SSM - Service Stream

[bryos]

good volumes this morning breaking through the 52week high, SSM looks have a very upwards trend since sept

 

[ROE]

half yearly result out after market close .. look like another turn around dog on the move zoom zoom tomorrow

 

[ROE]

This is another turn around dog of the year

They force to bring result out early by 2 days

I think someone seen something in the report and look at the buying spree and volume last few days so they have to release the report early else get ASX ticket

next week will be very interesting .....

 

[Ves]

ROE - are you still following this stock? I notice a lot has gone on in the last 18 months (ie. loss of the Telstra fixed infrastructure contract) but they also seem to have picked up some NBN work as remediation. Interesting to see how the timing of this all plays out and what effect on cash flow will be in the medium term.

Thoughts?

 

[prawn_86]

wow these guys have been absolutely hammered this week due to NBN contract losses etc. From 38c down to 22c.

Anyone here looking at these values?

 

[ROE]

ROE - are you still following this stock? I notice a lot has gone on in the last 18 months (ie. loss of the Telstra fixed infrastructure contract) but they also seem to have picked up some NBN work as remediation. Interesting to see how the timing of this all plays out and what effect on cash flow will be in the medium term.

Thoughts?

woops a bit late but no I haven't been following it for more than 2 years ...I used to made a few profitable trade out of it but I found this business is too risky to trade and decided no go zone...

it is a tough business as I dig deeper, they have many many independent contractors working for them
and I reckon it is a night mare to control these lot because the margin is too low....and these contractors just
take the next best price ...so they come and go and if SSM doesn't offer decent work they wont take it up...

that combine with not many people has fibre skills it add to trouble so I decided to exit....
the delay of NBN roll out and NT pull our pretty much confirmed my research....so good I got out

this is my last entry

buy 30/04/2010 at 30.05
sold 8/03/2011 at 64.5

I do exit stock if I discovered information doesn't stack up against my initial criteria after I buy them...Phil Fisher style when to sell...

 

[Ves]

Thanks for the reply - from memory I came to a similar conclusion when I finished looking at it.

I do exit stock if I discovered information doesn't stack up against my initial criteria after I buy them...Phil Fisher style when to sell...

I agree - you definitely should sell if this happens, if not you are trading on hope, not for realisation of value.

 

[Klogg]

Not sure if anyone has looked at the most recent report, but it seems the woes of Syntheo JV are behind them.

The company was diluted a fair bit, with Waislitz/Thorney now owning ~29% of the company. That said, it is trading at 4* cash flow, with some macroeconomic tailwinds and a fairly strong balance sheet.

Need to scrutinize the last set of financials a little further before adding to my position, but at face value, this matches my base case.

 

[KnowThePast]

Not sure if anyone has looked at the most recent report, but it seems the woes of Syntheo JV are behind them.

The company was diluted a fair bit, with Waislitz/Thorney now owning ~29% of the company. That said, it is trading at 4* cash flow, with some macroeconomic tailwinds and a fairly strong balance sheet.

Need to scrutinize the last set of financials a little further before adding to my position, but at face value, this matches my base case.

Hi Klogg,

Yes, I am looking at them. Added them to my portfolio in May.

It is a low margin business, that relies on only a few customers to generate its revenue. That sounds bad, but in a way it is also a reason for one positive - little competition.

Most importantly, at current prices, I think these risks are priced in and then some.

Waislitz/Thorney coming on board is an interesting development and could serve as a catalyst for some changes.

It is currently in a similar situation to the likes of BOL, PMP, COF. When downsizing, due to depreciation and other non-cash items, low profit obscures a much healthier cash flow number.

Again, not a great business; but at the current price very little needs to go right to make it a good investment.

 

[McLovin]

The company was diluted a fair bit, with Waislitz/Thorney now owning ~29% of the company. That said, it is trading at 4* cash flow, with some macroeconomic tailwinds and a fairly strong balance sheet.

How much of that cashflow is just a bit of economic liquidation taking place?

 

[Klogg]

How much of that cashflow is just a bit of economic liquidation taking place?

My apologies for not answering sooner - posting a random metric and running away when questioned doesn't look too good...

Back to your observation - this is true, a portion of this is from liquidating current assets that I can only assume are hangover from Syntheo or other marginal projects.

The obvious way for me to calculate true cash flow would be:
EBITDA - (Interest + Tax) - Capex.
EBITDA for the last FY was 17m, with 3m on capex and 5.2m interest (minimal tax because of minimal profits.

For the next FY, interest will be lower as a result of lesser interest charges. Management have also flagged similar capex requirements, resulting in:
17m - 3m - 2m = 12m

I should note:
- expenses have not been adjusted for no more 'liquidation'
- conversely, there's no tax component subtracted from this figure

For simplicity's sake, I'm cancelling the two out (which is incorrect, but I'd argue this is a conservative approach).

Following on from this, at 384m shares, 20cps = 76.8m MC
P/FCF = 76.8/12 = 6.4*

Obviously this has many assumptions built in, and I've only mentioned a few.


The EBITDA figure achieved above could also be 'cross-referenced' by matching Site and Construction costs to a year with similar revenues. This is obviously open to a lot of interpretation and is potentially misleading due to the variables in expenses for a given year, so I won't burden the forums with my potentially meaningless calculations - I only mentioned it as an option to verify the above if one wished to do so.


Another figure worth mentioning - the LTI hurdles set by the board. Given my cash flow calcs above, I'm fairly sure the board have decided on figures that are easily achievable. This is not necessarily a bad thing, given the poor run SSM have had recently - you want these incentives to actually mean something.

For those that are interested, LTI earnings per share hurdle is 2.8cps (starting at 2.1cps, full incentive at 2.8cps).
A user on another forum correctly pointed out that an ROE/ROC hurdle is a far better metric for incentives, however it seems the board has not taken the opportunity.

 

[Klogg]

It is currently in a similar situation to the likes of BOL, PMP, COF. When downsizing, due to depreciation and other non-cash items, low profit obscures a much healthier cash flow number.

It is similar to these, however I think BOL is slightly different. They're dependent on asset sales for a large portion of cash flow, whereas SSM have strong recurring revenues and are not selling a large portion of assets.
Nevertheless, both have decent cash flows.

(I have a position in both SSM and BOL)

 

[McLovin]

My apologies for not answering sooner - posting a random metric and running away when questioned doesn't look too good...

Back to your observation - this is true, a portion of this is from liquidating current assets that I can only assume are hangover from Syntheo or other marginal projects.

The obvious way for me to calculate true cash flow would be:
EBITDA - (Interest + Tax) - Capex.
EBITDA for the last FY was 17m, with 3m on capex and 5.2m interest (minimal tax because of minimal profits.

For the next FY, interest will be lower as a result of lesser interest charges. Management have also flagged similar capex requirements, resulting in:
17m - 3m - 2m = 12m

I should note:
- expenses have not been adjusted for no more 'liquidation'
- conversely, there's no tax component subtracted from this figure

For simplicity's sake, I'm cancelling the two out (which is incorrect, but I'd argue this is a conservative approach).

Following on from this, at 384m shares, 20cps = 76.8m MC
P/FCF = 76.8/12 = 6.4*

Obviously this has many assumptions built in, and I've only mentioned a few.


The EBITDA figure achieved above could also be 'cross-referenced' by matching Site and Construction costs to a year with similar revenues. This is obviously open to a lot of interpretation and is potentially misleading due to the variables in expenses for a given year, so I won't burden the forums with my potentially meaningless calculations - I only mentioned it as an option to verify the above if one wished to do so.


Another figure worth mentioning - the LTI hurdles set by the board. Given my cash flow calcs above, I'm fairly sure the board have decided on figures that are easily achievable. This is not necessarily a bad thing, given the poor run SSM have had recently - you want these incentives to actually mean something.

For those that are interested, LTI earnings per share hurdle is 2.8cps (starting at 2.1cps, full incentive at 2.8cps).
A user on another forum correctly pointed out that an ROE/ROC hurdle is a far better metric for incentives, however it seems the board has not taken the opportunity.

Hi Klogg

Thanks for the reply, sorry it's taken a while to get back to you.

One thing that sticks out at me with these guys is the large depreciation/amortisation charge on a pretty small asset base. It makes me think that EBITDA is probably not the best measure of performance because, from reading the accounts, it looks like they need to continually invest pretty heavily into the business. Is there going to be some material change in the asset intensity of the business?

This company interests me, mainly because I don't think it's as big a dog as the market makes out, but I find it somewhat difficult to get a decent picture of what's going on.

 

[Klogg]

Hi Klogg

Thanks for the reply, sorry it's taken a while to get back to you.

One thing that sticks out at me with these guys is the large depreciation/amortisation charge on a pretty small asset base. It makes me think that EBITDA is probably not the best measure of performance because, from reading the accounts, it looks like they need to continually invest pretty heavily into the business. Is there going to be some material change in the asset intensity of the business?

This company interests me, mainly because I don't think it's as big a dog as the market makes out, but I find it somewhat difficult to get a decent picture of what's going on.

The toughest part of it all for me is the constant change in management. As Thorney came in, they obviously outed Sinclair 6 months into the job, and with changes of management come changes in capex, as do areas of focus.
From recent reports, there are minimal capex requirements (I'd have to find the announcement stating this).

I get the impression previous MDs were focussed on growing the top line only, investing heavily for new contracts but with no focus on efficiency. Given the small number of competitors of this size, SSM should have an economy of scale that others cannot really achieve... They're failing to use this to their advantage at the moment.
If they focus on efficiency and expenses, retaining similar revenue levels, the business should do very well.

 

[McLovin]

I get the impression previous MDs were focussed on growing the top line only, investing heavily for new contracts but with no focus on efficiency. Given the small number of competitors of this size, SSM should have an economy of scale that others cannot really achieve... They're failing to use this to their advantage at the moment.
If they focus on efficiency and expenses, retaining similar revenue levels, the business should do very well.

This pretty much is the view I'm forming. There is very little discussion of anything other than their current contracts in the FY prezzo and financials.

Do you know the rough date of when they discussed their capex requirements? I wouldn't mind having a look at that.

 

[Klogg]

Do you know the rough date of when they discussed their capex requirements? I wouldn't mind having a look at that.

Since installing Mackender, there has been a reference to "tight restrictions on capital expenditure", although in the context of FY14 results

In the recent report:
"Net investing cash outflows decreased by $13.6 million to $2.1 million due to tight restrictions on capital expenditure during the year"

In the media release dated 13th August, 2014:
"In addition, net investing cash outflows decreased to $2.1 million (2013: $15.7 million) due to tight restrictions on capital expenditure"

(Obviously a bit of copy/paste on their behalf, so I might be reading into it too much)
There's been no explicit mention of on-going capex reductions, but the focus on cash flows and debt reduction does give this impression.

 

[Klogg]

After multiple contract wins and a solid 1H result (on low revenue), it seems this one has got some attention.

If Mackender has driven cost reduction hard enough, the 2H result should be better than the first.

 

[Boggo]

Trading halt, more good news I hope

(click to expand)

 

[peter2]

Since Boggo's chart was posted the price has traded to 1.27, then had a shallow pull-back and found support at 0.90. I like the higher low since then and the formation of a bullish ascending triangle pattern.

SSM is completing a corporate acquisition and it looks like the market likes what SSM is doing.

As it's already in the weekly portfolio, a further BO might be an opportunity to buy more.

 

[peter2]

@Rypieee @Triathlete Do you think we're the only ones watching the SSM chart?