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ASX:SND
Saunders International Ltd
Investment Summary
The fund managers believe that despite recent challenges, including the termination of the $165 million Project Caymus contract, Saunders International Ltd (SND) is well-positioned for future growth. In their opinion, the termination, described as being for convenience, suggests SND's ability to navigate risks associated with large contracts, thus maintaining a balanced order book. Additionally, the acquisition of Automation IT for $5.5 million and Piping Solutions for up to $20 million enhances SND's operational scale in the automation and piping sectors, fostering competitive bidding for larger projects. The successful tender for the $42 million BP Kwinana Renewables Project is viewed as a significant win that will cover the gap left by Project Caymus. They note that SND has achieved a commendable EBIT margin of 7.2%, ranking in the top quartile among peers. Looking ahead, the managers emphasize SND's diversified offerings and order book exceeding $220 million, positioning the company favorably in the evolving market for renewable energy and large infrastructure projects. Overall, the fund managers convey confidence in SND's potential for substantial growth and ongoing operational success.
Commentary From The Managers
Naos Asset Management
31 Mar 2025
$0.86
- Half Year Results: SND released a strong HY25 result, achieving record revenue, EBIT, and NPAT.
- Decline in Margins: Despite growth, EPS and EBIT margins fell YoY due to increased costs and share issuance for acquisitions.
- Downgraded Guidance: FY25 guidance downgraded, with revenue expectations adjusted between -5% & +5%, and EBITDA down approximately -20% due to a higher cost base.
- Record Pipeline: The business pipeline now stands at $2.3 billion, with approximately $1.2 billion in tendered work.
- Industry Diversification: Four segments, including Water and Defence, are crucial for SND’s growth potential.
- Contract Delays: Delays have impacted FY25 guidance; however, management remains optimistic about future growth.
- Defence Contracts: Expectation for SND to secure major Defence contracts given past investments; urgency to demonstrate progress.
- Market Trends: Consistent themes of delays across the contracting sector, influenced by commodity price volatility and inflation.
Naos Asset Management
31 Dec 2024
$1.01
- Naos Asset Management notes that SND has experienced a share price decline of ~30% over the past two years despite achieving record financial results.
- SND's market cap is around $100 million, contributing to share illiquidity and reduced interest from institutional investors.
- Recent substantial shareholder, Ahrens Group, a family-owned contracting business in South Australia, indicates potential long-term value in SND.
- Ahrens Group operates in similar sectors and has a robust financial standing, including a debt-free balance sheet and significant cash reserves.
- Ahrens has made acquisitions in related segments, which may complement SND’s operations and growth prospects.
- Naos believes the involvement of Ahrens highlights the long-term value in SND and provides options for future collaboration.
- SND reaffirmed guidance for revenue growth during their Q2 FY25 AGM, indicating ongoing positive momentum.
Naos Asset Management
31 Mar 2024
$0.93
- Naos Asset Management emphasizes the importance of maintaining perspective when analyzing results, notably for Saunders International Ltd (SND).
- There has been significant growth from $30 million in revenue and $1.4 million in EBITDA at 1H FY20 to $104 million in revenue and $9.8 million in EBITDA at 1H FY24, reflecting a CAGR of 36%.
- SND has achieved this growth without raising capital, currently having over $30 million in cash and no bank debt.
- The order book currently exceeds $220 million despite completing its largest contract worth approximately $160 million.
- SND is effectively managing its order book, burning through approximately $100 million each half.
- The outlook for SND is robust due to its self-performing model, reducing dependency on sub-contractors.
- Site visits, such as to the Nancy Bird Walton Western Sydney Airport, highlight SND's capabilities in delivering extensive infrastructure projects.
- SND's unique offerings position it well to secure large design and construction projects focused on various liquids, including water and fuels.
- While maintaining past growth rates is challenging, Naos Asset Management believes SND has the potential to double its revenue base in the next four years.
- Successful project execution and securing additional large projects with tier-1 clients will be critical for SND's future growth.
Naos Asset Management
31 Dec 2023
$0.93
- Naos Asset Management notes the acquisition of Piping Solutions (PS) by SND for an initial payment of $13 million plus earn-out, reflecting strong vendor confidence in SND's strategy.
- PS is a complementary offering that expands SND's service capabilities, enabling them to offer clients complete solutions including both tanks and piping elements.
- PS has experience with major contracts, including work for the Western Sydney Airport, aligning with SND's goal to internalize specialized skills.
- Significant exposure to Defence contracts accounts for approximately 40% of PS’ revenue, bolstering SND’s credentials in defense opportunities.
- The acquisition enhances SND's multi-year strategy to gain tendering expertise in large defense projects.
- Expansion into new energy markets, such as Hydrogen and Biofuels, is accelerated by PS's capabilities and client collaborations.
- PS strengthens SND’s position in evolving renewable energy sectors with recent partnerships and projects.
- SND continues to rebuild its order book after completing significant projects, moving from a tank maintenance focus to a multidisciplinary contracting business.
- Overall, Naos Asset Management continues to hold SND as it evolves to offer unique solutions directly to Tier-1 clients.
Naos Asset Management
30 Sept 2023
$0.99
- FY23 was a critical year for Saunders International Ltd (SND), characterized by a high level of execution risk due to significant business growth.
- Market scrutiny was particularly focused on SND’s handling of the $165 million Project Caymus, which was terminated in April.
- Key investor concerns included SND’s margin management, cash flow post-termination, and maintenance of the orderbook.
- SND achieved a commendable EBIT margin of 7.2%, positioning it in the top quartile relative to peers.
- Notably, the Civilbuild business generated approximately $30 million of revenue without contributing to profitability.
- Excluding Civilbuild, the overall group margin would rise to 8.50% based on delivered EBIT.
- A major point of concern was cash flow conversion, showing a reduction of roughly $24 million due to increased contract assets.
- As of October 10, 2023, SND's cash balance rose to $39 million, improved from $13 million in June.
- Despite project completions affecting the orderbook, SND saw a $7 million YOY growth in its orderbook.
- SND successfully won significant contracts, including a $44 million contract with Quantem Energy.
- The year marked a pivotal transition for SND, focusing on scaling and diversifying into new markets.
- Industry conditions remain favorable, positioning SND for potential growth in the near to medium term.
- With over 400 employees, SND has enhanced its internal capabilities significantly.
- Peer comparisons highlight Monadelphous (MND) as a successful contractor, showcasing potential pathways for SND's growth.
- SND's management is foreseen as capable of achieving substantial organic and inorganic growth opportunities.
Naos Asset Management
30 June 2023
$1.12
- Q4 FY23 Events: Update on Project Caymus, Acquisition of Automation IT & BP Bio Fuels Contract Win at Kwinana
- Notable Termination: SND was "terminated by convenience" by Crowley on a $165 million contract for fuel storage tanks in Darwin, NT
- Implications of Termination: Naos Asset Management believes this suggests issues not associated with SND or their work completed
- Order Book Impact: Despite a gap from the terminated contract, Naos Asset Management feels SND is positioned to close the contract on original terms
- Acquisition of Automation IT: SND acquired Automation IT for $5.50 million, enhancing their automation division's scale and resources
- Competitive Positioning: This acquisition enables SND to compete for larger tenders against established players like Sage Automation
- Contract Win: SND successfully tendered for the $42 million BP Kwinana Renewables Project, filling part of the gap left by Project Caymus
- Renewables Focus: The project will enhance SND's credibility in the renewable fuels space, aligning with their growth strategy
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
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