Was away in reporting season so had a bit to catchup on .. finally had a good peruse of VRS first half results. Overall I agree with
@precis . Certainly not a good result, but no as bad as some were predicting and I don't see anything that isn't consistent with the what they released in the prior confessionals.
Random thoughts ...
The good ...
- Elton and the Aqura are performing really well ... so well that they'd be worth more than the VRS market cap on their own.
- Reduction in receivables (conversion to cash). RIO/BHP used to push small supplier terms out massively ... but after realising that bullying of small/medium businesses was getting them a bad reputation, they started being far more reasonable than the smaller players. Govt also cleaned up their act. I cacl debtors now at ~80 days, so still some room to reduce and free up cash altho this is obviously one-off improvements that will bottom out somewhere >45days.
- As a result .. balance sheet cash up/debt down
- Such improvements to do not by accident, they occur when companies either 1/ improve back office systems, or 2/ improve sales contract terms or 3/ targeting customers where they can get better payments terms or 4/ all of the above! I therefore take this as an indicator that VRS are indeed getting rubber on road with these aspects (and hopefully others such as costing and contractor management!)
- VRS is now qualified by T1 customers and as per last updates, getting additional work. They may have had to buy their way in to start with, if so, the followup awards should be at better margins (inline with their announced changes).
- Large market and growing infrastructure dynamics remain.
- The CEO and the Directors continue to hold large holdings (>20% of VRS). Also, they've been large buyers when the share price hit ~9-10c. May be under pressure from their wives tho now given how under water those last purchases are. I don't think they need to keep buying to stay aligned - just holding (as they are).
- NTA now accounts for 50% of VRS capitalisation.
The bad ...
- Goodwill writeoffs are sensational - but they don't effect cash flow (unless they trigger a loan covenant of course). The real problem is simply that the surveying business margins have had a shocker in 1H and these need to turn around.
- No real info yet of improving sales outcomes or back office savings yet (tho I accept its early and margins would be highly sensitive and release could undermine their sales efforts)
The confusing ...
- IMO the pack isn't a good piece of communication. The secgments of the business vary based on which slide you're on (some Consulting, Survey, Geospatial with no mention of Comms/Aqura others group Geopspatial and Survey, others use brand names rather than segment names etc). This is not a good indicator of clear company direction and segment strategies.
- Pack providing only selected info re balance sheet (made me concerned - but all reasonable when I checked the full accounts).
So after considering all this, I'm now in the 'hold' camp. I think they're worth a decent bet for an outsized return over 6-18 months. If they achieve their margin targets for surveying, accounting standards will write the goodwill back in (and that may grab more attention that the EBIT improvement that would drive the change).
