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.
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:
* Operating Cash Flows Before Interest and Tax (OCFBIT) as a percentage of EBITDA (from continuing operations).
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.
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:
FY18 and FY19 results were impacted by $9.7m and $12.6m of abnormal items which spoiled good underlying results.
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:
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:
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.