Valuation based on 11c EPS in FY23 and 10% growth rate for next 5 years & 10 PE.
Why do I own it?
# Founder led and appears to be a very good Board and management team who own around 50% of the business and have been good at managing the financials over the years.
# Similar to Duratec (DUR) in terms of sectors they operate in being Resources, Energy, Infrastructure and Defence. Major clients include the likes of Rio, BHP, Fortesque, Woodside, Chevron and the Navy. Maintenance work is a good chunk but they also do construction/manufacturing too like building bridges, tanks and dump truck trays. Biggest sector is resources so won't be going head to head with Duratec for work all the time.
# Founded in 2009 and listed on ASX in 2018. They have been able to maintain/grow ROE/ROC since founding to now be mid teens and EPS have tripled over 6 years since listing.
# No dilution as they fund growth from strong existing cash flows. Debt to equity has continually declined and is now at 27%.
# Based on strong history, stable founder led team, good net margins, and small market share of huge markets, they should be able to double EPS every 5 years and exceed our 15% p.a. return target given excellent MOS at entry point. Currently have strong order book of over $1 billion.
# Probable structural tailwinds as Australia keeps growing and spending more on infrastructure, mining and defence that will need maintenance and construction.
# Low liquidity but upcoming catalyst expected mid 2024, when they move from dual listing in Singapore to an ASX only listing. That should significantly improve liquidity and lead to possible re-rating of the current PE of only 8 times.
What to watch?
# Considerable risk of mis-quoting or failing on a large project, that would impact short term earnings results.
# Exit of Founders or breakdown of current culture.
# May have lumpy years due to contract nature of the business - win a big contract and sales spike or vice versa.
# Will need to improve gender diversity at senior level, if they move into the ASX300 and beyond.
# Need to dig into NPS and employee engagement scores - do they measure and what is the trend.
# Need to dig into overall remuneration structure and what are the EPS targets that make up LTI.