Verbrec Limited

ASX:VBC

Verbrec Limited

ASX:VBC
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$0.145 (0%)
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#296
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Pinned straw:
edgescape
Last edited 6 months ago

Have been spending quite a bit of time studying the technology side of the business, particularly stockpile and asset management and whether there is the right leadership to drive organic growth here.

From my previous straw, Verbrec is similar to Cosol in enabling and supporting systems that deal with Asset Management What makes Verbrec different is they deliver a solution to the customer with the help of an external vendor and do not have an in-house team like Cosol. Furthermore, Verbrec just changed from NRX Assethub to MDO Prospecta which is a bit strange.

The more interesting side is the stockpile software that has been under development for the last few years and only now has started generating revenue (approx 1m pa). BHP is the only customer which presents huge concentration risk if they decide to leave.

The previous CEO, Linton Burns, did not appear to make much progress with the Asset and Stockpile software. Maybe his background from OSD (the company that merged forming Verbrec) in Oil and Gas wasn't really the right fit to drive technology growth,

At the same time, I'm not sure if the incoming CEO has the talent to sell their tech solutions with their engineering projects as Mark Read doesn't really fit that profile.

So this strategy of Verbrec from engineering services to using technology to drive growth in the business might be still too early to call.

On the other hand, at a recent investor conference that I listened to, Mark did articulate quite well his strategy in turning Verbrec around and giving some conservative targets such as picking the right projects and earnings stability without being arrogant or vague like other CEOs of small cap companies. I thought he answered the questions quite well. Would add that fluent communication is what you expect for someone that has worked in a really large company or corporation. I think he even talked better than Bill Beament!

Probably that conference must have drove the share price back up.

Better value under 11c when there was some aggressive accumulation going on. Unless there is some mega deal on the horizon.

Turnarounds are soo speculative but huge rewards on offer when done to precision. Just look at Capricorn Metals, Northern Star and Elders as examples.

[held]
UlladullaDave
Added 6 months ago

What am I missing here? Because this eyeballs as superficially very cheap just by 2x the HY result. I can only put that down to it won't screen very well because it the discontinued operations made the overall result look much worse than it was.

The HY result even from the continuing ops seems to have had a few one off expenses which makes the result even more stark.

55f0e3424ac1872cb3fc8e142faba2d4ac35ce.png


But then, they seem pretty cagey about guidance. So that makes me think I've missed something?

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edgescape
Added 6 months ago

@UlladullaDave

Guess you were listening to the call as well?

At this valuation and point in the cycle where there is still some restructuring I don't think you can expect guidance.

But Read has finally executed so I think it's worth the risk.

And will emphasise the "I".

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UlladullaDave
Added 6 months ago

I didn't hear the call @edgescape

Just read the materials, and found a Coffee Microcaps presentation.

But like, we're talking about a $35m company that just did $2.855m + 755k to settle some of those poorly performing contracts. That's ~$2.53m for the HY if you normalise for tax, so say $5m for the year (do you think this is realistic?). Seems like there is some momentum in the business, although it is a contractor with all the caveats that come with that. So 7x earnings give or take and things seem to be weighted to the upside at this point. Like I said, it just seems very cheap.

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edgescape
Added 6 months ago

Verbec does have debt of 7m with 4m non current. So that will bump it up to 8x I think.

The debt I think is the worry and would be holding down the share price but they just passed all the banking covenants in the last report.

Going back to the tech side, I think they should sell their Stockpile application service to maybe Imdex or RPM global or at least someone that understands the business of software development. However, Verbrec does intend to retain this.

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UlladullaDave
Added 6 months ago

The debt seems pretty manageable at this point. It looks as though they should have reasonably good cash conversion from here – although it was weak at the HY which seems to be primarily driven by the big reduction in payables (~$6m) which seems to have been related to exiting some unprofitable projects. It's not overly WC heavy and EBITDA for the last HY was ~$5m (including those one-offs) so they could potentially annualised run-rate ~$10m in OCF for H2.

I need to better understand StacksOn (LOL the name BTW, takes me back to being a kid). It seems like it's fairly complementary to the existing business. Looking at this, is my basic understanding correct that the software shows the loading thing where to scoop up the i/o?5b91b749aa5b41a5bcb4b6c7d1baece55705cf.png



6
edgescape
Added 6 months ago

Some sort of stockyard/stockpile simulator or visualisation tool of grade quality in the stockpile and guides the stacker which part to load.

But I hate the name StacksOn so I simply refer to it as a stockpile application system in my other posts.

Should definitely call it something else. StackerView? StackerViz? StackerX? StackerAI? Ok I'll stop!

BHP talks about it at the end of this speech.

11d1400470210a799a8da3f615c3a4276ec42e.png

And from the FY2023 presentation (6 Sept 2023). There was interest but they could not get a decent enough offer.

44e1a7bb1cf082356bd0f0f2cadcebf64d870d.png

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