Ann: Main Roads Project Update, page-11

Joewolf

BYL has always been thinly traded, so there is no wonder about that applying now. Also, it has a good order book and a long track record of being able to secure work, so in that sense it is unlike its peers – there is little to cause panic.

In my view, since BYL's listing until say 2012 the company was badly run from the expense-management perspective – perhaps a reflection of the personality of the key founding director who became more interested in big-time yachting than running a lean company, and although performance has improved in recent years under Peter McBain's leadership, there is, I think, work to be done on paring expenses. If BYL could change its culture and slim back expenses, it should do well, provided it retained its proclivity for landing contracts, keeping its employees happy, and in my view, keeping its sterling record on Aboriginal engagement at its current level.

On the question of valuation, from an underlying performance perspective, much depends on BYL being able to lift its NPAT margin by quoting appropriately, and reducing head-office overheads. Finding the work does not seem to be BYL's problem. It would, I think, help to land more highway construction contracts if BYL improved its bridge-building prequalification from B2 to B3 – see https://www.mainroads.wa.gov.au/BuildingRoads/Contracting/Prequalification/Pages/contractors.aspx.

Off the top of my head I am inclined to think BYL could easily be worth twice its current SP, so your 30c makes sense. However, I would like to see the H1 Interim Report and the related presentation before postulating performance metrics and a valuation.

The dispute resolution decision on the Main Roads matter is due in February, so I would like to see information on that too. A positive decision could give BYL $6.6m before tax, or add $4.42m to FY2016 NPAT. The good news would tend to ramp up the SP, but in the absence of other factors, this money in itself is only 3.652c a share. The extra profits arising from two disputes last year should be seen as last year's profit, and not too much should be ascribed to the NPAT blip in FY2016, other than any blip that is in addition thereto.

The underlying metrics for FY2016 should be good, because much of the high set-up expense for the RIO contract would have fallen into FY2015, although some of the set-up expense may have carried into H1 of FY2016. What this expense overflow is may be made patent in the H1 reports, and that would give a good basis to guesstimate what FY2017 is going to deliver.

I'll come back to this valuation matter in late February.