I just don't think you can calculate risk out. Sometimes it...

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alonso

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25/08/22

17:09

Post #: 63325599
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Originally posted by joewolf: ↑

I have no idea how to value this stock. Missed the lows and have watched it ever since 2020 and never get s into my buy price. I am interested but as the company has changed - for the better I have viewed it as far more subject to an error in pricing on a contract. I look at Lendlease who sold their Engineering division and said it was going to be good to get out of it.

Then there is the cyclical nature of this industry - add to that builders' that seemed to be travelling well suddenly dropping via increased and uncontrollable costs that they could not recover. What I see is a lot of risk in a world economy that is probably in recession.

The EPS is 4.5c the share price say 73c pe of 16. Not too high but given the industry risk factor I am surprised that it is this high. If they hit 25% the eps could be 5.6c which would drop the pe to 13. Add to that my memory of how many of these services companies got into trouble before and some even went to the wall. NRW 2015 7c now $2.30 - wow.

Had I bought in at 29 or 30c I would be comfortable but 74c. This company first came on my radar as AFC was doing its reverse to list and was being compared to Global Construction services (what has become part of SRG). At that time GCS was valued at 5 times earnings. These days even at $30 Before tax it is 10 times earnings. The Profit before tax margin is 4%. That is very thin given the industry.

I have become wary of the thin margins of safety these stocks have. Probably because I dont own them. It just seems that we don't really value companies the way we used to. Price earnings has become X times revenue - profits to come in the future - possibly like my children paying back the bank of Mum and Dad - lol.

Personally I see cyclical businesses that trade on thin margins as riskier than a number of other industries where they are also between 15 and 18PE's. BKW has a PE around 12. It does have some unique attributes but those don't make it any more risky.

Yes I suspect that SRG has far more upside potential in the short term but not the same stability.

I just think we are valuing things that are not as certain it is was in the past. I did purchase ACF but even though they are value much more conservatively I am still nervous of the metrics. It isnt comparable to what SRG is anyway. Although they are both saying engineering is a competitive advantage and that the health of the business can be seen in the growth in engineers in the company.
I just wish someone had a better understanding of how to value businesses with all the underlying global risks right now. . .

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I just don't think you can calculate risk out. Sometimes it might just take one big bad contract to tip a service company over.
Maybe 10 years ago I had a holding in a WA contracting/service company and it was travelling quite well it seemed but one final deal I think took away its margin of safety and bang! the bank pulled the plug and admins were appointed then liquidators.
Poof! It was gone.

SRG Price at posting: 74.0¢ Sentiment: Hold Disclosure: Held
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Last $1.65		Change 0.018(1.07%)		Mkt cap ! $996.5M

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