Will paste here my write up on them for A rich life. Link here: https://arichlife.com.au/4-strong-fy24-q3-quarterly-cashflow-reports/

BSA Ltd (ASX : BSA)

BSA Limited, formerly known as Broadcast Services Australia Limited, derived its name from its focus on technical services contracting, primarily involving the construction and maintenance of network infrastructure for clients such as Optus. 

Despite their extensive history as a company, a quick review of their historical performance will prompt many investors to overlook them outright. I can’t blame anyone for this given their declining revenue and frequent losses.

However, a recent shift has occurred; the company has achieved two consecutive quarters of positive operating cash flow. How did this come about?

Well, the company embarked on a transformation journey some time ago. In March 2023, they made the somewhat contentious decision to appoint two joint CEOs. While this approach may seem unconventional, certain companies can benefit from it.

Historically, BSA had often accepted contracts with razor-thin margins. However, as labour costs escalated, profitability became elusive. Recently, they made the strategic choice to divest from unprofitable segments, such as their APS Fire division. This strategic shift is expected to gradually propel them towards their target of achieving double-digit EBITDA margins.

For valuing BSA, looking at Free Cash Flow is a useful metric (take their operational cash flow, deduct their investments in “property, plant, and equipment”, and subtract lease repayments as well). Note that debt repayments are not deducted from their FCF. The rationale behind this is that they have now repaid their debt entirely, implying that this repayment won’t recur in future quarters.

This quarter’s free cash flow represents a significant milestone, reaching a record high of $2.16 million. Over the past 6 months, the company has generated approximately $3.27 million in cash flow. If they maintain this performance over the next 6 months, annual cash inflows would total around $6.54 million.

Considering a market capitalization of $52 million (calculated from 72.16 million shares outstanding at $0.715 per share), this yields a multiple of around 8x free cash flow. This multiple could present an opportunity if the company successfully executes its ambitious growth plans aligned with the tailwinds from the demands of the EV market. But we haven’t seen evidence of this yet and will need to. 

Despite these positive developments, BSA still faces numerous risks. The nature of their business means that it will likely always remain low-margin, even after a successful turnaround. A misstep could easily plunge them back into painful losses. 

Also, the discontinuation of certain operations will inevitably continue to lead to a decline in revenue, complicating future projections and making the business less appealing in general. 

Nonetheless, the transformation into a company that produces free cashflow, if that is what is happening, is worth noting.