoing multi-year maintenance contracts that provide some reliable recurring revenue however they do get quite a bit of one-off contract work as well.
2. The JV in North America with Traylor Bros was a huge disappointment and seems to have been quietly discontinued.
3. They do not seem to have benefitted a great deal from increased infrastructure spending across Australia in recent years, except for occasional/patchy one-off contracts.
4. The ACP cladding replacement boom has NOT happened, despite a number of tower fires both here in Australia and overseas causing multiple deaths, and despite widespread warnings about the dangers of those highly-flammable ACP panels that many large buildings are still clad in.
5. Not sure what the positive potential catalysts are that are going to drive the share price substantially higher. SRG Global's SP will probably grind higher in the absence of anything particularly negative, but I'm not sure if there's huge upside from here in the short to medium term.

That's it from me. I'm not currently invested in SRG, but I have been in prior years.

Further Reading:

https://www.decorativeimaging.com.au/news/cladding-regulations-in-your-state-what-you-need-to-know/

There is a company in Dubai called SRG Properties which is a subsidiary of one of Dubai's leading family-owned holding companies, SRG Holding Limited, however those Dubai SRGs have no connection at all (that I have found at least) to the ASX-listed SRG Global that we are talking about here. Check this out: https://www.killadesign.com/portfolio/srg-tower/

Killer Design (pun intended) but not down to "our" SRG.

Here's what "our" SRG do: https://www.srgglobal.com.au/our-work/

Disclosure: Decent company, but I don't consider them to be one of the very best opportunities for my capital allocation and capital appreciation at this point in time, so I do not currently hold SRG shares.

Thanks for that post @Bear77 . Very informative indeed. My primary interest is in the asset maintenance side of the business, but is good to get a better understanding of how their construction business is differentiated.

Really appreciate the insight.