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#Substantial Shareholders
Last edited 3 weeks ago

18-7-2020:  I've noticed that the share price of BSA (which I hold) has increased +34% over the last month (from 25c on June 18 to 33.5c today) and they are up +13.6% in the past 3 trading days.  Their recent announcements have been fairly boring, mostly to do with shares issued as a result of their DRP and the issue of restricted ordinary shares under the non-executive director fee sacrifice equity plan approved by shareholders at the November 2017 AGM.

However, I do note that we had the two largest substantial shareholders in BSA both increasing their exposure in June:

  1. NAOS Asset Management increased their holding from 24.16% of BSA to 25.6%.
  2. Lanyon Asset Management increased their holding in BSA from 20.7% to 21.8%, then bought another 626,000 BSA shares on June 30th to take their shareholding up to 96,003,649 shares - or around 21.9%.

Other substantial shareholders have maintained their BSA positions:

  • Bruce Gordon's private company Birketu Pty Ltd (Bruce also controls WIN Corporation) still hold 17.07% of BSA.
  • Wentworth Williamson (through "Sandhurst Trustees") still hold 5.04% of BSA.

Additionally, there is some "skin-in-the-game" amongst BSA's management and board members, although it should be noted that Tim Harris, their MD & CEO, only took over the top job from Nicholas Yates on March 9th this year (what a time!) so it is somewhat understandable that Tim (so far) only holds 375,391 shares.  Nick Yates on the other hand has maintained his 4.25 million BSA shares and remains on the BSA board as a non-executive director.  Their board Chairman, Michael Givoni, holds 1.3m shares, and another director, Mark Lowe, holds 10.3m shares.  David Prescott from Lanyon is also on the BSA board and he speaks for Lanyon's 96m shares (almost 22% of the company).

If you add up those board positions in BSA as well as the 4 substantial shareholders (NAOS, Lanyon, Birketu & Wentworth Williamson), that's 73.5% of the shares on issue, and their entire market cap is only $145m, so there can be liquidity issues when trying to trade BSA shares on occasion.

BSA has been a turnaround story that appears to be turning around nicely.  They don't always turn around, but it helps if they're relatively small and they make some important changes to fix their business model and/or business culture (whatever needs to be fixed). 

BSA have long been compared to Service Stream (SSM) which has been a succesful investment for a lot of people rising from 23c in early April 2015 to peak at $2.99 on July 1st, 2019, so they 12-bagged in 4 years and 3 months.  You would have made 12 times your original investment if you'd been lucky enough to buy them at 23c, and they were trading at around 23c or below for a period of two years - from 1-Apr-2013 to 1-Apr-15, so there were certainly people who DID buy SSM at 23c or below and enjoyed that SP increase - including Steve Johnson's Forager Funds' Australian Shares Fund (FOR).

BSA and SSM have historically serviced similar markets, such as providing connections and repairs to nbnCo, Foxtel, etc, while doing other electrical installation and repair work as well. 

BSA got themselves into trouble a few years back taking on subcontracting roles in some very large projects, such as the new Royal Adelaide Hospital, and lost a lot of money when those projects turned pear-shaped on them (cost blow-outs occurred that they could not recoup from the companies that had subcontracted them to do the work, and many of those blowouts were either out of BSA's control or could not have reasonably been foreseen).  BSA have now settled all outstanding claims with everybody connected to those loss-making projects, and that is all in the past for them. 

Further, last year they sold their HVAC (Heating, Ventillation, Air Conditioning) Build Major Projects Business in NSW and Victoria to Fredon Air Pty Ltd, a private company within a group that provides engineering, construction and maintenance solutions.  After the completion last year of their (BSA's) three remaining (retained) HVAC Build Major Projects, BSA have now completely exited the HVAC Major Project construction market, which is a big positive in my book. 

BSA now only take on work where they have much more control over the costs, the timeline, the quoting, variations and additions to contracts, etc.  Many of these newer contracts will have lower headline revenue numbers than some of those old major projects did, but realistically when they DID manage to eke out a profit from those major projects, it was a LOT less than those headline numbers anyway, and too often those major projects ended up being loss-making.  BSA are in much better shape now.

They've also provided the following commentary in their recent (June 19, 2020) "TRADING UPDATE, DIVIDEND POLICY, GROWTH INITIATIVES & CAPITAL MANAGEMENT" announcement:

Financial Year Profitability

For the financial year ending 30 June 2020, we expect revenue from continuing operations to be in the range of $475m to $485m, compared to $469.7m for the year ended 2019.  We expect reported EBITDA from continuing operations to be in the range $22m-$23m(*1) million compared to $21.8m for FY19.

*1 Underlying EBITDA from continuing operations (excluding AASB16 and significant one-off costs) is expected to be in the range of $20m-$22m.

We are pleased to report we have seen continued resilient performance by our Connect (58% of BSA H1 20 revenue) and Fire Build (19% of H1 20 revenue) business units but have experienced some slow down and deferral of discretionary work within our Maintain (23% of H1 20 revenue) business unit.  The slowdown in the Maintain business has primarily been due to weakness in the tertiary education, transport, and retail sectors.

We expect demand to return through FY21 as client confidence returns and the requirement for well-maintained assets increases across many sectors.  We are also pleased to report that to date, given our tight cost control and focus on working capital, we have retained a strong cash position and have not seen any material impact on receivables or other working capital as a result of the pandemic.

Interim Dividend

On 25 March 2020, BSA advised that it had made the decision to defer payment of its interim dividend for the half year ended 31 December 2019 until 27 October 2020 given the uncertainty caused by the onset of the COVID-19 pandemic.

Given solid trading, improved certainty and BSA’s proactive focus on managing working capital, BSA is pleased to announce that the interim dividend of 0.5 cents per share, fully franked, will now be paid earlier than expected on 8 July 2020 to shareholders on the register at Friday 27 March 2020. 

Dividend Policy

BSA acknowledges the importance of paying regular, reliable dividends to its shareholders.  BSA is focused on growing revenues and operating profits in a controlled manner whilst maintaining a tight focus on working capital to deliver strong levels of free cash flow.

BSA is pleased to advise that its new dividend policy is to target a payout ratio of between 40-60% of earnings per share, paid as both an interim and full year dividend.  BSA expects that all near term dividends will be fully franked.

The Board believes that the 40-60% payout ratio strikes the right balance between rewarding shareholders with a reliable income stream whilst retaining capital for further investment in the business to pursue our pipeline of strategic growth initiatives.

Growth Initiatives & Capital Management

Our long-term financial goal is to maximise growth in shareholder value.

BSA has recently undertaken and completed a comprehensive strategic review.  Our core markets have strong demand and we are well positioned for future organic growth.

BSA is also investigating inorganic merger & acquisition opportunities to enhance our client offering.

BSA maintains a significant franking credit balance of $13.9m as at 30 June 2019.  The board is currently considering a range of capital management options to release franking credits.  BSA will communicate the outcome of its capital management review in due course.

--- Ends ---

I added that bold emphasis at the end there. 

They are saying all the right things I reckon.  And doing the right things as well.

I can see why Lanyon and NAOS have both been nibbling away - quietly buying even more BSA.

I am also happy to be a BSA shareholder at this point.  I see plenty of further potential upside yet, especially if they announce a special dividend to release some of those $13.9m worth of franking credits.

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#Broker/Analyst Views
Added a month ago

29-June-2020:  Phillip Capital: BSA: Trading Update, Growth Initiatives and Capital Management

Recommendation: Accumulate, PT: $0.31 (was $0.28), Risk Rating: High.  [I hold BSA]

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#Trading Update
Added 4 months 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.

--- ends ---

Disc:  I hold BSA shares.  

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#FY20 H1 Results
Last edited 5 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 7 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.

---------------------------------------------------------

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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#Trading Update
Last edited 2 months ago

19-June-2020:  Trading Update

TRADING UPDATE, DIVIDEND POLICY, GROWTH INITIATIVES & CAPITAL MANAGEMENT  
 
BSA Limited (ASX: BSA) wishes to further update the market on trading activities and strategic initiatives. 
 
Financial Year Profitability 
 
For the financial year ending 30 June 2020, we expect revenue from continuing operations to be in the range of $475m to $485m, compared to $469.7m for the year ended 2019.  We expect reported EBITDA from continuing operations to be in the range $22m-$23m(*1) million compared to $21.8m for FY19. 
 
We are pleased to report we have seen continued resilient performance by our Connect (58% of BSA H1 20 revenue) and Fire Build (19% of H1 20 revenue) business units but have experienced some slow down and deferral of discretionary work within our Maintain (23% of H1 20 revenue) business unit. The slowdown in the Maintain business has primarily been due to weakness in the tertiary education, transport, and retail sectors.  We expect demand to return through FY21 as client confidence returns and the requirement for well-maintained assets increases across many sectors. 
 
We are also pleased to report that to date, given our tight cost control and focus on working capital, we have retained a strong cash position and have not seen any material impact on receivables or other working capital as a result of the pandemic. 

*1 (Note 1):  Underlying EBITDA from continuing operations (excluding AASB16 and significant one-off costs) is expected to be in the range of $20m-$22m.
 
Interim Dividend 
 
On 25 March 2020, BSA advised that it had made the decision to defer payment of its interim dividend for the half year ended 31 December 2019 until 27 October 2020 given the uncertainty caused by the onset of the COVID-19 pandemic.   
 
Given solid trading, improved certainty and BSA’s proactive focus on managing working capital, BSA is pleased to announce that the interim dividend of 0.5 cents per share, fully franked, will now be paid earlier than expected on 8 July 2020 to shareholders on the register at Friday 27 March 2020. 

Dividend Policy  
 
BSA acknowledges the importance of paying regular, reliable dividends to its shareholders.   BSA is focused on growing revenues and operating profits in a controlled manner whilst maintaining a tight focus on working capital to deliver strong levels of free cash flow.  
 
BSA is pleased to advise that its new dividend policy is to target a payout ratio of between 40-60% of earnings per share, paid as both an interim and full year dividend.   BSA expects that all near term dividends will be fully franked. 
 
The Board believes that the 40-60% payout ratio strikes the right balance between rewarding shareholders with a reliable income stream whilst retaining capital for further investment in the business to pursue our pipeline of strategic growth initiatives. 
 
Growth Initiatives & Capital Management  
 
Our long-term financial goal is to maximise growth in shareholder value. 
 
BSA has recently undertaken and completed a comprehensive strategic review.  Our core markets have strong demand and we are well positioned for future organic growth.  BSA is also investigating inorganic merger & acquisition opportunities to enhance our client offering. 
 
BSA maintains a significant franking credit balance of $13.9m as at 30 June 2019.   The board is currently considering a range of capital management options to release franking credits.   
 
BSA will communicate the outcome of its capital management review in due course. 

--- Ends ---

Disclosure:  I hold BSA shares.

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#Broker/Analyst Views
Added 2 months ago

04-June-2020:  Phillip Capital: BSA Ltd (BSA): Update and Interim Results Review - Covid impacts but Value remains

PC have an "Accumulate" call on BSA and a 28 cps price target.  BSA closed at 25.5 cps today, up half a cent.  [I hold BSA]

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