market update, page-19

Petepan's comment certainly raises alarm. I'm no accountant so would appreciate auditor-like interrogation on the cashflow discrepancy.

Regarding the deterioration Petepan attributed to the management, I think it's more convincing to see the Revenue / EBITDA / NPBT trend instead of looking at only NPAT. After all, the management does not control the tax code, which is main reason for the FY 12 NPAT lower that FY 11. So I typed away in excel and below is the result:

FY Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12

Revenue 158.973 243.882 240.900 331.000 402.574 491.794
Growth % 53.4% -1.2% 37.4% 21.6% 22.2%

Annual Growth over 5 years 25.3%

EBITDA 14.300 16.100 15.100 14.000 16.253 16.538
Margin % 9.0% 6.6% 6.3% 4.2% 4.0% 3.4%
Growth % n.a 12.6% -6.2% -7.3% 16.1% 1.8%
Annual Growth over 5 years 3.0%

NPBT 12.923 11.736 10.708 8.097 8.08 8.201
Margin % 8.1% 4.8% 4.4% 2.4% 2.0% 1.7%
Growth % n.a -9.2% -8.8% -24.4% -0.2% 1.5%
Annual Growth over 5 years -8.7%

Net Debt -2 21 11 11 -9 -10


No doubt the dropping margin is alarming. How does it compare to the sector performance? The case of Hastie probably tells a bit in that front. Now that such a bad player is gone, as the management pointed out, the competitive environment is to improve, i.e. no one bidding at unsustainable margin to grab contracts and deteriorating the whole sector's margin.

What really convinced me to not cut loose on this management just yet is that, despite all the deteriorating fronts and acquisation, the balance sheet improved over the 5 years back into negative net debt for the last two FY. That's got to be worth some credit. So it's highly unlikely to go bust. We just need to keep an eye on what sort of bolt-on they might get, if any, and it had better be of good value. With BSA itself trading at such low multiples, I don't want to see any purchase of over 3x EBITDA.

What I'm looking forward to is the next half year report and an improved margin. and again, I HOLD for the moment, for the sake of the strength of the balance sheet, high dividend yield, and low trading multiple.