Consensus community valuation
I first established a position in Tasmea (TEA) last year when it was trading around $3 per share (see previous straws). When the share price shot up over $5 per share I sold. I think the business was looking very expensive at $5.30 per share (23 times FY25 earnings) given it is yet to prove itself as an ASX listed business.
Since then TEA has acquired WorkPac and management has updated guidance. FY26 NPAT is expected to be between $70 million and $72.5 million (+37% YOY growth).
So what happened next? The share price fell to just over $4 per share! This put TEA on a forward FY26 PE of under 15 times. Now it started to look cheap again! I like what I see at Tasmea so I’ve started buying it back (starter position, cost price $4.30).
Taylor Collision Investor Conference Presentation https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-03031036-6A1300574&v=undefined
What I like about Tasmea
- Founder owned and managed.
- Over 58% owned by founders and directors - Stephen Young (39%), Mark Vartuli (17% including Vars Enterprises), Jason Pryde (1.73%)
- Recent insider purchases, late November Stephen Young and Jason Pryde purchase a total value of $1.1 million in shares at $4.50 per share (around the current share price)
- Strong Revenue growth (more than doubled in 3 years)
- Strong EPS growth - 300% in 3 years. Projected FY26 $0.27 (up 17% on FY25 $0.23)
- High ROE - FY25 28%. Projected FY26 28% (based on mid-guidance)
- New acquisition (WorkPac) will support Tasmea’s organic growth aspirations across the Electrical, Mechanical, Civil and Water & Fluid segments
- WorkPac: 45% implied return on capital (on net ~$40m upfront capital) and approx 10% EPS accretion excluding synergies (pro forma FY26)
Risks
- New to the ASX - Hard to value
- WorkPac acquisition risk
- Debt to equity 60% (high)
- Spend on electrification and renewables could lose favour?
- Needs Contract wins
Valuation
Tasmea listed on the ASX less than 2 years ago (29 April 2024). Given the short historical performance on the ASX, it is difficult for the market to value the business on a PE ratio. There’s nothing much to go by! In fact it appears to be relatively expensive based on its short historical PE ratio. It is currently trading on 20 time FY25 earnings. However, based on mid- NPAT guidance of $71 million the FY26 PE ratio comes back to 17 times. This still doesn’t scream cheap, but it looks reasonable given the fundamentals.
Using McViven’s valuation formula and assuming shareholder equity of $0.95 per share, FY26 ROE of 28% ($0.27 NPAT / $0.95) 53% of earnings reinvested, 2.8% fully franked dividends, and a required annual return of 12%, I get a valuation of $4.50 per share. Given TEA is now trading around $4.50 per share I will likely only add more shares if the price pulls back from here.
Held IRL (small)
TEA is a stock I hold, and based on my updated DCF valuation, I’m seriously considering adding more at the current price. My model estimates the fair value to be around $4.98 per share ($4 to $5.9 10th and 90th quantiles), while it’s trading at $2.55 — that’s a discount of about 95%, which gives it a large margin of safety.
TEA provides engineering and maintenance services across industries like mining, energy, and infrastructure (see @Rick #History and Ownership) — not the flashiest business, but essential and stable. The company has $110 million in debt, but also $25 million in cash, and it’s steadily profitable. Over the last year, it earned around $55 million in operating profit on $493 million in revenue, with decent margins and returns.
It’s also reasonably priced for its earnings. The forward P/E is under 13, and the P/FCF is just over 6 — both suggest the stock isn’t expensive. On top of that, ROIC is 16%, which shows it uses money efficiently — solid for a company its size.
TEA has been growing fast, with revenue likely up more than 20% this year, and my model assumes that growth will slow gradually over the next decade. Reinvestment rates start high around 50% and taper to 15% as it matures.
Of course, the company has some risks. It’s been expanding quickly through acquisitions, which can sometimes go wrong if not managed well. But even with cautious assumptions, my model suggests the business is worth significantly more than the market currently values it at.
At a current price of $2.55, and based on these numbers, I’m leaning toward increasing my position. Tasmea looks like a strong, growing business that’s still trading at a meaningful discount to what it’s really worth.
Some data and other valuation results
Market Cap: AUD $586.75 million
Shares Outstanding: 229.84 million
Debt: AUD $110.20 million
Cash: AUD $25.10 million
Tax Rate: 30%
Initial Revenue: AUD $493.30 million
Initial EBIT: AUD $54.80 million
Initial EBIT Margin: 11.1%
High Growth Rate: 21.1%
Stable Growth Rate: 3.0%
Average FCF Growth: 12.6%
Reinvestment Rate (avg): 18.1%
Return on Invested Capital (ROIC): 16.1%
Risk-Free Rate: 4.15%
Equity Risk Premium: 4.33%
Raw Beta / Adjusted Beta: 1.03 / 1.02
Cost of Equity: 8.55%
After-Tax Cost of Debt: 4.20%
WACC (High Growth / Stable): 8.00% / 8.27%
Enterprise Value: AUD $1,228.78 million
Equity Value: AUD $1,143.68 million
Intrinsic Value per Share: $4.9760
Current Market Price: $2.5500
DCF Margin of Safety: +95.14%
(Based on information in an article that appeared in the AFR on 28 April 2024 https://www.afr.com/companies/infrastructure/tasmea-helps-break-ipo-drought-after-spurning-private-equity-20240423-p5flys)
Tasmea raised $59 million in fresh capital in an initial public offering on Monday 29 April 2024 with shares offfered at $1.56.
It operates 18 businesses providing regular maintenance, and engineering fix-it services for plant and equipment to a range of blue-chip customers, including BHP, Rio Tinto, Newmont and Fortescue, often in remote areas. Around 90 per cent of revenue is from repeat customers.
On listing, Founder and managing director Stephen Young said being on the ASX would be better for long-term growth and for rewarding and incentivising executives running the 18 businesses, which include Tasman Power, Corfield’s Electrical, Nobles and Heavymech.
Mr Young and co-founder Mark Vartuli sold down a small part of their stakes, but retained a combined 60 per cent.
About 100 potential acquisitions are looked at annually by Tasmea, which has a strategy of organic growth topped up by bringing new businesses into the fold.
A forerunner to the Tasmea business, heavy engineering company E&A, spent a decade as an ASX-listed company from 2007 to 2017 but suffered losses in its last two years as a listed entity after tilting too heavily toward the construction segment.
Tasmea has made six acquisitions between early 2020 and April 2024, mainly centring on civil engineering and high-voltage electrical engineering.
Tasmea also works in the water services segments. Other customers include Origin Energy, Woolworths, and plumbing and bathroom supplies group Reece.
The company has a workforce of 1400 people and its largest divisions are electrical engineering, at 36 per cent of revenue, and mechanical engineering, at 32 per cent.
At the time of listing 2023-24 NPAT was projected to be $28 million. The business ended up reporting NPAT of $30.35 million, up 8% on projections. I like businesses that under-promise and over-deliver.
Mr Young said Tasmea had long-standing relationships with most of its customers.
Ownership
The two founders directly own close to 60% of the business. Founder and managing director Stephen Young owns 41%, and co-founder and executive director Mark Vartuli owns 18%. The next largest shareholder is Vars Enterprises Pty Ltd. Upon further investigation I find this body corporate is controlled by Mark Vartuli and it holds 17.2% of the business. So in effect Tasmea insiders (including other directors) currently hold about 80% of the business. That’s a lot of skin in the game!
Approximately 2% is owned by institutions and 14.8% held by the general public.
Recent insider transactions
Included the Interum financial report (Note 33 , Events after the reporting period) there is a note stating: “On 23 January 2025, Tasmea Limited issued an additional 100,000 ordinary shares, with a fair value of $295,000, to a senior employee who has elected to salary sacrifice for ordinary shares in the company.”
This puts a value of $2.95 on the shares taken up (same as the current share price). These shares need to be paid for from the employee’s salary. This gives me confidence knowing that employees are offered opportunities to put skin into the game. That’s a fair amount of skin!
The only other insider transactions since listing were made by Steven Young who added 222,600 shares in May 2024 for $1.61 per share. That turned out to be a smart move!
Held IRL 0.8%
“By hook or by crook, I will be the first to write in this book!” If you go back to the ‘60’s and ‘70s you’ll remember this as a popular first entry in a personal autograph book! Are you old enough to remember that?
I’ve had Tasmea (TEA) on my watch list for a year now. I should have done more work it earlier. A big mistake…Huge! I’m also surprised this is the first post for Tasmea here on Strawman, I thought it would be on someone’s radar at least. I hope to pique some interest to see what others think of the newcomer.
The business just released an impressive 1H25 result:
Management reported NPAT of $27.9 million, up 76.6% on 1H24. However the market didn’t like the result and this morning the share price fell 5% on yesterday’s close. I disagree. I thought the result was outstanding and have added a starting position while I continue to research the business in more depth.
Earnings have grown at over 30% per year, and ROE was 25% last year. Analysts were forecasting 2025 NPAT of $48 million (based on guidance) prior to these results. This looks like an easy beat given $28 million is already on the register for the first half. FY25 Earnings guidance is now $52 million, which would indicate a FY25 ROE of around 30%. That’s the type of business I’m interested in owning.
The balance sheet looks strong with debt on equity at 25% and this has been decreasing. The business is performing really well, and it might also be reasonably priced given the latest results! I need to do some more work on it, but I’ve taken a bite while I continue to dig deeper. Still early stages in my research, but initially I’m seeing a reasonable ROI of 13.5% at the current share price with updated earnings guidance.
More to come on this one!
What they do
Tasmea Limited provides shutdown, maintenance, emergency breakdown, and capital upgrade services in Australia. It operates through four segments: Electrical, Mechanical, Civil, and Water & Fluid. The Electrical segment provides remote area specialist services in industrial and commercial electrical and instrumentation services, maintenance and compliance of electrical assets, and indigenous trade services.
The Mechanical segment offers remote area specialist services in industrial and commercial refurbishment and repairs, shutdown, and mechanical maintenance. The Civil segment provides remote area specialists in commercial earthworks, waste management, and civil maintenance. The Water & Fluid segments offers remote area specialist services in industrial and commercial geomembrane solutions, lubrication solutions and maintenance, and drainage solutions. It serves mining and resources, oil and gas, power and renewables, defence and infrastructure, telecommunications and retail and waste and water industries.
Tasmea Limited was formerly known as E&A Limited. Tasmea Limited was incorporated in 1999 and is based in Jandakot, Australia.
Holding after result