ASX:BRI
Big River Industries Ltd
Investment Summary
The fund managers believe that despite recent challenges, Big River Industries Ltd (BRI) presents a compelling investment opportunity. They identify **short-term headwinds** from a softening housing and commercial real estate market, which has resulted in **declining EBITDA** margins due to reduced volumes in their frame and truss plants, critical to their revenue. However, they highlight that **BRI's fundamentals remain attractive**, featuring a low PE of **9.5x** and a dividend yield of **6%**. The recent acquisition of Specialised Laminators underscores the potential for **consolidation in a fragmented market**. In their opinion, while the current performance may reflect a **trough**, the long-term outlook for BRI remains strong, bolstered by **structural tailwinds** from housing shortages and the ability to improve gross margins. Successful management execution and strategic acquisitions are expected to enhance operational efficiency, positioning BRI to thrive as the market recovers, with a **significant long-term growth potential** highlighted by past revenue growth of **~20% p.a**.
Commentary From The Managers
Cyan Investment Management
31 July 2024
$1.76
- Big River Industries Ltd (BRI) has performed well, with a price increase of 30% despite no significant positive news.
- The company has consistently acquired bolt-on businesses, contributing to impressive revenue growth of approximately 20% per annum over the last five years.
- Offers a solid yield of nearly 5%, making it attractive to investors.
- Currently trading at a low PE ratio of 12x, indicating potential for growth.
- Expected to benefit from any increase in building activity as well as its ongoing acquisition strategy.
- Cyan Investment Management continues to hold their position in Big River due to these promising indicators.
Naos Asset Management
30 June 2024
$1.33
- Naos Asset Management acknowledges BRI's trading update for 9 months to March 2024: Revenue at $308 million, EBITDA at $25 million (8.1% margin).
- Comparison to FY23 shows lower performance: Revenue was $449 million, EBITDA was $51.5 million.
- BRI's Q3 results are seen as disappointing, attributed to various converging headwinds creating a performance trough.
- Over 40% of revenue from residential construction has been impacted by a slowdown in volumes.
- Frame and truss plants, reliant on high volumes, have been significantly affected due to fixed cost structures.
- Builders are extending orderbooks, resulting in longer home construction times (12.2 months in 2022 vs. 8.3 months in 2019).
- Gross margins are under pressure due to competitors holding excess product stock, leading to price reductions.
- Delays in commercial projects like the Brisbane Olympics and various hospitals mean BRI faces orderbook issues.
- Despite short-term challenges, Naos Asset Management maintains a positive long-term outlook for BRI, citing:
- Ability to improve gross margins through scale, sourcing, and processes, led by new hire Gareth Watson.
- Unique market exposure in Panels and Laminates offers attractive margins absent competitors like Metcash and Bunnings.
- Fixed cost leverage indicates that future revenue uptick will disproportionately benefit EBITDA due to high cost base.
- Structural tailwinds from Australia’s housing shortage suggest potential for significant industry growth as conditions improve.
- Watch for BRI's Q4 FY24 performance and the outlook at their FY24 results; EBITDA margins projected to be ~2% below target.
- A reversion to a 10% EBITDA margin could enhance EBITDA by ~27% without revenue growth.
- Continued operational efficiency and strategic acquisitions are key for BRI's value enhancement strategy.
Naos Asset Management
31 Mar 2024
$1.76
- BRI did not pre-release results for 1H FY24, causing market uncertainty.
- Revenue decreased by 5.9% on PCP but was in line with expectations from 2H FY23.
- Market surprised by a significant 28.3% drop in EBITDA, due to a decline in gross profit margin.
- EBITDA margin in Construction products fell by 3%, driven by volume declines at frame and truss plants.
- 40% of BRI's revenue depends on the detached housing sector, which is currently experiencing a slowdown.
- COVID brought a boom to BRI as demand surged, but now builders are stretching project timelines due to labour shortages.
- Recent discussions with a private credit lender indicated project completion times have doubled to up to 36 months.
- BRI's acquisition of Specialised Laminators for $10 million highlights the opportunity for consolidation in a fragmented market.
- The acquisition was completed under new CEO John Lorente, indicating a strategic shift.
- BRI lacks quantitative guidance but warned that 2H FY24 revenue could fall below that of 1H FY24.
- BRI must focus on controllable factors like service levels, pricing, and M&A opportunities to strengthen its medium-term position.
- Growth potential remains significant, as BRI has quadrupled EBIT since FY20.
- Achieving over $70 million EBIT will necessitate a new skill set and sound capital management from management.
Cyan Investment Management
29 Feb 2024
$1.79
- Cyan Investment Management continues to monitor Big River Industries' performance amid short-term headwinds.
- The company has encountered challenges due to a softer housing and commercial real estate market.
- Big River Industries is cycling against strong results from the previous period.
- For 1H24, the company reported a NPAT of $7m, aligning with forecasts.
- Its low PE ratio of 9.5x and dividend yield of 6% highlight its attractive fundamentals.
- The company maintains an extensive footprint in Australia, contributing to its investment appeal.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.