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#Trading Update
Added a month ago

16-Apr-2020:  Trading Update

BSA Limited (ASX: BSA) wishes to update the market on trading activities given the extenuating circumstances as a result of the Covid-19 lockdown of global economies. 
 
Following a review of the March results, we are pleased to advise that the business is currently tracking to internal forecasts.  We are also continuing to tender significant volumes of new work and are encouraged by the future opportunities presenting themselves. 
 
Notwithstanding this, the current economic uncertainty may lead to some deferral in work volumes in the last quarter of the financial year.  As such, the Board feels it would be prudent to suspend the guidance given on 25 February 2020.

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Disc:  I hold BSA shares.  

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#FY20 H1 Results
Last edited 3 months ago

25-Feb-2020:  Top shelf results from BSA - having sold their HVAC Build Major Projects division, they have been substantially derisked in terms of cost blow-outs on those major projects, and they have also increased their percentage of recurring revenue from longer-term annuity-style contracts.

Highlights of their FY20 H1 Results:

  • Revenue of $258.9m, up 30.4% on pcp for continuing operational streams.
  • Recurring revenue of 81% has substantially increased with the divestment of HVAC Build Major Projects.
  • EBITDA (reported) of $12.8m, up 39.1% on pcp (H1 19 = $9.2m).
  • Growth in Connect and Fire Build operational streams versus pcp.
  • Profitability decline in Maintain due to investment into regional expansion, technology and capability to set platform for next phase of growth.
  • EBITDA margin of 4.9%; up 0.3 percentage points on pcp not withstanding investment in the Maintenance business.
  • Reported NPAT up 17.5% to $4.7m.
  • Earnings per share increase of 14.3% to 1.084 cents from continuing operations – reflective of strong EBITDA performance.
  • Interim dividend of 0.5 cents per share, fully franked. First interim dividend since March 2013.
  • Net cash of $15.2m, up $3.0m on pcp (excl divested JO cash).
  • Cash flow from operations of $8.4m reflecting an OCFBIT/EBITDA* conversion rate of 66%.  No factoring has been applied to the Balance Sheet.

* Operating Cash Flows Before Interest and Tax (OCFBIT) as a percentage of EBITDA (from continuing operations).

Investor Presentation for 1H20

Half Yearly Report and Accounts

I hold BSA shares.  I think they have a lot of similarities to Service Stream (SSM) not least of which is that they service the same industries - predominantly telcos, the nbn, Foxtel, etc.  BSA are turning around their ship.  Being smaller, it doesn't take so long.  They look pretty good here to me.  The hard work's done.  They've settled outstanding claims around their messy prior year problematic HVAC Build Major Projects division contracts - such as the new Royal Adelaide Hospital - and have now sold that division, so history won't repeat there.  They've significantly increased their percentage of revenue that is now recurring from longer-term annuity-style contracts (now circa 81%).  They look good.  In any other environment this result would have been greeted with more enthusiasm by the market, but in the current environment it's pretty hard to impress it seems.  They will get positively re-rated when things get back to normal, and their next result should be even better. 

 

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#Broker/Analyst Views
Last edited 4 months ago

30-Dec-2019:  Phillip Capital:  BSA Ltd (BSA):  Recurring Earnings 83% of Total - Initiation of coverage (BUY)

  • Recommendation: Buy
  • Price Target: 49c
  • Price Today (22-Jan-2020): 38.5c
  • Implied Upside (to PC's PT): +27.3%
  • 12-mth Price Range: $0.20 - $0.46
  • Share Price at date of report:  $0.38
  • Forecast 12-mth Capital Growth: 28.9%
  • Forecast 12-mth Dividend Yield: 1.3%
  • 12-mth Total Shareholder Return: 30.3%
  • Market cap ($m): 164.4
  • Net debt (net cash) ($m)(Jun 19): (16.3)  i.e. no net debt, with $16.3m net cash
  • Enterprise Value ($m): 148.1
  • Gearing (Net Debt/ Equity): N/a (net cash)
  • Shares on Issue (m): 432.6
  • Sector: Industrials 
  • Average Daily Value Traded ($): $103,000
  • ASX 300 Weight: n/a

BSA Limited (BSA) is a Sydney-based technical services contracting company operating nationally. It has 3 main segments with a high proportion of recurring earnings: 

  • BSA Connect – Large field force of technicians serving the Telecommunications sector (NBN, Optus, Foxtel etc.). Plus small but growing exposure to the Utilities sector (smart metering, solar & battery storage). 68% of FY19 Ebitda.  
  • BSA Maintain – Commercial building maintenance including fire, HVAC (heating, ventilation and air conditioning), electrical, plumbing and general. 15% of Ebitda. 
  • BSA Build – Technical design and construction of fire suppression and fire detection systems in commercial buildings. Project based. 17% of Ebitda.

FY19 Results

FY18 and FY19 results were impacted by $9.7m and $12.6m of abnormal items which spoiled good underlying results. 

  • Revenue up 9.7% to $470m, with BSA Build up 27% and BSA Maintain up 10.6%. BSA Connect up 1% due to completion of the NBN MIMA contract.
  • Underlying Ebitda up 15.2% to $24.6m.
  • Adjusted EPS 3.0 cents, up 22%.
  • Net cash of $16.3m.

Strong Outlook

In September BSA exited its HVAC- Major Projects business following large losses on the new Royal Adelaide Hospital contract. Post restructure, the outlook for BSA is strong: 

  • BSA Connect’s NBN maintenance contract has been extended to a fourth year (expires Dec 2020). We think BSA is well placed to be allocated more of NBN’s $1.0bn+ maintenance work. 5G is another large opportunity.
  • BSA Maintain is growing well from a small base gaining large national customers such as Harvey Norman.
  • BSA Build has been awarded a $30m contract for the WestConnex tunnels fire suppression systems (2 x 9 klms) and the NorthConnex tunnel now underway.
  • With net cash of $16m BSA is now in a position to consider potential complementary acquisition for the first time in 7 years.

Recommendation – Buy, 12mth Price Target $0.49

We see a number of similarities to Service Stream (SSM)’s remarkable turnaround over the last 5 years. We initiate coverage on BSA with a BUY recommendation and a 12mth price target of $0.49 based on a 14x FY20 P/E multiple. This implies a 30.3% 12-mth total shareholder return.

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Disclosure:  I bought back into BSA this week.  I believe that BSA selling their HVAC Major Projects business and getting out of that space entirely is an important catalyst for a big improvement in performance and profitability for BSA.  It removes the risk of those big cost blow-outs that we've seen in the past from projects such as the new RAH (Royal Adelaide Hospital) debacle and it will result in a greater percentage of BSA's earnings now coming from recurring revenue (multi-year, annuity style) contracts.  They also have some smart money on the register:

  • NAOS Asset Management were accumulating BSA shares throughout 2019 and owned 21.7% of BSA at last notice.  NAOS hold BSA in their NCC and NSC LICs.  They lodged four “Change in Substantial Holding” notices for BSA in 2019 and all were increases (on-market buys);  
  • Lanyon Asset Management own 20.2% of BSA in their Lanyon Australian Value Fund, and Lanyon's David Prescott is now on the BSA Board;
  • Bruce Gordon's private investment company, Birketu, owns another 16.9% and Bruce has his mate Chris Halios-Lewis on the BSA Board;
  • Wentworth Williamson (via Sandhurst Trustees) hold 4.99%;
  • HGT Investments holds 3.44%; and
  • BSA management own ~4%.

So the free float is only around 28% to 29% - of a company with a market cap of only around $160 million - so liquidity can be an issue.  Looks good to me from here however.

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