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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 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.
8/1 share consolidation then Cap Raise on the cards, surely another drop in value of 25% in the coming 6-12 months
I know not a popular stock but an easy one for me to highlight given my involvement and knowledge of current events and potential for any would be investors to easily miss whats currently at play behiond the curtain.
The latest recommendation from the Senate enquiry is of major concern, for the current contracting model of the nbn workforce. Ive highlighted the below statement
The committee recommended that the recently revised ministerial statement of expectations for NBN Co be revised again to make NBN Co “responsible” for working conditions throughout its supply chain.
This is a huge risk as nbn has always relied on a large contracting workforce managed through the Deliver Partner Model.
NBN currently have a smallish internal workforce and throughout the onging senate enquiry have deflected responsibility for many of the current allegations/situations stating they have a contract with the DP and anything that goes on with the contracted workforce is between the contractors and the DP's.
I wont detail or comment on any of the findings or evidence reported thus far as it can be sourced by watching the hearings and is on public record for anyone interested, but given the mounting evidence that has been presented and allegations throughout this process, the current recommendation for nbn to take on responsibility for the workforce is exactly opposite to their current defence statements.
If this was to be adopteded, the only true way to then have directly responsibility is to have contractors, contract directly to nbn which has never been done before and i cant see ever happening personally or to potentially scrap the contracting model all together and move to a fully inhouse employee based workforce. This would take some transitioning but could be an option and a major risk to BSA.
If this were to happen BSA would potentially lose the nbn work or partially lose it. Needless to say, BSA appear to be the only DP that is contiunuallyat the forefront of this senate enquiry and the mountain of allegations that have been tabled thus far. Another risk is the workload could be completely transferred to one of the other DP's that seem to not have the extent of alleged claims against them that have been tabled thus far.
Gov asked to revise NBN SoE to cover field force work conditions
The NBN statement of expectations should be amended to explicitly make NBN Co responsible for the working conditions of all members of its extended field force, a senate select committee has said.
Subcontractors performing NBN work described difficult working conditions to the inquiry, with jobs unevenly distributed, poorly paid, and handed to an unending supply of inexperienced ‘technicians’.
NBN Co, meanwhile, was accused of outsourcing the welfare responsibility for its field force, though the company denied this was the case.
The committee made a scathing assessment of the “subcontracting pyramid model” used to farm out NBN work, which it said “facilitates unsustainable employment arrangements for those at the bottom of the subcontracting chain.”
“The committee believes that it is especially unacceptable for unsustainable and unfair contracting arrangements to occur within a project that is funded and administered by the Australian Government,” it said.
“Evidence indicated that there is pressure at every contracting level to make a profit and exert downward pressure on pricing and workforce conditions for smaller operators and individuals.
“As a consequence, the NBN is serviced and maintained largely by individuals who struggle to maintain financial viability and must work long and sometimes unpaid hours in order to survive.”
The committee recommended that the recently revised ministerial statement of expectations for NBN Co be revised again to make NBN Co “responsible” for working conditions throughout its supply chain.
“The committee recommends that the Australian Government amends the NBN Co ministerial statement of expectations to explicitly state that NBN Co is responsible for conditions of work, exploitation and corruption that occurs in its supply chain, including for subcontractors engaged by delivery partners or prime contractors,” it said.
“NBN Co should be directed to prepare and publish a plan for how NBN Co will safeguard, monitor and enforce sustainable rates of pay and fair working conditions for NBN technicians.”
The committee also recommended that the “number of vertical subcontracting arrangements be limited to enhance transparency and accountability, to reduce the inefficient outlay of taxpayer funds and wage suppression that result when too many layers of subcontracting are in the delivery chain.”
If implemented, that would have the impact of reducing the number of layers between workers and NBN Co, potentially resulting in a greater pass-through of money to those actually performing the field work.
It’s unclear to what extent the government might adopt the recommendations.
NBN Co has separately engaged KPMG to audit contractor pay and conditions.
However, the company indicated to the committee that it has made no commitments to make any of the findings of the KPMG report public.
https://www.itnews.com.au/news/gov-asked-to-revise-nbn-soe-to-cover-field-force-work-conditions-571563
There is an ongoing senate inquiry labelled, job security, that involves DPs managing contractors on the nbn platform. Last meeting was held on the 14/9 with evidence provided by contractors, BSA, nbn and ASIC. https://youtu.be/aIIx7B3zJW4 Part of this hearing can be seen in the above link. I wont comment further, rather wanted to ensure those invested or intending to invest in BSA are aware of this ongoing process in which they are involved.
A note on the implementation of their lightning system which appears to have positive effects in reducing head count in certain areas as it facilitates previous manual functions involving humann interaction.
Although not at 100% implemented, contractor adoption and use has increased significantly and appears fit for purpose and i can see the savings in process automation the system will deliver.
Disc i contract to BSA on the nbn platform.
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:
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:
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.
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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.]
BSA a fairly new addition for me, attatched below is an excerpt from Naos monthly update today. They own 29% of this and have still been topping up recently.
Lanyon Asset own 22% and the Lanyon Portfolio manager David Prescott also has a seat on the board as a director now. I like these scenareos as you can be sure that any decisions to be made, he will be pushing for the best out come for shareholders rather than managment.
Naos - Firstly, BSA made two significant releases that we believe provides the company with an excellent base of work with tier-1 clients for the foreseeable future. Most significantly BSA was able to secure a renewal contract with NBN for up to 8 years commencing in early CY21. Based on the initial contract revenue figures, BSA has secured a greater share of the overall NBN maintenance work due to what we believe has been high levels of service and customer satisfaction, which has allowed BSA to gain market share from far larger competitors. Pleasingly, BSA also announced in the month that they had successfully secured a five-year contract with Telstra, focusing on property and telecommunication asset works in Tasmania and Victoria. In addition to these two contract wins, over the course of CY20 BSA has also been able to secure a new contract withFoxtel as its sole contract provider and successfully move into the mobile/wireless space with clients such as the NSW Telco Authority. If BSA can continue to innovate in the way it meets and exceeds its clients requirements then we believe BSA has the potential to be a >$650 million revenue business.
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:
Other substantial shareholders have maintained their BSA positions:
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.
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]