Bought more, page-36

Brochan

You mentioned Banks and you mentioned Sector.

BANKS

I rather like the banks, and currently I hold shares in ANZ, which has a good yield and a reasonable growth outlook. I may increase that holding. I also hold BYL, and I write about it because unlike the banks, it flies under the radar.

SECTOR

In respect to BYL, when folk mention headwinds and the like facing the “sector”, it is not obvious what sector they have in mind, because compared to loading haematite onto ore trains, there is a vast difference between that service and upgrading a highway including building bridges; or preparing a subdivision of a significant acreage to create a new suburb; or revamping a significant airport.

BYL has, I think, only one contract with a miner, and that is the RIO contract, worth about $300m/4.5 years ≈ $67m a year, or about 22% of BYL's expected FY2015 revenue. Also, the RIO contract includes civil works, plus its precursor $9.9m contract was for civil works. As an aside, a Hartleys's report (http://www.brierty.com.au/images/Documents/Third Party Research/Hartleys_Brierty_Ltd_141001.pdf), moots that due to scope creep, the RIO contract may bring in $90m to $100m in FY2015, which is why I am inclined to be bullish on the FY2015 revenue, despite the poor record this year for securing small contracts (sub $15m).

The civil works component of BYL's business is highlighted by the fact that in the last twelve months, BYL has secured three contracts from Main Roads WA ($27m, $45m & $69m). The value of these contracts is almost half of BYL's current annual revenue.

I think I am being modest giving BYL a target PER of 7 (because investors classify it as being in the Mining Servioces sector), especially when SWL (Seymore Whyte), a similar business, has a PER of about 10, and it had a much higher PER nine months ago, which mystified me, so I am not surprised to see SWL's PER has retreated. I compared BYL and SWL in a BYL post dated 12/07/14, and I suggested that SWL was then overvalued and BYL undervalued, and subsequent SP movements have mirrored that view. BYL then had 110M shares, so that must be considered when reading that 12/07/14 post now.