SND - Saunders International

[Dona Ferentes]

Seppo outfit

Crowley, founded in 1892, is a privately-held, U.S.-owned and operated logistics, marine and energy solutions company serving commercial and government customers that is headquartered in Jacksonville, Fla.

Services are provided worldwide by five primary business units – Crowley Logistics, Crowley (Government) Solutions, Crowley Shipping, Crowley Fuels and Crowley Wind Services.

 

[galumay]

Annoying, but part of the construction industry.

 

[finicky]

Strategic fuel reserves, now renewables storage - tanks should be cooking for some time to come.
$42m contract revenue will be booked in fy24 -26. Scoring business with a major such as B.P adds a garnish.

Won't change fy23 and doesn't make up for $165m Darwin contract loss? Then again, I can't tell whether they've lost the whole $165m revenue from the Crowley contract or significantly less. Maybe they got milestone payments, as the contract was signed in Nov 2021, or maybe the revenue diminution is being accounted for over more than one year. They said in the April announcement:
"The order book announced in our FY23 Half Year reporting on 24 February 2023 of $200 million is negatively impacted by circa $40 million as a result of the contract termination, however we believe that our current preferred contractor status on other projects will compensate for this once secured during FY23 Q4."

Market indifferent to the news and I'd suggest that SND is close to fair value. And that's without penalising it for the three consecutive years of losses or just scraping by. Maybe they'll pay another special dividend as they held $36m of cash at end of fy22 (commsec) and their yield is lousy cf other engineering service providers. Cash component of the recent 'Automation IT' acquisition was less than $4m. Share Price deserves to go sideways for the time being imo.

Held

 

[galumay]

They have had a long term relationship at BP Kwinana, they were doing work there when I worked on the strip 30 years ago. The Darwin contract was disappointing, but these contracts are completely one sided, you get paid well if they complete, but the ability of the other party to cancel without penalty at any time for any reason is the downside! As you say, its hard to work out what the actual impact will be.

SND will be fine though, very resilient business, been around for nearly 75 years now. No debt, plenty of cash, specialised niche of boring sector. I have held for 10 years and will likely still hold in another 10 years!

 

[finicky]

Not going to complain about this fwiw. I've often noticed in pics the elaborate piping systems surrounding Saunders' tank projects..
Final acquisition price likely to be $20m, which on the target's FY23 EBIT (adjusted) $3.6m is a 5.6x multiple.
Funded by cash held plus issue of circa <10m newly minted shares
EPS accretive FY24.
But the cross selling opportunities and enhanced offerings in defence and energy are easy for a yokel to imagine. Plus the Piping Solutions business is based in QLD which might mean more business specific to that unit now that it has SND's wider reach?

Held

 

[Dona Ferentes]

plus . ... go where the growth is
.
Piping Solutions’ specialist skills will form a foundation for Saunders’ entry into New Energy markets including:
• Green hydrogen infrastructure;
• Green liquid ammonia infrastructure;
• Natural gas infrastructure upgrades to facilitate the transition away from coal;
• Green biofuel refining and distribution;
• Waste to energy infrastructure; and
• Water and wastewater infrastructure.

 

[finicky]

Darn it, only tuned in late and missed an opportunity to tack on some SND @ 0.96
Have put in a bid for another 2,500 at that price anyway; might fill some time
96c is the implied price of the issue of shares for the purchase of the 'Piping Solutions' business. Those shares escrowed for 12 months.
I nowadays value SND at around 1.10.
The chart's nothing to rave about though as it's been in a shallow downtrend for a year. Must be in a shoppin mood.

Held

 

[finicky]

That's ok in my book. Got filled on that 2,500 waiting bid @ 0.96
Same as the implied price of the shares generated for the 'Piping Solutions' bolt on.

Held

 

[finicky]

Was thinking of a Saunders add on today, having no better idea.

I gratefully look over SND's reports because they are clearer than most - although I skip the technical stuff.
But today I was aghast, gob smacked, to see their FY23 cashlow section. In a year that was a record for revenue and earnings, cashflow was starkly negative! This is accounted for in the assets of the balance sheet section as contracts in the bag so to speak. I don't know what the accounting trigger point is at which a working contract becomes accountable revenue before payment is received. Sure it's kosher but I hope none of their client debtors go bankrupt.

Another thing that is shown clearly is the massive increase in costs at every line. The worst was employee benefits which has gone up almost 120% in a year. Expenses termed as 'other' has gone up a similar percentage. Sure they acquired an automation business but that was in May 2023 and would not be all that big employee wise. Somewhere they have said that they've increased personnel, but everything has gone way up.

Held

 

[galumay]

Interesting, @finicky. As you point out most of the -'ve OCF is offset by the contract assets. Like you thats not something I have seen or at least noticed with SND or other businesses in the sector. I dont keep as close an eye on it as I used to now I have sold out.

The increased costs are certainly a concern, I guess some consolation can be taken in the fact that a 54% increase in revenue provided a 45% increase in NPAT despite the costs growth.

 

[finicky]

now I have sold out.

That shocked me. I had the impression that you were welded on. Do you think it got overvalued? Or some view about stock market turmoil to come?

 

[galumay]

Honestly, I needed to release some capital for a replacement vehicle and in my personal PF, SND was the business I chose to sell. No particular reason, the position was worth about the amount I needed and at the time it seemed to be the holding nearest full value. (CDA & NWH were similar sized positions but had more upside at the time IMO)

I would happily continue to hold had I not needed the capital.

 

[finicky]

Thanks, I'm reassured - except the "one holding nearest full value" bit, lol
Hope that wasn't prompting too much information from you.
Just another tiny little probe - what value would you put on it? Macro speculations aside. They recently placed at 96c which was a discount to a previous period of market prices, but I see it as worth 4x book value in my universe, the median ROE being perhaps around 20%. Book value was 36c fy23 = 1.40 rounded.
However I'm only willing to pay < 3X book because of those three straight years in the wilderness, which could happen again. That's the negative, but on the positive side there's been the conservative share issuance, the low debt, the encouraging growth initiatives with the sound looking acquisitions along with tailwinds for fuel storage. Also, forgot, the rising trend of book value.
Edit: its long history of survival warrants a credit too.

Held

 

[galumay]

Not at all, always happy to share my thinking and decisions!

Ok, all my valuations are macro aside as I dont worry about the unknowable! Interestingly my different process gives me a current range of value round the $1.40 mark too. I also would have more conviction thanks to the factors you mention as well as the high ROIIC and high reinvestment rate.

I try to think about valuation in that way, I have a process for arriving at a range, based on a simplified DCF, using a high margin of safety & low growth assumptions, then i think about my level of conviction based on all of the factors you & I have mentioned. I would also usually have a look at margins and calculate the operating cushion in terms of comparison with peers.

As a reality check I reverse engineer the inputs for the DCF, so calculate what the current price implies in terms of growth, IRR/MoS & FCF.
All of the basic valuation and conviction metrics I calculate on a one page spreadsheet I built that I can enter any ticker to check a business I start to get interested in.

 

[finicky]

SND @ 0.985

SND down 2% on meaningless volume
H1 results firm but flattish, sufficient booked and pipeline work
Paying 48% of eps as dividend = 2c
Unexciting maybe, but solid and setting up for modest growth through its good fit acquisitions.
Will be in for more if S.P suffers significantly - 96c my benchmark price, i.e something below that will tempt, 96c being recent discounted placement price

Held and Holding

 

[finicky]

Returned to support at 90c today on meaningless volume. Sales just trickling through. 10x more shares at sell than at buy at end of day, so I see a chance that support will break and I put in a highly adventurous after hours bid @ 0.85 to round out my holding. Might be uncommitted placement subscribers wanting to offload?

Held ahd Holding

WEEKLY - not showing today

 

[finicky]

Looks like my bid @ 0.85 expired or I gave up on it, can't remember.
Reached a low of 0.89 today on paltry volume so I put in a sleepy bid for 3,000 more @ 0,90. Aren't I a devil.

Held and Holding (and buying)

 

[divs4ever]

Looks like my bid @ 0.85 expired or I gave up on it, can't remember.
Reached a low of 0.89 today on paltry volume so I put in a sleepy bid for 3,000 more @ 0,90. Aren't I a devil.

Held and Holding (and buying)

hmmm

i liked this sector in 2011 to 2013 , and ( mostly ) did well with the selected rivals ( and still hold a few )

'paltry volume' not such a big problem for me , i prefer to nibble

the metrics @ 90( ish ) cents don't get me excited ( nor appalled )

so as a 'growth stock ' in a shrinking economy ???

now in 2011-2013 i reasoned the governments would pour money into civil infrastructure to help the local economy , boy did i get that wrong , luckily i was saved by a mining super-cycle

now that super- cycle is long in the tooth , and maybe fading , so what next for a business like SND , there will be cost pressures , a government that invests in 'unicorn farts ' ( good luck on feasible infrastructure investment )

Saunders International Limited (SND) is a multi‐disciplined engineering and construction company providing design, fabrication, construction, shutdown, maintenance and industrial automation services to leading organisations across Australia, and the Pacific Region. The Group provides innovative cost‐effective solutions to the oil & gas, infrastructure, water, power, new energy, mining & minerals and defence sectors

but i note one word near the bottom .. defence ... would Australia be foolish to go to war with a major trading partner ??

gee we have done that before

hmmm something to sleep on

edit ... not held and no order ( for SND ) currently in the market ( tomorrow might be different )

 

[finicky]

@divs4ever I've held for many years but came to hate it as it floundered under a new M.D whom I blamed for everything. Now it's back to 20% ROEs, paying a decent dividend and has modest growth prospects. So glad I calmed down a fretting galumay a few years back. He was fretting and on the verge of cashing in his chips.

Held and Hokding

 

[divs4ever]

@divs4ever I've held for many years but came to hate it as it floundered under a new M.D whom I blamed for everything. Now it's back to 20% ROEs, paying a decent dividend and has modest growth prospects. So glad I calmed down a fretting galumay a few years back. He was fretting and on the verge of cashing in his chips.

Held and Hokding

yes i have had my tense moments with some rivals as well , some are doing very well now , but timing the entry/buying is a BIG help

but which areas can SND expand ( profitably ) into in the next two or three years ( assuming it isn't a take-over target , first )