Update 25/7

Why I like the business:

• Strong brand recognition for quality workmanship
• Dividend yield of around 7% at current price (nearly 10% gross)
• Consistent revenue since 2017 and is able to win contracts with quick turnarounds to maximise profits.
• Current value equates to 13.5% ROI under McNiven, with expected ROE of 20% (slightly less than last year)

Sales - 119.57m: Up 16%

NPAT - $13.16m: Up 19%

EPS $1.12: UP 18.3%

Dividend - 40c + 10c special dividend.

Cash flow $6.2m: up $8m from the previous period (this was significantly higher than expected)

In their previous presentation they indicated that they signed a good deal with high margins for a short turnaround. The result, an extra 700k, which increased the EBIT margin from 20% to 26% or production services.

Expenses significantly reduced overall from heat reclamation initiatives, in-housing and reduction of CAPEX by $1m. All this in preparation for the upcoming Kilburn Redevelopment work which was further elaborated in this update. Next year will be a transitory year with significant expenses going towards:

• Construction to Commence in Oct 2025, with construction in august and final installation and powercoating by 2027.
• $4m towards new machinery, welding bays and noise attenuation
• New build will double the in strut roll forming, flat bed laser capacity and number of weld bays
• New kettle installation
• In-housing of freight in VIC and Qld for further cost savings
• Transitioning ERP system in H1 2026

Future opportunities

• Leasing of a larger distribution facility in Queensland
• Increased automation project opportunity
• Strong pipeline of major infrastructure projects short and longer term delivery timelines.
• Larger capacity to increase overall business capability.

The next year ahead is going to be a busy one, and hopefully they can keep delivering while navigating the construction works and change management activities. Management seem to be confident that they will maintain the dividend payouts, reiterating the target payment range of 65%-90% of after tax profits, and the payment of a 10c special dividend.

Expecting NPAT to be around $12-13m next year, step up the following year with the increased capacity.

The market could still have a similar reaction to what happened with LYL earlier in the year, and the PE range to drop back down to the lower end of its range.

Based on a Historic P/E of 9-12x depending where you are in the dividend cycle, this one could range between $9.8 and $13. P/E could be in the higher end of this range with the future growth opportunities of this one.

Regrettably trimmed my position IRL and on SM (as I bought in at $9.2) and will look monitor the price after dividend payment.