BSA Limited

BSA Details

Legal Update: BSA Limited (ASX: BSA) is a technical services provider to utilities & communications infrastructure, and property solutions companies. Advanced Property Solutions (APS) and Communications & Utility Infrastructure (CUI) are its main operating segments.

• On 9 February 2022, BSA declared the provisional settlement of a class action proceeding which was filed on 24 July 2020.
• The class action was filed by Shine Lawyers (ASX: SHJ) on behalf of the class members including previous and existing contractors. SHJ alleged BSA of not treating their telecom technicians as employees and rather independent contractors. BSA was also alleged for not providing them rightful entitlements of minimum wage, superannuation, and annual leave.
• BSA is now entitled to pay ~$20 million out of which ~$4.4 million is to be paid by 30 June 2022, ~$6.6 million by 30 June 2023, and ~$9.0 million by 30 June 2024.
• BSA plans to fund the settlement from its existing and future operating cash flows. The settlement of the proceedings is subject to the Court approval, necessary conditions, and without acknowledgment of liability.
• Although the Board is confident of its chances in defending the claims successfully, it has agreed to settle the proceedings commercially in the best interest of company’s shareholders.

AGM Highlights & Q1FY22 (ended 30 September 2021) Update:

• BSA has a secured contract base for its core CUI segment which was mobilised during FY21. The company has a robust work pipeline across CUI and APS segment, which is expected to positively impact the underlying revenue base for FY22.
• BSA has been investing in significant upskilling of its people and capabilities in the last three years and expects to leverage the in-house expertise to foster organic growth.
• BSA has a secured contract base for its core CUI segment. The company secured contracts from major customers namely Foxtel, NBN, Telstra in FY21.
• The business witnessed the impact of COVID-19 in early FY22 due to the suspension of all non-critical activity in Victoria and NSW (New South Wales), construction site restrictions, and lockdowns in the city markets.

Business Highlights; (Analysis by Kalkine Group)

Key Risks: The company faced the COVID-19 impact of delays in tender, project implementation, infrastructure spending, and earnings impact on its business. BSA also faces the risk of accrual of synergies from the recent acquisitions. 

Outlook:

• The management anticipates recovery to the prior year levels of revenue and earnings during 2HFY22.
• As per the trading update in October 2021, BSA expects to earn revenue between $200-$210 million and an underlying loss of ($2.0) – ($4.0) million during 1HFY22.
• BSA intends to leverage on the long-term base established in FY21. BSA prioritises to explore a new complementary revenue stream and has identified companies in target markets and sectors meeting, thus helping drive economies of scale
• BSA plans to publish its 1HY2022 results on 24 February 2022 before the market opens.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of BSA gave a negative return of ~23.52% in the past three months and a negative return of ~26.41% in the past six months. The stock is currently trading at par to its 52-weeks’ low level of $0.195. The stock has been valued using the Enterprise Value to EBITDA based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average EV/EBITDA multiple, considering the significant impact of COVID-19, class action proceedings, and realisation of synergies from the recent acquisitions. For this purpose of valuation, a few peers like Mader Group Ltd (ASX: MAD), Uniti Group Ltd (ASX: UWL), Aussie Broadband Ltd (ASX: ABB), and others have been considered. Considering the current trading levels, a robust underlying workbook, entry into the wireless market with the acquisition of Catalyst ONE, new tenders in early FY22, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.195, down by ~4.879% as of 18 February 2022.

Investors with a high-risk appetite should evaluate this stock given the technical support and resistance levels and consider associated risks with a recent class action settlement, temporary closures in the construction activity, COVID-19 disruptions, and delays in the project execution.

BSA Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.