What do they do?
- BSA is a diverse engineering & contracting company which delivers infrastructure projects, services & equipment across 3 main divisions
- Technical Design & Construction Projects (TDCP) – major provider of heating, ventilation/air conditioning & fire protection services to large scale developments (eg hospitals)
- Technical Maintenance Services (TMS) – the maintenance & upgrade arm to compliment the above TDCP business
- Technical Field Force Solutions (TFFS) – contracted to Foxtel to install boxes & provide maintenance/upgrades.
What went wrong?
- BSA experienced significant write downs and provisions in FY14 across all their divisions, most notably on legacy projects.
- Revenues were lumpy & working capital position was a massive cash drag on the business
- With a $11m EBITDA loss in FY14 there is no denying FY14 was a terrible year for BSA
Why we invested?
- BSA is a turnaround story which we took a position in through a $21m capital raising in late 2014
- This was a ‘clearing of the decks’ raising under a new management team which sees the company now with a strong balance sheet and working capital position
- Significant focus on project management and cost overrun controls.
- Legacy projects are all completed.
- Focus on profitable business and not quantity of business.
- We believe under the leadership of the new management team headed by a proven & experienced leader in the space, CEO Nick Yates (Former Division Head at Transfield Services.
Outlook?
- In TDCP the business is becoming more profitable as they aren’t going after low margin work & have fixed the design issues of FY14
- In TMS business they have rationalised the cost base & conscious effort to leverage off the construction arm of the business which offsets the impact previously felt of mining downturn
- In TFFS business they are now working with both Optus & Foxtel with the Foxtel new pricing deals driving strong demand. Their training business is also in a strong position
- The company believes the capital raising has been a huge positive on how BSA is viewed within the industry
- Organic growth is the major focus for FY15 with new work for existing customers
NAOS’ View
- On an unchanged $500m revenue base with the company’s aspiration target to reach 5% EBITDA margins within 18 months = $25m EBITDA
- If they achieve their aspirations then company is on a 12-18month forward looking EV/EBITDA of 2x & a P/E of 6x which is undemanding
- We are substantial shareholders in BSA and are looking for the management to deliver on their aspirations which we feel will result in a strong rerating of the business over time.
- The new MD and CFO both participated in the recent capital raising aligning their interests with that of shareholders.
- BSA is also in the unique positons of having a large franking credit balance as well as a number of tax losses allowing to potentially pay large fully franked dividends.
Source: Bloomberg
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