Not a subscriber but BSA mentioned in the Under The Radar...

Not a subscriber but BSA mentioned in the Under The Radar report.


The collapse of the Hastie Group shows that sometimes small caps that were previously under the radar can wreak great havoc on the wider economy.

Hastie’s demise is one of Australia’s biggest corporate disasters and will see as many as 4000 workers out of a job, not to mention the hundreds of millions to be written off by creditors. It happened after an ill-conceived strategy was implemented which involved non-stop acquiring with little thought to integration.

The question some might be asking now is: does the 10 per cent dividend yield (before franking credits) based on the 21 cent share price of fellow industrial contracting group BSA indicate it will wreak similar havoc in the future? BSA says it manages around 1600 people, so let’s hope not.

At 21 cents, its shares have fallen 26 per cent in the past three months, but they have bounced almost 10 per cent in the past few days…

One who will hope that BSA can take advantage of Hastie’s demise is 25.6 per cent holder Bruce Gordon, who also owns WIN Television.

But the question isn’t without basis. Like Hastie, BSA provides electrical services to big corporates, to fund its growth business – designing and maintaining heating, ventilation and air conditioning systems (HVAC).

There is definitely growth, but right now it’s being boosted by acquisition. BSA’s first half revenues were up 39 per cent to $264 million producing a net profit of $6 million, which was up 38 per cent.

The competitive nature of its business means that its operating margins are razor thin at 4 per cent. If there are contract blowouts, as happened at Hastie, this company is dangerously exposed.

What gives Under the Radar more confidence in BSA is that its activities are far narrower than Hastie, both in an operational and geographic sense. Plus, BSA paid down $10 million in debt in the first half and it has more cash than debt on its books.

There will be dilution from the dividend reinvestment scheme, so the investment yield might be slightly less than 10 per cent, but Radar reckons there is money to be made on this one.

Richard Hemming
Editor