PickEm,Your thesis about someone like UGL is disconcertingly...

PickEm,

Your thesis about someone like UGL is disconcertingly valid, I'm afraid. The reason I sound unenthusiastic about prospective takeover approaches for BSA, despite being a shareholder, is because I think our company has a healthy future ahead of it, with a management team that operates very well in what can sometimes be tough, lumpy businesseses.

Certainly, BSA would be a readily-digestible bite for the likes of a UGL, given BSA's EV of $73m against UGL's $2.57bn EV ($2.34bn in Market capitalisation and $233m in net debt).

I have calculated that, assuming an 8% cost of funds, UGL could pay 48c in cash per BSA share (or 50c using UGL scrip) for BSA before the acquisition ceases to be EPS accretive for UGL (and that's pre-synergy benefits, so it is really a conservative stance, I feel).

UGL's balance sheet is in fine fettle (with FY11 forecast NIBD/EBITDA = 0.8x (cf BSA @ 0.4x)), meaning it could easily contemplate a cash consideration. On my analysis, a 48cps cash acqusition for BSA would leave UGL's NIBD/EBITDA metric at a still very comfortable 1.1x (again, this excludes any potential synergy benefits). I note that UGL has no debt maturing in FY11.

Given BSA's significantly lower NIBD/EBITDA and higher EBITDA/Net Interest ratios, the acquisition would be self-funding for UGL, on my modelling.


Takeover bids aside, valuation-wise, BSA is currently valued on the following metrics:

FCF/EV = 15.1%
EV/EBITDA = 3.7x
P/E = 7.5x
DY = 6.5%

Now such valuation multiples might be considered appropriate for a business whose long-term future as a service provider to the telecommunications sector might historically have been (wrongly) considered limited.

However, now that the NBN is in the process of receiving the political green light, BSA's Transmission Solutions business is likely to be viewed increasingly by market participants as having the long-term visibility I believe it enjoys.

As I said, however, I hope BSA doesn't not get acquired any time soon because, besides I see significant scope for ongoing shareholder value creation now that the company is becoming increasingly well credentialised in the HVAC sector, as well as the significant revenues it will garner for many years during the NBN contruction.

And then there is the matter of CGT I would have to face.


Prudent Investing

Cameron