I am also quite disappointed that the takeoffer offer for Valmex ($0.423) has been recommended by the Directors.
Given that the year end accounts have not yet been released I would have thought that any recommendation would have waited on the financials before the Directors made a recommendation
It would also have been good to have seen an independent valuation to confirm the offer was enough.
I am a bit disappointed with this takeover news.
Selling a growing business with multiple tailwinds for 8 x forward earnings in this market, is too low a valuation. What happened to Management's "$300m revenue business in 12-36 months", sell outs!!
I may stick around here for another couple of months for a few reasons:
1. The offer is subject to not receiving a better one. VMX is still attractive at 40c, and so who knows, we may get a better offer from another party.
2. Still expect a FY21 dividend in coming months.. Just need to double check that the offer doesn't exclude dividend's prior to the takeover. I imagine the directors probably would like to suck out as much as they can in dividends before the takeover goes through... They hold a lot of shares too.
Anyway, this has happened to me twice recently, first ICS and now VMX. Pitches like VMX and ICS don't come along often, so you can understand my frustration as VMX is 33% of my RL portfolio and now I have to figure out where to redeploy the capital...
Anyway, despite the disappointment of being sold short of the opportunity. Valmec has been a great investment for me, with the thesis playing out as planned and returning nearly 100% in less than 12 months - was just hopeful of 60c + in the next year or so.
On to the next investment...
Valmec receives takeover offer from Altrad in an all cash deal at $0.413.
This at first was a surprise, but in thinking about it more it shouldn't be, given where we are in the market, and the value on offer. The takeover offer reinforces the value currently in the company. It trades on around 7x annualised 1h21 NPAT (consistent with the statement that FY21 would be a "record result") and the pipeline has never been stronger with an order book over $200m.
In some respects I am a bit conflicted, because I expected the FY21 result to be very good, with the first ordinary dividend paid since 2015, and was happy to continue to ride out the story. But it is of course nice to have the value realised from an outside bidder. I think Altrad sees value too too and wanted to get in before the result is released but waited until the John Holland issue was cleared up. The timing was near perfect.
VALMEC DECLARES SPECIAL DIVIDEND - RESOLVES JOHN HOLLAND DISPUTE
The company has announced a 1.2c special dividend fully franked (3.6% yield on current prices or 6% on my cost base), having resolved a long ongoing dispute through a court mediation with John Holland. This matter has been ongoing since 2018, and a testiment to Valmec's resilience to be able to get through this. The claim was that they didn't get paid $11m for a completed project. For a company with a current market cap of $42m, you can imagine this is quite significant. In my day job as a restructuring professional, we see these type of disputes all the time, and the liquidity pressure by non payment and long winded court proceedings often leads to significant distress, large debt stacks and even default/bankruptcy.
The dispute was always a "hidden asset" within the company, with all legal costs written off as incurred and the upside to be a one-off uplift to cash flow and earnings in FY2021. The ultimate settlement amount was still undisclosed. The dividend is $1.5m in total, but the settlement could be much more, albeit we will have to wait until year end to check the cash flow.
They state the dividend represents the maximum available to pay as a fully franked dividend. Either way, I'm not complaining as it's 6% of my cost base or 3.6% of the current share price. Also, I imagine Valmec are retaining a chunk of the cash, at a timely period in the company's journey as they look to fund the next stage of growth journey. Indeed the company has flagged previously that they are eyeing M&A opportunities.
Anyway - It's good to have this matter resolved, legal costs were weighing on our corporate overheads and overall profit margins. Most importantly, the distraction is aside and the company can get back to focussing on it's growth journey ahead. Looking forward to the FY21 results being announced in due course.
Announcement is here.
19 May 21
Share Price 0.32cent
Market Cap $40m
Annual Revenue $112m
(VMX), formerly Core Services Group Limited is an Australian energy services group providing equipment, construction, commissioning and maintenance services to the oil and gas, resources and infrastructure sectors throughout Australia.
Product and Services of VMX consist of (i) Process Services Engineering, Procurement and Construction; (ii) Gas Compression and Processing; (iii) Infrastructure Service Construction; (iv) Petrochemical and Mining Fabrication; (v) Electrical and underground services; (vi) Asset Preservation, Service and Maintenance; and (vii) Asset Integrity and Inspection Services.
Directors own $14.7m of shares
Since Sept 20 Directors have purchased $189k of shares on the market.
6 shareholders own 61% of the shares
Financial Details and forecasts
Forward Order book $215m at 31Jan21
67% of order book is recurring revenue
My estimate FY FY21
Revenue $126m (Company outlook)
EBITDA $12.6m. Assumed 10%
PE ratio Forecast FY21 6.4 times
The directors expect to make a dividend payment for year ended 30 June 21.
FY23 revenue forecast $300m.
Pipeline of future opportunities $1.1B
Growth opportunities coming from
Renewable Hydrogen Sector represents a good opportunity for future work.
Other opportunities are in gas , water and resources
The companies current shareholding is tightly held.
Valmex has a good order book with a high level of recurring revenue. They also have some good opportunities for growth over the next few years.
If the FY23 revenue forecast of $300m can be achieved with a NPAT margin of around 5% this will generate around $15m in NPAT (around 11 cps. and forecast FY23 PE 2.9 times)
At the current price of 32cent Valmec seem to be undervalued.
DIRECTOR BUYING ON MARKET
Good to see more director buying on market at $0.28 after substantial insider buying last year at lower levels.
Usually a strong signal. Refer to my valuation for details on VMX
This turnaround story is really coming to life. Valmec reports EPS of 2.42cents for the half and expect a stronger second half. Say, 5 cents for the FY21 full year has this trading on 6x earnings (currently a 30 cent share price).
- Performance expected to be stronger in FY22
- Expect to pay dividend at the conclusion of FY21 (first time since 2015)
- Clarification regarding the hidden asset of John Holland claims, would be paid out as a special dividend (subject to successful outcome which VMX are confident in).
- Record forward order book levels
- Transition to reoccuring revenue model is working. Origin Energy contract of $100m over 5 years for asset servicing was won in the period
- Record cash flow generation, reducing to very low debt levels
- Tangible assets per share of 25cents, so effecitvely the market only gives a c.20% premium to the net tangible assets
- It's one of the tightly held registers on the ASX. If you want a decent parcel - you're gonna have to pay up, Most holders (including me) ain't selling a single share...!
Valmec order book exceeds $200m as they secure another $30m of contracts.
I have this one trading around 5 x FY21 earnings and growing into FY22+. I'll update my valuation again once the half year accounts are finalised (although I think it's relatively unchanged as my forecasts proved out in the headline numbers).
VALMEC REPORTS RECORD EARNINGS AND CASHFLOW
Extrapolating for the full year, I have this one currently trading on 5 x FY21 earnings.
Very tightly held register and potential to multibag in the medium term as it proves out the market catches up and rerates.
Disc: I hold
~ 1H FY21 EBITDA expected to be circa $6.1 million on revenues of $61 million
~ Strong cashflow from operations during the period of more than $7 million
~ Forward order book of $195 million including preferred status contracts
~ 67% of forward orders represent recurring revenue
~ Net cash and available facilities of $30.5 million to support FY21 growth ? Increased revenues expected for H2 FY21