Here is the notes from one of the brokers in Morgans regarding...

Here is the notes from one of the brokers in Morgans regarding Simonds..

Overall, its sounds like they are tracking very well against their prospectus targets.
There is around 6-month lead time from sales to site starts in the Home Building division, and the average course duration in Training is ~6 months. The current momentum in both divisions would see the business tracking well for the FY16 year by the March quarter next year - which should give the market confidence on growth. Gerard (BAA) has a lot happening in 2H15 which will see BAA expand its geographic presence and scope of offering materially heading into FY16.


Simonds Homes

• Currently tracking +30% above budget as at Oct-end on the back of a strong margins and volumes
• Metropolitan (knock-down/rebuild) product - 'extraordinary' orders from the one display site in Camberwell, currently taking three orders per week. Had forecast 70 starts but probably move this to 80 for the full year. Have secured one more display site and looking for third. Expect this range can achieve around 120 site starts pa from three centres at $85k gross margin (around double the average, so effectively 240 average starts). There is demand in SA for this product so will look to establish a SA display in Feb 2015.
• Queensland - making 30 sales/mth without broad advertising as yet. The 5th display centre will be open by Christmas and the expected eight centres by June 2015. 10 centres in total will give a good spread of the broader Brisbane area. Margins exceeding expectations as getting a lot of upside from gallery up-sell options. Advertising will start in January. Simonds feels they are getting traction as they have a good value and delivery proposition and being well received.
• NSW - hard to get land but have secured 380 lots which will be titled in May-July. This years budget for NSW is 80 - regional NSW going well with 80 sites secured in Leeton (30 gone to site) and 40 in the Hunter. NSW is really set up for 2017 but trying to bring this forward (expecting ~150 sites starts in FY16).
• VIC - going well across the board. Growth coming from greater West area, entering Mildura and the Metropolitan range.
• Madisson - secured $72m revenue of the $74m forecast. Strong pipeline with 70% of FY16 expectations already secured. Margins good given new systems/processes implemented over the past year (full system will be implemented by Christmas).
• Simonds Homes growth - over 3-4 years expect (roughly): QLD 400 starts ($4m ebitda); NSW 400 starts ($5m ebitda); SA 300 starts ($3m). This is from a combined $5m contribution in FY15F (this would be a ~9% CAGR for the division assuming no growth from VIC. VIC is expected to continue more modest growth given the market position). Upside to this comes from initiatives being undertaken on the cost base: have moved from 600 full time staff (FY12) to 430 now and short term plans to go to 400. Comments were made that the ebitda margin can get to 5% from 4% which on $600m revenue (FY15F) is 25% ebitda upside. Over the next five years, also expect procurement of own materials (cosmetic materials) to provide upside. Procurement manager commenced more recently who is initially concentrating on savings within the $112m opex cost base (there could be pretty significant cost improvements here also)
• Personnel - very happy with additions to the team - NSW GM ex Claredon Homes; COO ex Brickworks; Procurement manager

Builders Academy Australia

• Industry issues have predominantly been auspicing/channelling - both not undertaken by BAA. BAA is training existing tradespeople, not job seekers.
• Brokers - BAA has a robust platform, ensuring the broker is just the referral agent. BAA controls the pre-training checks and student suitability (other RTO's can allow the broker to undertake this task).
• BAA has recently terminated 9 brokers as they have been inactive. Acquire Learning was on the panel, however terminated post media articles (had only referred 20 students). 14 brokers now on panel.
• In October, BAA's organic student acquisition was the second largest channel (16% of students); Advertising is now working and organic acquisition is now tracking to 20% in Nov (biggest channel). Brokers will still have a roll, but BAA is building brand equity
• VIC - Have close to 2800 students enrolled/registered to-date (prospectus number) and still seeing steady student numbers per month (400). Starting to have Cert IV students graduate and will look to convert these into the Diploma course next year. Cert II will commence early 2015 (warehouse facility being set up) and Cert III capability by April (in VIC).Will be set up well for FY16. Potentially will see a change to the builders licensing requirements in Victoria which will require a Dimploma to be licenses - would be positive for BAA. The B2B opportunity is expected to be rolled out in early 2015, eg partnering with CSR to train their staff.
• Outside VIC - VET FEE HELP expected to be awarded soon (optimistic) which will give access to students inter-state for the Diploma offering; NSW imminent via acquisition; and QLD have got pre-qualification status to provide the Cert IV building course (Jan 2015 first class). Expect relatively modest ramp up in these states through CY15 with strong growth from CY16 as capability grows, systems implemented and access to the NSW system (student caps) increases.
• Acquisition targets - overall small ($4.5m total for two targets) but very clean businesses and provide instant market/government funding access. Potentially close an acquisition before Christmas.
• Margin pressure a market query in the future - at the moment, don't see this as an issue. This rhetoric is certainly in the share market however not heard from Government and Industry as yet. Margins are largely a function of the funding rates - public providers get the same rate as private providers and there are examples of TAFE also adding a fee on top (eg, Holmsglen charges the student an extra $1700 for the Cert IV in building). The cost base of TAFE is still inhibitive with only 4 out of 17 VIC TAFE's making a profit.