19-Nov-2020:  CCZ Equities Research: Saunders International Ltd (SND): Aligned to promising growth themes, but fully valued in current macro

Analyst:  Raju Ahmed, rahmed@ccz.com.au +61 2 9238 8237

• Recommendation: HOLD
• Target Price: 55cps
• Share Price: 59cps (20-Nov-2020)
• Market Capitalization: $60m

CCZ Report Excerpt:

• Initiating coverage:  Saunders International (SND) is involved in the design, construction, maintenance and asset management services in the areas of tanks, bulk liquid storage facilities, and civil transport infrastructure such as roads and rail bridges. Key service capabilities include EPC (engineering, procurement & construction) across turnkey projects to increasingly complex and multi-disciplinary projects, engineering & design services, whole-of-life maintenance and support services, as well as provision of remediation solutions. These services are offered to various government and blue-chip clients in the energy & industrial, oil & gas, mining processing, defence, infrastructure and water sectors.
• On track with top-line guidance:  SND has guided to $100m in FY21 revenue on 3.75%-4.75% EBIT margin range. At its Oct’20 AGM, they reiterated the same and further noted that 85% of FY21 revenue guidance has already been committed. Noting its $304m active tender book as at Jun’20 and a circa 32% 1year forward revenue / tender conversion rate in the past few years, SND appears on track to deliver on this guidance. Current trading multiples however suggests the market is expecting SND to upgrade that FY21 top-line guidance by up to +15%.
• Well placed with the strategic fuel storage thematic:  The federal government will expand the Australian onshore diesel fuel storage capacity by 780ML to meet its fuel security obligations. We estimate the capex here is circa $0.5b, and SND as a leading bulk storage facilities construction player is well placed for its share of that sum. We also note this new capex post deployment could require up to $25m pa in maintenance opex and that is another opportunity for SND. Should these prove to be growth versus mostly replacement revenue (our base case), there is leveraged upside risk to forecasts.
• Investment thesis:  After a difficult few years SND is now very well positioned to benefit from the Australian government’s capex plans to meet its strategic fuel reserve requirements. The company also appears well placed to grow with the long dated, strong civil infrastructure spend in the Australian east coast. In addition, acquisitive plays in the recurring, maintenance services segment increasingly appears a likely SND thematic, and offers potential upside to valuation. However, all these appear to be largely reflected in SND’s current share price levels, leaving binary risks such as project contract award timing, scale, scope and funding model of acquisition(s), etc. as the key unknowns at this point.

--- click on the link at the top to view the full CCZ report on SND ---   [I do NOT hold SND shares.]

29-June-2020:  Taylor Collison: Saunders International Ltd (SND): Update Structural Change gives Rise to New Opportunities

TC has an "Outperform" call on SND.  I don't hold them myself.

04-Mar-2020:  Taylor Collison:  Saunders International Limited (SND) – 1H20 Result:  "Structural change gives rise to new opportunities"

TC have upgraded their Recommendation for SND to "Outperform" but haven't given a TP (unless I missed it).