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To be beneficiary of Fed govt spending on strategic fuel storage, also Fed and NSW spending on bridge building programs.
SND announced a further $10 million in new contract wins, all of which were associated with infrastructure projects. This occurred at the same time as the government announced that nine projects have been offered grant funding to increase Australia’s diesel storage capability. We believe that a significant majority of these project owners are either current or previous clients of SND. The grants can only cover up to a maximum of 50% of the total value of the project, which we believe will preclude some smaller and less well funded competitors from tendering on such work. The decisions on which contractors will assist in building these new projects should be known before the end of the calendar year.
Capping off a very busy period for SND was the announcement of the acquisition of specialist process automation and electrical solutions business PlantWeave. Albeit only a small business with $5 million of revenue, this acquisition provides SND with a significant increase in capability in area sector experiencing increasing demand due to technological change and other requirements. SND has worked with PW previously and we believe there is substantial scope for this business to scale substantially over time whilst delivering strong margins.
SND continues to go from strength to strength and Q2 FY23 showed no signs of a slowdown in momentum. In Q2, SND secured two substantial contracts, the first of these being a $9 million contract with Parks Fuels, for the development of extra diesel storage as part of the Federal Governments ‘Boosting Australia’s Diesel Storage Program’. Although not material in its own right, the client has been issued a grant to build a second facility in Port Kembla with the contract yet to be awarded. We would argue SND has a high likelihood of winning this work given the above.
The second contract was a $44 million contract to build the aviation fuel terminal at the new Western Sydney Airport. For context this is the second largest contract awarded to SND in the company’s history and represents just the first stage of a two-stage project.
SND also provided FY23 guidance at their AGM, at both the revenue and EBITDA level. Revenue is expected to be between $190 million and $220 million (FY22: $130 million) and EBIT margins are expected to be between 6.5% and 7.5% (FY22: 7.21%). Clearly, SND is going through a period of significant growth when compared to the $66 million of revenue reported in FY20. With this growth comes a significant amount of execution risk, especially as SND is in large part a contracting business. We believe these risks are adequately reflected in the margin guidance, especially as it has been provided some 8 months out from year-end. If execution can continue as planned, and unknown variables such as weather remain benign then we believe EBIT margins may potentially exceed guidance.
Over the past 4 years, Mark Benson and his team have transformed SND from a sub-scale contracting business with a high fixed cost base and a very narrow work focus, to a business that now has scale, provides more complementary services along with its core offering, expanded into select adjacent industries and works with Tier-1 clients with a significant exposure to defence.
We continue to believe that if achieved, the FY23 guidance will not just be a flash in the pan but the start of a new base that SND can continue to build upon. The value of live tenders and pipeline jobs continues to increase and now stands at over $1.5 billion, and we expect SND to continue to put itself in the best position possible to secure further large contracts with Tier-1 clients.
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