Thanks for your post - it gave me (and some others judging by the upticks) some further food for thought.
After digesting this morning, my thinking on these and are few other issues as follows (number related to your points) ...
1/. This is a good pickup. I didn’t see the 3% in the reports/pressos, so assume you calculated from info on p14 on the results and used 7% for Q1 as per the press release last year that advised the issue? I calc I similar figure of 3.6-4.1% for Q2 based on this info. So agree, no evidence yet of a turnaround on these numbers, but of course that doesn’t mean it hasn’t either as much 2Q work would have been bid in 1Q or earlier and 2. I suspect they would have cleared out costs in 2Q to give 2H19 the best chance of looking good.
2/ I agree! However I’d also add that many key people + directors are aligned thru shareholding so they’re feeling the pain and have a hip pocket incentive beyond their pay packets to improve things.
3/. With the escrow periods and incentives being given via share over 3 year periods etc, I not aware of any key personnel have cashed out. Is anyone else? Certainly a few lower level people have left (someone was trying to push this issue on another string about some low level people movements in Brisbane but seemed the poster was a disgruntled competitor).
4/. I’d prefer the balance sheet to be in better shape ... but I don’t think too stretched for a services business. Reasons ... - If they sold their receivables they could eliminate their debt. - Tangible assets significantly exceed borrowings - The above measures are after the potential liabilities for earnouts - The Elton earnouts are paid 50% cash, 50% shares so even when giving Elton very $ of EBITDA above $2.6Mpa to $3.1M ... cash would still increase in the business. - The LANDdata earnouts appear to still be on the balance sheet, but I suspect will be reversed out (required >$5.25Mpa revenue at >30% margins according to the press release). I’m not aware of other earnouts items on the balance sheet. Anyone else know of others? - NPATBA was still positive for 1H19 (my calc - $192K). So still cash positive after reinvesting at same rate as depreciation.
I don’t put VRS in the same ‘rollup’ category as say CTD, AHG, MTO, etc or ABC Learning (for a failed one). Reason being is that VRS has bought complementary businesses to come together (not just rolled up surveying) and I feel a T1 survey company will have advantages in the fragmented market. But like these businesses, when the tide of purchases goes out ... the accounts become more transparent and the ability of management to organically retain and grow can then be seen by all. The next 6-18 months will test their mettle, ability and ultimately performance.
Some additional random thoughts from my reading this morning ...
When Elton was purchased the forecast was for $20M revenue and $3.1M EBIT in FY18. Elton appears to be growing YOY and half on half ... but they certainly didn’t achieve $20M in FY18 (see slide 4 of pack). Also, Elton EBIT margin at 14.2% is slightly below the 15% average since 2015 (I left out amortisation in this comparison as that is due to VRS purchase not the underlying business).
Also in this Elton press release was the discussion of the ‘consultancy’ business being $25Mpa revenue. However, the $5M of town planning revenue is still be reported in the Survey segment (further confusion of segment reporting as per previous post).
There’s the positive notes about Elton performing well in the 1H pack and achieving milestone 1 in its earnouts ... but nothing about LANDdata - they relally should say something about such a recent purchase. I suspect it’s no where near the 25% margin pre-purchase and 30% margin earnouts figures (if it was it’d account for about all of the survey segment).
Finally I could cheekily add that the SP has now jumped > 20% ... But I’d be ignoring the fact that only ~$20K of trades have gone thru above 6c!
(20min delay)