Discl: Held IRL 1.84%
SUMMARY
Looks like a pleasing on-track-run-rate-to-$20.0m-NPBT, half, sustaining the big jump between 1HFY25 to 2HFY25, into 1HFY26.
Operational update continues to be highly consistent against the VYS strategy and makes sound sense.
The only negative, more increased risk awareness really, was the flag that the macro situation on commodities could negatively impact the Iron Ore sector - but this impact will be offset by the Karriyarra scheme, hence the thinking to continue to keep the drill rig fleet in the Pilbara - this makes sense, and highlights the diversified nature of VYS’s operations.
Can’t quite understand the market’s reaction today, other than it probably ran too far ahead of the results and this is the re-calibration.
Anticipated earnings skew to 2HFY26 due to the timing of technology segment projects, did not materialise, so a very nice confidence boosting $10.0m NPBT this half.
1HFY26 NPBT includes material one-off costs (1) rapid national expansion of CMP Consulting (2) Non-cash cost $1.08m relating to Company performance rights (3) non-cash gain of $1.89m from fair value adjustment on the Contingnet Payable for CMP - this is good!
SEGMENT UPDATE
Industrial Segment
- Record half of earnings on the back of continuing high client demand - significant demand that returned across the entire iron ore sector in 2HFY25, continued in 1HFY26 and is expected to continue into 2HFY26
- Double shift of drill rigs and prudent rotation of equipment to a wider client base enabled a better return on assets
- Key in 2HFY26: Management of rig availability amidst drill rig rebuilds and purchases
- Revisited strategy to increase the size of the industrial fleet and continuing to reshape drill rig fleet mix to be skewed primarily towards owning and operating dual rotary rigs
- Rig Fleet Changes: (1) Newly purchased dual rotary rig to be deployed 3QFY26 (2) 2nd dual rotary rig purchased, to be deployed in 1HFY27 (3) Full rebuild of 2 existing rigs, to be redeployed late 2HFY26 (4) sale of non-core drill rigs
- Will continue to apply a commodity and geographic concentration strategy to service the Iron Ore sector in WA despite potential macro headwinds - underpinned by the need to address the substantial and growing water issue in the Pilbara
AdvisorySegment
- Earnings were in line with expectations, represent a steady baseline of work to existing and new clients
- Primary focus in 1HFY26 was rapid national expansion, hiring of key senior management and staff, establishing offices in BNE, PER and WLG and expanding of branding
- PER office won first work in mining from their traditional utility centricity
- Developing an early pipeline of international opportunities - (1) office in WLG sets VYS up in NZ where water reform and associated spend is imminent (2) ongoing development of relationship with Hazen & Sawyer that saw early works executed in both Aust and the US
Technology Segment
- Late client awards of a material wastewater treatment plant and an order of a large parcel of MAR units in the period, mitigating the earlier anticipated 2HFY26 skew
- Potential for the further award of an additional wastewater treatment plant and an additional MAR program in 2HFY26
- Continues to believe that MAR remains one of Iron Ore’s preferred methodologies for the disposal of surplus water now and into the future
- Continue to actively pursue and expansion in its breadth of products and service offerings in water abstraction, downhole monitoring and the installation, operations and maintenance of Company provided equipment - targeting first sales of these in 2HFY26
Asset Management
- No new updates on Karriyarra from what has been previously announced
- Targetting the issue of the Section 5C license, a binding water offtake or option agreement and in principl funding for the development of the associated KWS water infrastrcuture by the end of CY2026.
REVENUE
- Very good to see the sharp jump in revenue between 1HFY25 and 2HFY25, sustain through to 1HFY26, with a 62.9% jump in revenue v pcp and a 2% increase HoH
- Management reiterated that the technology segment has work in hand and anticipated award of work in 2HFY26 purely due to client timing of project commencements
- Corporate overheads were broadly in line HoH
EBITDA, NPAT
Nice on-uptrend result - no concerns!
CASH & BORROWINGS
- Despite lower cash from operations, the balance sheet has continued to show pink health
- Cash is up slightly and borrowings have dropped sharply to $0.18m
OUTLOOK AND GUIDANCE
Continue to target FY26 NPBT of $20.0m
Well placed to replicate 1HFY26 earnings, well positioned to action organic and acquisitive growth initiatives that would provide further YoY earnings growth heading into FY2027.
Building out a unique water services and infrastructure business in the Australian market with a growing exposure to 2 major Australian water fronts: (1) Pilbara region of WA and (2) Eastern seaboard utility spend - these provide VYS with genuine diversification opportunities across sectors, geographies and counter economic cycles.
Discl: Not Held, But Very Interested
Following on from @Chagsy, @raymon68 , @edgescape and finding non-SAAS places to put cash to use, started a bit of a deep dive with VYS.
Still some ways to go, but as of now, the things I like very much:
- Business is very interesting as VYS is vertically integrated, and has end-to-end capability across the water value chain vs very fragmented competitors - this gives it good Aust-based capability and appears unmatched
- Demand is compliance-driven for groundwater management - mining and utilities particularly
- Revenue is accelerating across the 4 segments, NPAT and EPS is increasing as a result
- Cash is clearly trending up, liabilities clearly trending down - nice
Still To Get Head Around
- How recent acquisitions (CMP, Waste Water Management) are driving revenue, expanding geographic coverage and revenue
- A deeper understanding of what each segment does, the growth drivers and how sustainable/sticky they are.
- Valuation - will post an initial valuation, but need to fine-tune once growth drivers are better understood.
A. WHAT DOES VYSARN DO
Vysarn is vertically integrated across the water value chain and operates through multiple specialist divisions:
Industrial
These are services tied to physical water field operations:
- Pentium Hydro: Hydrogeological drilling and dewatering services to Tier-1 iron ore miner
- Pentium Test Pumping: Groundwater test pumping and reinjection water services.
Advisory & Consulting
Professional advisory and planning services:
- Pentium Water: Water management consulting — hydrogeology, hydrology, environmental planning.
- CMP Consulting Group: Water infrastructure engineering consultancy (national footprint).
Technology & Engineering
Technical engineering and design services:
- Project Engineering: Managed Aquifer Recharge (MAR) in the resources sector and hydraulic engineering solutions.
- Waste Water Services: Design, construction and operation of custom wastewater treatment plants and pumping stations to the resource and regional utility sectors
Infrastructure
Sustainably control, convey and supply material quantities of water to meet significant unmet demand in the Pilbara region
Joint Resource Agreement with Katiyya Aboroginal Corporation, VAM continued to progress the development of a groundwater resource (and associated infrastructure) with the potential to address unmet significant industrial and municipal water demand in the Pilbara region
- Vysarn Asset Management: Investment in water infrastructure assets (including joint resource agreements for water supply projects).
B. VYSARN’S TAM
Vysarn operates at the intersection of several growing markets:
Water Management & Infrastructure
- Urban water infrastructure (pipeline renewals, wastewater upgrades, strategic water planning) driven by population growth, aging infrastructure and regulation.
- Managed Aquifer Recharge (MAR) — emerging focus area as governments and mining companies seek sustainable groundwater balance solutions.
Resources & Mining Water Services
- Mine water dewatering and groundwater management is a critical, non-discretionary cost in mining operations. The water services market tied to mining is sizable in WA (Pilbara) and growing with exploration.
Water Utility Engineering and Consultancy
- National water authority capital programs (e.g., Sydney Water infrastructure spend) provide extended TAM beyond resource clients. The CMP acquisition gives access to the East Coast water infrastructure boom.
Market Drivers include:
- Population growth and urban infrastructure upgrades.
- Environmental regulations requiring test pumping, groundwater accounting, and reinjection.
- Climate change impacts increasing demand for specialist water treatment, recharge, groundwater storage and reuse.
(Exact dollar figures for TAM aren’t broadly public; Australia’s water infrastructure investment is in the tens of billions AUD over the coming decade via state and federal plans.)
C. CUSTOMERS
Vysarn’s customers span commercial, government and resource sectors:
Resources Sector
- Tier-1 miners in WA (e.g., major iron ore producers — noted in commentary on drilling fleet locked into major mining contracts historically).
Utilities & Government
- Water Corporations (e.g., Sydney Water via CMP consulting contract).
- Other state water authorities and councils needing planning, engineering and treatment infrastructure.
Industrial Developers
Urban development and industrial clients requiring site water strategy, dewatering, environmental planning, MAR and wastewater solutions.
D. COMPETITORS
There isn’t one single company doing the same whole-of-life water stack, but key competitors in related subsegments include:
- Specialist Hydrogeology & Water Consulting
- Ground & Water Australia (hydrogeology).
- Rockwater (groundwater and environmental services).
- WRM Water and Environment (water resource engineering).
- Engeny (environmental & water engineering consultancy).
- Tonkin + Taylor (environmental/water engineering across ANZ).
Larger Infrastructure Services with Water Divisions
- Ventia — infrastructure services including water projects.
- WSP — global engineering firm with mine water and environmental water segments.
- Aurecon — water infrastructure engineering globally.
These competitors may not cover the entire portfolio that Vysarn offers but do compete in consultancy, engineering or drilling segments individually.
E. COMPETITIVE MOAT
Vysarn’s competitive strengths come from vertical integration and breadth:
End-to-End Stack
Very few peers in Australia combine advisory → drilling/test pumping → engineering → treatment → asset management in one group, enabling cross-selling and integrated project delivery.
Compliance-Driven Demand
Increasing environmental regulations and approvals for groundwater management mean services like test pumping, reinjection and aquifer recharge are often required components of major projects (not optional).
Strategic Acquisitions
Acquiring CMP gives access to high-value long-term utility engineering contracts and deepens the client base beyond mining.
Early Market Position in Water Asset Management
The Asset Management division aims to control water supply infrastructure — a potentially high-margin, annuity income opportunity if realised.
Integrated Capital & Footprint Expansion
The blend of drilling (capital-intensive) and consulting/engineering (higher margin) provides balance and diversification.
Weaknesses/risks: Near-term industrial utilization volatility, integration risks from acquisitions, and climate/project execution risk on large infrastructure.
F. FINANCIALS
Revenue is accelerating, especially post recent acquisitions.
NPAT and EPS are correspondingly increasing in tandem with revenue
Cash & Cash Equivalents are increasing, Borrowings are clearly decreasing - a good place to be
G. INVESTMENT CASE
Bullish Points
- Strong growth in revenue and earnings — FY25 revenue growth ~40% YoY.
- Diversification away from cyclical mining into utility and government mandates via CMP and wastewater capabilities.
- Regulation-driven demand for environmentally compliant water services which are increasingly standard requirements.
- Strategic acquisition strategy allows footprint and capability build-out.
- National infrastructure spend (e.g., Sydney Water contract pipeline) provides secular demand tailwinds.
Risks / Bearish Considerations
- Small-cap volatility — share price can swing materially with contract cycles or resource sector downturns.
- Execution risk around large projects and integration of acquisitions.
- Market breadth — many competitors in consult/engineering spaces may compress margins on commoditised work.
- Asset management execution — monetising water assets is conceptually compelling but implementation-dependent.
Valuation Insights (third-party)
Analysts note Vysarn’s pivot to vertical integration and exposure to two major demand drivers (resources water management + infrastructure spend) but caution that current valuation may embed strong growth expectations.
H. CHART REVIEW
Nice gradual uptrend, aligned with revenue and NPBT expansion.
The market was disappointed with the results despite record revenues. I think there was expectation of info on a possible dividend which was mentioned earlier. Also the note about 2nd half likely to decrease due to "requirement to invest in further resources to support growth initiatives, the strategic rotation of drill rigs through compliance upgrades, project delays and potential other risks identified herein". I like the open discussion of risks which gives confidence in the long term prospects for the company. VAM has the potential for a major expansion with significant capital costs in the coming years. We could see the SP pull back a bit after a very strong run up from 9c and I am looking for an opportunity to reenter in SM. Still my largest holding in RL
The Company’s carry forward tax loss balance was fully utilised during the period.
Company was in a net cash position for the first time since the relisting of Vysarn in September 2019 with net cash of $1.69 million
PW Management is aggressively targeting a 50% increase in staff numbers year on year to not only service growing client demand but to expand PW’s service offering in wider fields of adviser expertise across water and environment.
PH the recent significant decline of the battery metal sector has created the potential for short term utilisation risk. Management is monitoring early signs of contagion in client confidence which is manifesting in scope of work and project investment decision delays.
PH has a small exposure to the nickel sector which is currently experiencing systemic issues on a global scale. This presents immediate utilisation risks with management prudently preparing for reallocation of assets should the need arise.
The dual rotary rig purchased internationally to replace a conventional rig in the PH fleet has had significant arrival and release delays due to the recent protracted industrial action on Australian ports. Management still intends to attempt to receive and upgrade the rig for deployment inside FY24 but anticipates there will be up to a 4 month delay
PH rig suite was involved in a major flood event on a client’s mine site. The Company is currently negotiating an equitable settlement with the client and PH’s insurer.
VAM’s focus in coming financial periods will be to position the Company to be able to execute agreements securing long term water supply partnerships and securing long term off take. Should the Company be successful in securing such agreements, then VAM will turn its attention to securing funds for the construction of a major pipeline to convey water.
In preparation for the Company’s next leg of growth an appropriate level of investment will be made in the 2HFY24 to acquire further senior human resources in asset management, equipment maintenance, information technology and business optimisation. The Company continues to forecast meaningful year on year earnings growth for FY24. Nevertheless, with the requirement to invest in further resources to support growth initiatives, the strategic rotation of drill rigs through compliance upgrades, project delays and potential other risks identified herein, it is the Board’s current view that 2HFY24 EBT will not exceed 2HFY23 EBT.