Market Cap: $60m
P/E: 6.4
P/B: 0.88
Dividend Yield: 7.1%
On the surface, BSA ticks all the boxes for value investors. Selling for 6.4x earnings and 0.88x book value, BSA is sitting on $17m of cash, has less than 50% debt to equity ratio, and hasn't missed a dividend since they commenced paying in 2006. (management aims for a payout ratio of 50%).
Turning to the underlying business, I am going to frame my analysis of the business the same way management do, into 2 separate streams: Contracting Solutions and Building Services.
Contracting Solutions
BSA's legacy business is centred around the telecommunications and subscription television market. As long-term contractors to Foxtel, Silcar and Optus, BSA have a strong practice in maintenance installation and troubleshooting of telecommunications infrastructure, as well as installation and setup of pay TV services. BSA also own the Mr Antenna and Mr Alarms brands. While revenue has declined since FY09, in HY11 Contracting Solutions won the national ADSL provisioning and service assurance contract for Optus (having previously only held the East Coast contract).
Building Services
In 2007 BSA branched out from their core contracting business by acquiring the Triple M group of companies, who are focused on the HVAC and Fire Alarm markets. Further acquisitions have expanded the practice, with Building services generating $176M in revenue in FY10. Building services continued to perform well in HY11, generating $120M revenue, and the order book has grown in the 6 month period ending December 2010 from 180m to 260m. I anticipate more acquisitions of smaller HVAC and Fire Panel operators over the coming years, and the currently challenging market conditions are going to create opportunities for BSA to acquire smaller competitors at great prices, with plenty of cash on hand.
Aggregate performance for HY10 saw outstanding growth with revenue up 39% and NPAT up 72%. While much of the growth I expect to see in BSA will be through the Building Services arm, Contracting Solutions are exposed to a large potential upside in the medium term through subcontracting on the NBN project. BSA already participated in stage one, winning work in Tasmania and NSW. If the NBN goes ahead in the future, BSA will be in the right position to potentially win a large chunk of the subcontracting work.
My holding horizon for BSA is forever (barring a major change to the underlying business), and I intend to continue adding to my position given the low share price. The 5% discount for dividend reinvestment gives me another reason to buy, hold and reinvest.
Hello Leon,
ReplyDeleteThank you for the quality posts here, I was very happy to discover your blog. I am or have been a holder of three of the stocks you comment on here so our screening methodology must be similar. My screening picked up BSA about 3-4 months before but what held me back on it were the low margins they operated on, in most other metrics they came thru with a convincing tick but the low NPAT margin I would have found hard to sleep with. What are you feelings on this ?
Douglas
Hi Douglas
ReplyDeleteFor a company like BSA this isn't as big an issue as it would be for a company with a big fixed cost base which relied on a certain amount of revenue to stay profitable (eg telecommunications).
Because a lot of BSA's expenses are contractors and raw materials (82% of their total costs in FY10), they can maintain their margins comparatively well even if the work slows down.
These margins are similar to those in the civil space such as LEI, although BSA do more projects on a smaller scale, which makes them less vulnerable than LEI are to gigantic cost blowouts if a large project goes off the rails.
None of this matters if you're still uncomfortable, because it's important to feel confident with what you're holding. Otherwise it makes you prone to poor decisions made under pressure.