Company Overview - Seymour Whyte Limited is an Australia-based infrastructure, engineering and construction company. The Company operates through two segments, including Transport, which is responsible for construction projects in transport infrastructure including roads and bridges, and Utilities, which is responsible for micro-tunneling and pipeline infrastructure projects in the water and energy utilities market. The Company’s wholly owned subsidiaries include Seymour Whyte Constructions Pty Ltd. and Rob Carr Pty Ltd., through which it operates the Transport Infrastructure Business and Utilities Infrastructure Business respectively. The transport services include design and construction solutions, construction of major earthworks and road works, bridgework and associated concrete structures and community infrastructure. For the utilities sector, it provides a range of projects, including power stations, processing plants, renewable energy projects, bulk water catchments and all associated civil works.
Analysis - The highlights of the financial summary showed a net profit of $ 3.2 million as the OLD transport infrastructure, as had been forecast, slowed down during the first half of the year. However, the performance of the group was supported by expansion into other states and sectors. New project wins totalled $ 355 million taking the total of the order book up to $ 450 million. The financial position continues to be strong with the continued strong performance from operations and the low level of gearing is combined with a robust cash balance. EBITDA worked out to $ 6.9 million compared to $ 7.7 million in the previous year and NPAT was $ 3.2 million compared to $ 4.9 million. EPS was 3.65 cents per share compared to 6.28 cents per share and cash generated by operations totalled $ 8.8 million compared to $ 11.1 million. The interim dividend was 1.75 cents per share compared to 2.5 cents per share. Cash and cash equivalents were $ 35.5 million compared to $ 40.8 million, NTA worked out to $ 54.7 million and $ 54.3 million respectively and gearing was 7.6% compared to 7.9%.
The analysis of revenues by region showed a lower reliance on individual markets compared to the previous year as can be seen below from the distribution of revenues to the different regions. The expanded operations enabled the group to better cope with the changing conditions in individual markets. The impact of softer market conditions in OLD transport infrastructure during the half-year was offset significantly by the utilities infrastructure division.
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Sources: Company Reports
Group cash flows for the half-year ended 31 December 2014 showed very strong cash recovery for the period with operating cash totalling $ 8.8 million and investments of $ 10.1 million ploughed back into the business through investments in long-term strategic assets. The general corporate facility of $ 10 million remains undrawn and would be available for use.
Bank guarantee and bonding facilities of $ 72.7 million were increased by $ 5 million since 30 June 2014. The facility has been drawn down to 57% and the balance of 43% is enough to support the organic growth anticipated for the company. The position is as follows:
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Source: Company Reports
The growth strategy
The company has been delivering, by and large, on its earlier commitments to its growth strategy. The commitment to expand its product offerings has had the impact from the expansion in the first half of 2015 to superior technical offerings, competitive tendering and value for money for customers. Expansion into new sectors has provided an entry point for members of the group such as Green Square because of the established reputation and track record of RCPL in water and waste water. The commitment on entering new regions has led to the satisfactory expansion of geographic growth and the group now operates in five regions. The commitment to new projects means that the financial capabilities of the group has enabled them to compete for larger projects in markets in which fewer competitors operate.
The integration of the utilities infrastructure plan is on course enabling the business they too will despite difficult operating conditions. The highlights include a significant contribution from RCPL to group operating earnings, combined service offerings resulting in better opportunities and bigger projects, obtaining head contract positions in more than 80% of the utilities contracts for FY 2015, improved shared functions and the contribution of the utilities infrastructure to 22% of group revenues and 31% of operating profit before tax.
The order book and the pipeline
New work won in the first half of 2015 has resulted in the securing of more than $ 355 million in new contracts.
New wins
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Source: Company Reports
The forward order book now totals $ 450 million including projects in transport and utilities. The contract order book has been taken into account in drawing up the guidance for FY 2015. The progress that has been made in balancing the order book is reflected by the spread among the regions as well as the sectors and the increasing share of utilities among the sectors. This has resulted in improved resilience and increased earnings diversification has been achieved through NSW and is continuing in the other states.
The tender pipeline
The company believes that the total opportunities between FY 2015 and FY 2019 could touch $ 13.6 billion with NSW transport accounting for $ 4.6 billion, QLD transport for $ 5 billion, both in contestable transport infrastructure and contestable opportunities for utilities for $ 4 billion. $ 2 billion worth of tenders are being targeted and contested over the next 12 months. There has to been a significant improvement in the Expressions of Interest and tender win rates to 82% from 67% and 40% from 20% respectively. The next level of projects are being strategically targeted and performance is driven by innovative tendering processes. The company is focusing on projects where the list of participants is restricted and the scope of the work is closely aligned with the capabilities of the group. A number of projects have been completed during HY 2015 and current projects in transport and utilities are progressing satisfactorily.
The outlook for FY 2015
The outlook is upbeat with forecast NPAT in the range of $ 8 million-$ 11 million targeting $ 10 million, the cash forecast is $ 43 million and the forecast for FY 2016 takes into account a reasonable number of contestable market opportunities. In the transport infrastructure sector, there are uncertainties about the pipeline in Queensland. The company has more recently reiterated that forecast earnings for FY 2015 remain within the guidance though forecast NPAT will now be within the lower half of the range. Earnings remain robust and the operations continue to perform well during the present market conditions.
SWL Daily Chart (Source - Thomson Ruters)
The decline in profitability for HY 2015 has had its inevitable effect on the share price. However, in our opinion, the share is now undervalued and we see an upside in the share price because of the genuine growth prospects. We would therefore rate the share as a Buy at the current price of $1.06..
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