Thoughts on FY24 Results

Hi Guys,

I listened into the BKW results presentation this morning (back to back with SOL) and had some general thoughts and observations.

This was the first presentation given by Mark Ellenor who's just become CEO but has previously spend 25 years with the company having joined it as a uni graduate so I thought that was a great little sign about the culture and he spoke very well.

The inferred assets per share figure given is now at $35.79 so this came in a little higher than my last estimate. Based on this and using a $28.50 SP we are sitting at a 20% discount currently.

Building activity was down around 10% across the board in Aus with a similar drop off in America. They've cut 139 staff in Australia and 36 in America and incurred some severance costs etc. due to that. I got the sense this is due to a smaller number of high tech factories that have more automation included in them.

Interestingly margins improved in most areas of their materials business.

Unfortunately the sharp drop off in construction activity means they haven't yet showed the financial benefits of their rationalization but there was commentary that they are very well placed to deliver "strong returns" when this picks back up again.

There will also be a big drop off in capital spend in the next two financial years and this will flow through to cash flow (I'm hoping we get a step up in the dividend increases when you look at how much extra is coming through from SOL).

On the property side of things borrowing costs were up 30% against the previous financial year although (not including the big valuation hit) as rental income was up 9% the net income was only down around 4%

There's some hidden value in the sheds being under rented by around 30% vs the current market rent in Western Sydney although this can only be captured in clumps over 5 years plus as many of the current leases have caps on rental increases etc.

In a hypothetical scenario where all current leases were at the market rate then we'd be getting an extra 72 million in net income from the property trust currently. There's also the potential for a further extra 90 million as more sheds are developed over the next 5 years.

I haven't got a chance to listen to the Q and A yet but came away feeling pretty positive and that there's some hidden value in both the underlying asset base and also the under rented sheds.