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09-Feb-2021: Strategy Execution Update
Sydney, 8 February 2021: BSA Limited (ASX: BSA) wishes to provide a business update for the 6 month period ending 31 December 2020.
BSA will release its half-year reviewed results on 18 February 2021.
The 6 month period saw the company successfully deliver on a number of its stated strategic and tactical goals designed to set a strong platform for further growth. These achievements include:
- Increasing market share and tenure on key material contracts
- a. nbn – new 4 year services and installations agreement which increased our market share from 26% to circa 36% and positions BSA as a key strategic delivery partner to nbn into the future
- b. Foxtel – new 3 year contract increasing our market share from 50% to 100%.
- Diversification of clients and services
- a. Telstra – new key client secured for an initial 3 year period through a partnership arrangement with Kordia Australia. Work secured across both our operating divisions (“Communications and Utilities Infrastructure” as well as “Advanced Property Solutions”)
- b. Wireless entry – expanded our strong fixed line product offering into the wireless market through the acquisition of Catalyst ONE.
- Cost Efficiency & Technology
- a. Market leading Salesforce Field Services Lightning technology rolled out across whole APS client base – this will lead to significant improvement in data insight, processing speed, cost efficiency and customer satisfaction
- b. Advanced scoping of market place B2B platform for technical service providers
- c. Cost efficiency and rationalisation measures successfully implemented across direct and indirect cost areas – ie robotic process automation (“RPA”) introduced to aid processing of claims for high work order volume clients
- d. Structure & organisational design and delivery changes that serve to move the business to a more variable cost model as well as reduce overall overhead spend. As a consequence BSA was able to hold and in some cases enhance gross margin and underlying EBITDA notwithstanding short term deferrals of revenue.
The positive financial impacts of these significant achievements for the group will be predominantly realised from FY22 onwards as these contracts and initiatives transition and bed down through 2H FY21. We also expect client discretionary spend levels to return to historic norms during the course of this calendar year as the economy opens up and confidence returns.
For the 6 month period to December 2020, the group is expecting to report a temporary decline in financial performance relative to the prior corresponding period. This is primarily impacted by reduced overall market volumes in nbn compared to the roll out peak in FY20 coupled with the previously reported headwinds experienced in the APS division from COVID19 without any material offset from the successful initiatives executed as outlined above.
The company has also incurred a number of one off costs in the period relating to restructuring to drive future cost efficiency and reflect new delivery models on key contracts as well as legal costs.
Furthermore, with the Salesforce technology platform successfully deployed within APS in the period, the group has also commenced depreciating the establishment costs of this asset – these depreciation amounts are noncash but impact on Net Profit After Tax compared to prior corresponding period.
The company achieved a strong cash result with an ~82% Operating Cash Flow conversion for the period reflecting the robust underlying business and retains a very strong balance sheet position providing capacity for future growth initiatives.
As a result, the Board proposes to continue to pay an interim dividend of 0.5 cents per share subject to finalisation of the financial results.
Outlook
As outlined above, the new management team successfully delivered on a number of key strategic priorities in the period to December 2020 that has set an extremely solid platform for FY22 and beyond. The Board and management are now actively looking at materially accelerating further growth with a view to achieving minimum targets over a 3 year period (FY24) as follows:
- Revenue of $750m
- EBITDA margins of 5% (minimum)
- Dividend payout ratio of 60%
- No adverse change to risk profile and quality of earnings.
This planning includes assessment of potential significant acquisitions and investment opportunities to further diversify our portfolio of services. This will enable us to better leverage our overhead base, drive revenue efficiencies through deployment of our workforce management and customer experience excellence and use technology to transform traditional market delivery methodologies.
The financial information in this announcement is subject to auditor review, which will be completed in conjunction with the preparation of the Appendix 4D that will be released to the market on 18 February 2021 accompanied by an investor briefing from Tim Harris, CEO, at 11.00am (AEDT).
The audio briefing will be streamed live and may be accessed via the BSA Limited company page on the Open Briefing website: http://www.openbriefing.com/OB/4093.aspx.
The presentation slides will be available through the link.
Participants will need to pre-register for the call at the link below:
Pre-Registration Link: https://s1.c-conf.com/DiamondPass/10011958-jd87d4.html
Once registered, participants will receive a calendar invite and a unique code, which is to be quoted when dialling into the call. To ask a question participants will need to dial “*1” (star, 1) on their telephone key pad.
The webcast will open 15 minutes prior to the start of the presentation.
--- ends ---
Click on the link above (at the top) for the full announcement, including the unaudited financial results table comparing 1H FY21 to 1H FY20.
[I have held BSA previously, but not currently. I prefer Service Stream (SSM) in the space at this point, and so I hold SSM instead. I think SSM have been sold down too much, and should rebound on results that are not AS bad as the market is expecting. BSA on the other hand seems to have a fair bit of upside already priced in.]
16-Dec-2020: BSA secures nbn Contract [BSA up +5.17% today]
See also: Service Stream: SSM secures multi-year Unified Operations Agreement with NBN [SSM down -12.13% today].
Why? One up, one down? Because back in August, BSA couldn't get a guernsey, however SSM and DOW were proudly announcing 4 year contracts with 2 x 2 year extension options (same as today's announcements) with the nbn for basically all of Australia - except Tas. DOW had WA, SA & NT, while SSM had Victoria, NSW, Queensland and the ACT. BSA had been given a 1 year extension on an expiring contract, but were still trying to negotiate a longer term deal.
Today, DOW have announnced nothing, SSM have announced they have been allocated regions across Queensland, SA, NT and WA, but no mention of NSW or Victoria. BSA have announced that they have been allocated regions across NSW and Victoria.
I'm betting that the market is thinking that SSM have lost NSW and Victoria to BSA, however that's not the way I'm reading it. The contracts that DOW and SSM announced in August were both 4 year contracts with extension options beyond 4 years. It's only been 4 MONTHS. I think the key term to note here is "regions". For instance, one company could have Melbourne and Sydney, i.e. the greater metro areas of each city, while the other company could have the rest of each state, i.e. the rural areas and smaller cities.
What I'm reading is that BSA have finally managed to secure a longer term contract with nbn, but only for certain regions within 2 states. However, SSM have now signed an ADDITIONAL contract with nbn which has given them work in WA, SA & NT plus additional work in Queensland, all in addition to the nbn work they will continue to do in NSW and Vic. In fact, in today's announcement by SSM, they said:
"Following the recent signing of the Unify Networks agreement in August across a similar term, Service Stream will effectively be providing nbn with operations and maintenance support across all mainland states and territories under either the Unify Networks or Services agreements. We look forward to continuing to support nbn’s maintenance programs for many years to come."
So, they have NOT lost NSW and Vic. I do NOT currently hold SSM or BSA (having owned both previously), but I do hold DOW shares. If I was going to buy BSA or SSM, I would prefer to buy SSM at this point, as long as I could get them at a good price. I consider Service Stream to be a far superior company to BSA. I think SSM will recover today's -12% SP loss over the coming days as the market realises that this announcement by SSM was positive, not negative, and they simply have MORE nbn work now than they did before.
It's also positive for BSA of course, but the reality is that BSA have now secured ongoing nbn work (over at least the next 4 years) in two of Australia's states (albeit the two with the largest population), while SSM has contracts for the same nbn work in EVERY Australian mainland state and territory (everywhere but Tasmania). And SSM is a larger, stronger, and better run company, in my opinion.
Further Reading: https://www.itnews.com.au/news/nbn-co-signs-service-stream-downer-edi-to-new-field-services-deals-552655
https://www.downergroup.com/downer-awarded-new-four-year-nbn-contract
http://www.bsa.com.au/pages/sectors/communications/nbn.html
https://www.servicestream.com.au/networks/telecommunications
https://www.afr.com/politics/federal/nbn-push-for-fibre-to-the-home-20200922-p55xxv
https://www.afr.com/companies/telecommunications/nbn-splashes-200m-on-it-upgrade-20201208-p56lj9
Analyst: Wayne Sanderson – Head of Research, wayne.sanderson@sequoia.com.au, +61 400 434 548
Summary
BSA Limited (BSA) is a Sydney-based technical services contracting company operating nationally. 2 main segments:
- Communications & Utility Infrastructure (nee BSA Connect) (68% of FY20 Ebitda) – Large field force of technicians /contractors serving the Telecommunications sector (NBN, Optus, Foxtel etc.).
- Advanced Property Solutions (merger of BSA Maintain – Commercial building maintenance including fire, HVAC (heating, ventilation and air conditioning), electrical, plumbing and general; and BSA Build/ Fire – Technical design and construction of fire suppression and fire detection systems in commercial buildings and motorway tunnels. Project based.
What has changed?
- Strategic acquisition of Catalyst One Pty Ltd – for $2.0m cash and up to $3.5m 2-yr earn-out. This provides BSA with a strategic entry into the Wireless Telecomms segment to complement BSA’s Fixed Line Telecomms services business.
- Further extension of NBN OMMA contract by 6 months to 30 June 2021, with an option for NBN to extend for a further 6 months to Dec 21. Possible new NBN work to be allocated.
FY20 Result ahead of our forecasts
- BSA reported adjusted NPAT of $9.9m for FY20 (v $12.8m), down 23%. However, this was ahead of our $7.4m downgraded forecast.
- Revenue was $490m (v $470m) up 4.4% and 2% ahead of our $483m forecast.
- Ebitda was $25.9m (v $24.6m) +5.2%, 17% ahead of our forecast of $22.1m.
- Abnormal / significant items of $2.1m ($2.9m pre-tax) and losses on Discontinued division $8.8m (HVAC Build) resulted in a Reported Net Loss of $1.0m (Our forecast $0.9m Loss).
- EPS (adjusted) was 2.3 cents (-23%), ahead of our 1.7c est.
- DPS was 1.0 cent fully franked (v 0.5c ff) signalling the Board’s confidence in the company (43% pay-out rate).
Change in estimates
We have trimmed our FY21 EPS forecasts by 2%, but upgraded FY22 by 22%. We expect Communications & Utility revenue to be stable (new work to offset expected NBN decline). Further contract wins or acquisitions could provide upside. We expect a strong recovery from the Covid-19 impact on the APS maintenance division in 2H21 (particularly retail and tertiary education).
Recommendation & Opinion
Our revised 12-mth price target is $0.33 (was $0.31) due to the Catalyst ONE acquisition and improved prospects in Wireless / 5G. This includes a 10% “positioning premium” as BSA looks well placed to grow in large Telecomms and Property Maintenance sectors. We upgrade to BUY from Accumulate.
--- click on link above for the full Sequoia report on BSA ---
[Bear77 note: I did hold BSA, but sold out earlier this year to rotate those funds into a different company that looked like a better opportunity to me. I do still keep an eye on BSA however.]
15-Oct-2020: Extension of nbn OMMA Contract
BSA secures 6-month extension of nbn OMMA contract
Sydney, 15 October 2020 : BSA Limited (ASX:BSA) is pleased to announce today that it has secured an extension to its Operate and Maintain Master Agreement (OMMA) contract with NBN Co (nbn) for 6 months to 30 June 2021 with an option for nbn to extend for a further six months to December 2021.
BSA will continue to provide nbn with a range of activation and assurance services to its Fibre to the Premise (FTTP), Fibre to the Node (FTTN), Fibre to the Basement (FTTB) Fibre to the Curb (FTTC) and Hybrid Fibre Coax (HFC) network infrastructure. The extension will be on similar commercial terms to the existing contract.
BSA Managing Director Tim Harris said, “We are very pleased to extend our long term collaborative partnership with nbn and to continue to provide a market leading customer experience in connecting Australia to the National Broadband Network.
We look forward to working through nbn’s procurement process to support a long-term agreement being secured beyond this current extension.”
[I no longer hold BSA shares. I note that both Service Stream (SSM) and Downer EDI (DOW) announced recently (on 31-Aug-2020) multi-year (4 years with 2 x 2 year extension options, for a max of 8 years) Unified Field Operations (Networks) Agreements/Contracts with NBN. DOW's agreement is valued at ~$320 million over the maximum term of eight years. Downer will provide services including network restoration, copper rehabilitation, alternate power system activities, network performance and capacity enhancement, urgent field service work and site maintenance across Western Australia, South Australia and the Northern Territory. Under their new NBN agreement, Service Stream will continue to be responsible for performing operations and maintenance activities across core network technologies, including Fibre to the Node (FTTN), Fibre to the Premise (FTTP), Fibre to the Basement (FTTB) Fibre to the Curb (FTTC) and Hybrid Fibre Coax (HFC) as well as other technologies which may be introduced in the future. The NBN has initially awarded Service Stream works across Victoria, New South Wales, Queensland and ACT, with additional works able to be allocated in other regions at nbn’s discretion. So, both DOW and SSM have announced between 4 and 8 years more work for the NBN, and together they cover every Australian state and territory except Tasmania. By contrast, almost 7 weeks later (today), BSA have announced a 6-month extension to their current NBN OMMA contract to the end of the current FY, with a further 6-month extension option (these options are all at the sole discretion of NBNCo). BSA are clearly not the NBN's preferred contractor here. While BSA have some so-called "smart money" on their share register, BSA are small, have performed quite poorly compared to their industry peers, and are usually quite illiquid. I believe there are better options out there than BSA at this point.]
08-Oct-2020: BSA Acquires Catalyst ONE
[I am not currently holding BSA shares, but I have held them previously on a couple of occasions.]
31-Aug-2020: Service Stream (SSM): SSM secures multi-year Unified Operations Agreement with NBN
See also: Downer EDI (DOW): 31-Aug-2020: Downer awarded new NBN contract
See also: BSA Ltd (BSA): from their FY2020 Investor Presentation (24-Aug-2020): Page 4 ("Full Year Highlights"), right side ("Order Book"):
- Foxtel’s preferred single national delivery partner – 3 year contract as sole provider;
- Negotiating with nbn to extend OMMA contract through to June 2021 (with further 6 month nbn option);
- Fire Build – strong order book with a number of contract wins in the period including WestConnex link 3A, Sydney Football Stadium, Gold Coast Airport and Sydney Metro; and
- National maintenance contract awards for Aldi and 7-Eleven with strong forward demand.
So, both Downer (DOW) and Service Stream (SSM) have today BOTH announced multi-year (4+2+2) Unified Field Operations (Networks) Agreements/Contracts with NBN.
Downer's agreement is valued at ~$320 million over the maximum term of eight years. Downer will provide services including network restoration, copper rehabilitation, alternate power system activities, network performance and capacity enhancement, urgent field service work and site maintenance across Western Australia, South Australia and the Northern Territory.
Under their new NBN agreement, Service Stream will continue to be responsible for performing operations and maintenance activities across core network technologies, including Fibre to the Node (FTTN), Fibre to the Premise (FTTP), Fibre to the Basement (FTTB) Fibre to the Curb (FTTC) and Hybrid Fibre Coax (HFC) as well as other technologies which may be introduced in the future. The NBN has initially awarded Service Stream works across Victoria, New South Wales, Queensland and ACT, with additional works able to be allocated in other regions at nbn’s discretion.
So, both DOW and SSM have today announced between 4 and 8 years more work for the NBN, and together they cover every Australian state and territory except Tasmania.
BSA have announced nothing today, and I am of the opinion that they could well be left out in the cold in terms of NBN work going forwards. They still have Foxtel, but with the huge increase in cheaper streaming services (Stan, Fetch, Netflix, etc.) now available, Foxtel is not growing, they are shrinking, so that Foxtel work is unlikely to provide a growing revenue stream into future years for BSA, in my opinion. BSA still have their "Fire Build" work, but that tends to be project based, rather than recurring revenue. They also have national maintenance contracts with Aldi and 7-Eleven going forwards, but they need more. I have decided to cut BSA loose today, so I've just sold all my BSA shares - at 29 cps. It was a relatively small position anyway, and I think there are better opportunities elsewhere.
[I don't own any SSM. I do hold Downer (DOW) in my SMSF.]
24-August-2020: Annual Report to shareholders plus Investor Presentation
The turnaround continues. It's going to take another year or two, but they have some small-cap fundies on-board (NAOS with 25.6% & Lanyon with 21.8%, plus Wentworth Williamson/Sandhurst Trustees with 5.11%) plus Bruce Gordon (Birketu/WIN Corporation, with 16.91%) - who are obviously prepared to back this BSA management team to turn this thing around. Their recurring revenue is now up to around 80% of all of their revenue, and they have divested their HVAC Build Major Projects division - being an area where they were getting themselves into trouble in prior years. There is still plenty of room for performance and profitability improvement - and I think we're going to see that over the next 24 months. I'm happy to continue to hold BSA.
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:
- NAOS Asset Management increased their holding from 24.16% of BSA to 25.6%.
- 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.
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]
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.
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]
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.
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.
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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