A surprising business model

Based on their comments at the AGM (end of Nov), there is no particular reason to expect a bad surprise for H1 25 :
- order book has increased by 5 % between July and Oct,
- "moderation in costs and labour challenges",
- "business largely tracking in line with expectations".
As the company mentions again "commencement delays", we may see again some sales erosion, but with still a good level of margin.

The main question for this company, which has a short listed history, is the cyclicity of its business.
The disappointment for their first listed years* was mainly due to covid.
As they get 84 % of repeat business and orders through the life cycle of the assets (mainly offices), it seems that the cyclicity is not as strong as expected with this kind of company.

Based on FY 24, the company has a free cash flow of 16.8 m$ (after lease and share based payment and excluding the positive impact of working capital) and a free cash flow yield of 11 %.
A large part is redistributed to shareholders (distribution of 14.2 m$) which corresponds to a net dividend yield of 5.7 % (fully franked).

Shape has a curious model.
First, you notice the low level of margin** (EBITDA margin of 3.1 % now).
But looking into more details, you realised that this company has a really high return on equity : 51 % last year.
In fact, their real return is even higher as they have only 31 m$ of equities, but with 98.6 m$ of net cash.
Their return is so high, because they have a very low level of capital employed, due in particular to a negative working capital (- 79 m$ in June 24 and - 68 m$ in June 23) and a low level of non current assets.

One of the main question is the way they are going to use their large pile of cash.
As indicated before, they have decided to redistribute a large part of their annual free cash flow, but they still have a high level of accumulated cash.
They could continue to do small acquisitions (as they have done recently).
But, at some stage, they will probably wonder if they need to redistribute this cash to their shareholders, via dividends and/or share buybacks.

* company listed in Dec 21
** which has clearly turned higher in FY 24 (driven by higher gross margin)