I think that Valmec actually looks reasonably priced at current levels. My own valuation is based on their June 30th 2020 NTA (net tangible asset) backing - taken from page 12 of their 2020 Annual Report - see here: https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02273626-6A993325?access_token=83ff96335c2d45a094df02a206a39ff4 The bottom of page 12 says: Net Tangible Asset backing of 22.4c has increased from the prior year (FY2019: 21c). Page 24 of their annual report also says that: Net tangible assets per share accounting for the adoption of the new leasing standard (AASB16) for FY20 is $0.18. While VMX are indeed trading (at this point) just under that 22.4 cps NTA backing, I won't be buying VMX shares, and here's why. 1. It's a very crowded space, they have a lot of competition, and I own shares in some of those companies already. While 10% EBITDA margins (as a percentage of revenue) would be nice, it is probably not realistic to expect them to be able to consistently achieve double digit margins (10% or higher). Even one of the largest and best managed players in that industry, Monadelphous Group (MND), has seen their margins compress to single digits now. 2. While $112m in revenue in FY20 was disappointing - by their own admission - and they blamed the pandemic for that - it was marginally HIGHER than the $110m they achieved in FY19, which itself was 6.7% higher than the $103m of revenue they had in FY18. Their growth both pre-pandemic and during the pandemic has been pedestrian. It's still growth, but it's single-digit growth. 3. While EBITDA margins are interesting, it's NPAT (net profit after tax) that really matters. After all, as shareholders, it's the NPAT that's going to fund the dividends, and Valmec paid their last dividend to shareholders 5 years ago - in 2015. Their NPAT (profit) margins (as a percentage of revenue) aren't great - 1.1% in FY18, 3.2% in FY19, and 0.2% in FY20 (only $214K of NPAT on $112m of Revenue). If they could get back to FY19 margins in FY21, AND they increased their FY21 revenue to $120m (6.7% higher than FY20, the same revenue increase they managed pre-COVID in FY19), then they'll make NPAT of $3.84m in FY21, and that, in my opinion, is a very optimistic set of assumptions. In terms of EBITDA, on $120m of revenue and an EBITDA margin of 8% (which I doubt they can achieve), that's $9.6m of EBITDA in FY21. 4. On October 12th (9 days ago) they reported that their total order book is currently valued at only $75m, so $120m of revenue this FY would be brilliant from here if they could pull it off. On August 28th, when they reported, that same order book was worth $74.2m, so they grew it by only 0.8m in those 6 weeks. They also said on August 28th that "Valmec enters FY21 with an Order Book of circa $74 million and a strong pipeline of construction and service opportunities worth over $600 million." So that's $1m added between July 1st and October 12th. Not exactly awe-inspiring. And regarding that $600 million pipeline of opportunities, another company that I DO hold shares in, Macmahon Holdings (MAH) currently has a $7.5 BILLION tender pipeline according to slide 13 of their AGM presentation today (21-Oct-2020), and that's around the same level it was 12 months ago, and 18 months ago. The difference is that MAH have been winning significant new work and contract extensions, and seriously growing their order book, as well as replenishing their tender pipeline. The point however is that a tender pipeline - or an opportunity pipeline - doesn't always translate into revenue. It's good when it does, but MAH tend to win most of their new work from existing clients, and it is a lot harder to win work with new clients, mainly due to the very competitive contracting landscape. Anyway, I'm getting off-topic here. Point is, that a PE is a price to earnings ratio/multiple, and the earnings are earnings after tax "attributable to members" (i.e. shareholders), not EBITDA. MAH's current PE is 7.9. MND's is 23.6. NWH's is 11.9. DOW's is 14.1. Valmec's current PE is 97.06 according to CommSec and 116.4 according to the new ASX site. If - in FY21 - VMX make $3.84m in NPAT on $120m in revenue, that would be EPS (earnings per share) of about 3 cents. That puts them on a current forward PE ratio (i.e. the ratio between today's share price and the current financial year's projected earnings) of around 6.8, which looks cheap. However, they are a $25.8m microcap company operating in a tough and very competitive industry, and I'm not convinced they can hit those numbers. Their EPS in FY20 was 0.17 cps (that's less than one fifth of one cent per share of earnings). So, EPS of 3 cps would be 17.65 times what they made last year (in FY20), or a 1,765% increase in NPAT. In FY19, their EPS was only 2.82 cps, so it would be a big ask to see EPS back above FY19 levels in FY21. So, that's why I'm not buying VMX shares. Too small. Too risky. Sure, there's upside potential if everything goes well for them, but I need to see a lot more runs on the board before I'd get too interested. Plenty can also go wrong. And they're just not cheap enough to compensate for that risk. Also - they have some debt. Note 20 of their FY20 accounts shows that of their $7,654,000 of current liabilities, $6,499,000 (as at June 30, 2020) was a secured bank overdraft. They had $3,425,000 in cash (working capital) but for a $25.8m company, a $6.5m fully drawn bank overdraft is a worry. They say they have $30m of net assets, but $23m of that $30m are "contract assets". Net tangible assets per share accounting for the adoption of the new leasing standard (AASB16) for FY20 is $0.18, which works out to $22.63m based on 125.7m shares outstanding. I would argue that the majority of their net tangible assets would not be easily converted to cash, so they are not an asset play, they should be viewed in terms of their earnings ability and how much of those earnings should reasonably be expected to be returned to their shareholders. Based on the past 5 years, that would be $0 in dividends and a 3 or 4 cps capital gain (they were trading at around 17cps 5 years ago). Over the past 10 years, it would have been a total of 1c in dividends and a 60% capital loss - they were trading at 52cps 10 years ago. However, I don't even know if it was the same company back then. I haven't been following them. It could have been a back door listing for all I know. Point is that it's not the past that matters, it's the future, and the past is only useful in so much as it can inform us of their management's track record so far. In that respect it's probably not worth looking back more than a couple of years. The future does look rather uncertain though. If they had a new disruptive technology or invention, OR they had significant IP that gave them a serious competitive advantage, OR they were the largest and most respected player in their field, OR they had first mover advantage in a land-grab opportunity, OR they had a product that gets imbeded into their clients business and makes their clients sticky (i.e. low churn)... Obviously not, those are mostly competitive advantages that don't apply to the industry that Valmec are in. And that's why it's so competitive. It comes down to price and reputation, but mostly price. And that's why it's hard to increase margins significantly. Many players all competing for the same work. In such scenarios you can afford to be very picky with who you choose to invest in. In summary, I don't view them as a bargain at current levels, but that doesn't mean they won't do well. They might do very well. They are just not my own pick in that sector. I struggle to see their share price tripling from here (to over 60 cps) in the next couple of years. But I'm probably just talking up my own book here, so everybody - please do your own research and come to your own conclusions.