Shape Australia is a commercial builder which was listed in Dec...

Shape Australia is a commercial builder which was listed in Dec 21 at 1.96 $ (raised 2 m $ during IPO).
Looking at the last 4 years, the company has been able to regularly deliver a significant level of net profit (between 7 m$ and 15 m$ every year).

The valuation of this company looks almost too good to be true, as it has a free cash flow yield of 34 %* (based on FY 23 results) and just announced a large increase of project wins for July-Oct period (+ 22 % vs same period last year).
The company has a high net cash position of 85 m at 30/6/23 (77 m on average for last financial year), so their EV is only 57 m (at 1.70 $ per share).
This correspond to a ratio of EV/FY 23EBITDA of 3 x.

The problem seems to be that it is a low margin business (net margin between 1 % and 2 %), while there is a risk of default from their customers.
In their prospectus, they were indicating that WeWork was one of their blue chip customers.
Fortunately, Shape has no current exposure to WeWork : no current project with them and WeWork do not owe them any money, according to the information I could find about it.

Profile of their average construction projects :
- less than 4 m$ (for FY 23 revenues of 862 m$),
- average duration : 16 weeks.

They work mainly for the office sector (72 % of backlog order), but it is now expanding into other areas, like defence (+ 100 % in FY 23 with 49 m revenues), retail/hotels and education.
And focus on fitout and refurbishment (around 80 %).


* if we exclude the impact of change in working capital, they still had a free cash flow yield of 25 %. Negative free cash flow in FY 22 due to a large negative impact of working capital.