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 is a diversified energy and infrastructure services group providing equipment, construction, commissioning and maintenance services to the oil and gas, resources and infrastructure sectors throughout Australia.

Since backdoor listing on the ASX in 2013, Valmec has continued to improve ongoing revenue and build diversified revenue streams across multiple sectors and locations. 

VMX has increased its project order book from $41m in 2014 to $80m in 2019. The company has a long list of large clients including Santos, APA Group, APLNG (ORG), Saracen Minerals, MPC Kinetic, and Sydney Water. 

Being a mining services company with a heavy emphasis on oil and gas, the company does follow the mining cycle. But since the turn of the resources cycle in Australia in 2016, Valmec has been aggressively growing its revenue as the demand for their services has greatly increased. Much of this work has been from the East Coast Gas thematic, driven by:

• A supply imbalance in the Australia east coast gas market
• Strength in oil pricing
• Strengthening global LNG demand
• Improvements in commodity pricing coupled with a period of underinvestment in project development by explorers since a peak in investment in 2012-13.

This thematic looks likely to continue and with the company trading on a reasonable valuation while continuing to add new contracts, VMX is an attractive opportunity.

The company has high insider ownership and the directors continue to buy stock. During FY19 KMP bought about 2.3% of the stock, taking the total insiders holding around 46% of the stock.

Importantly, the company has given guidance of 20% revenue and EBITDA growth, which, at the midpoint of EBITDA puts it on a 3.6x EBITDA multiple and (on my forecasts) 9.2x PE. Given the forward visibility, the company has into its future revenue, barring any unforeseen contract cancellations, I'd be fairly confident in this. 

Finally, there is the matter with John Holland that is currently before the courts. John Holland owes VMX $11.6m for a contract completed between July 2016 and March 2018. The VMX statement has said that if a favourable outcome was received, earnings and FCF would receive a material hit. Given the market cap of $37m, this would be significant, leading, most likely to a combination of a small acquisition and a special dividend.