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ASX:VYS
Vysarn Ltd
Investment Summary
The fund managers believe that Vysarn Ltd is more than a traditional drilling company and should be valued accordingly. They highlight Vysarn's unique position in servicing tier-1 iron ore miners in the Pilbara, with its core business, Pentium Hydro, anticipating significant growth driven by long-term contracts and a forecasted EBITDA CAGR of ~16% from FY24-FY26. In their opinion, Vysarn's diversification into water management and technology will enhance its earnings stability away from cyclical mining operations. Recent acquisitions, including Waste Water Services and CMP Consulting, are seen as financially compelling opportunities for market expansion and valuation upside. Management's recent partnerships and growth strategy are expected to meet rising demand in the water services sector. Overall, the fund managers express confidence in Vysarn's asymmetric return potential, driven by a more predictable cash flow and a robust growth profile.
Commentary From The Managers
Mereweather Capital
28 Feb 2025
$0.44
- Mereweather Capital updates on Vysarn Ltd (VYS) following profit guidance exceedance at the recent AGM.
- The market initially reacted positively but saw a sell-off later in the month.
- Despite a headline beat, further analysis revealed challenges within the Industrial segment.
- Profitability in the Industrial segment was approximately cut in half due to lower utilization and cautiousness among large miners.
- Declines in lithium and nickel prices adversely affected the Industrial segment's performance.
- Conversely, the Technology segment reported a profit before tax of $3.2m, providing a positive offset.
- VYS's strategy has shifted earnings focus from the cyclical Industrial segment to the high-margin, capital-light Technology and Consulting segments.
- Management has set an annualized second half profit guidance of $14m.
- VYS is currently trading at around 15x earnings with potential upside to the guidance.
- Mereweather Capital continues to hold due to the promising profitability in the Technology segment and strategic shifts.
Saville Capital
30 Sept 2024
$0.50
- Vysarn (VYS) has announced an acquisition of CMP Consulting Group Pty Ltd for $24m cash and 10m VYS shares.
- Deferred consideration may add up to 30m VYS shares based on CMP meeting EBITDA targets.
- The acquisition aims to diversify Vysarn away from its capital intensive water drilling business.
- The deal shows a financially compelling upfront EV/EBITDA multiple of 4.6x, excluding deferred shares, with expected earnings per share accretion of over 20%.
- Vysarn raised approximately $38m through an institutional placement at $0.40/share to help fund the acquisition.
- The capital raising has increased the market cap and liquidity of Vysarn, boosting institutional interest.
- Saville Capital continues to hold Vysarn as a core investment following its strong performance since initial acquisition at $0.15/share.
Saville Capital
31 Aug 2024
$0.41
- VYS reported strong FY24 results, with revenue up 17%, EBITDA up 31%, and NPAT up 100% compared to the previous corresponding period.
- Company has begun establishing its Water Asset Management business to manage groundwater resources for regional water supply in Western Australia.
- Growth has been primarily driven by the iron ore sector, but VYS is now exploring diversified opportunities in other water services and commodities.
- Acquisition of Waste Water Services (WWS) for $7.5m, indicating an unaudited EV/EBITDA multiple of 3.27x and expected EPS accretion of over 20%.
- Immediate organic growth initiatives for WWS have been identified, targeting wastewater treatment plants, increased rental units, and municipal water treatment projects.
Saville Capital
31 May 2024
$0.31
- Saville Capital recognizes VYS's strategic partnership with the Kariyarra Aboriginal Corporation, facilitating mutual interests in water resources.
- The Joint Resource Agreement (JRA) establishes Vysarn Asset Management as an equal partner with KAC in managing and selling water resources.
- VYS will act as the manager and marketer for water quantities developed through the joint venture.
- This JRA is viewed as a key catalyst for VYS, potentially unlocking significant earnings and valuation improvements.
- There exists substantial unmet demand for water in the region, offering attractive pricing and economics for the business.
Cerutty Macro Fund
30 Nov 2023
$0.27
- Cerutty Macro Fund views Vysarn Ltd as significantly more than a traditional drilling business.
- The company uniquely services the drilling and dewatering needs of tier-1 iron ore miners in the Pilbara region.
- Historically, Vysarn has been priced similarly to other drilling companies, but Cerutty Macro Fund believes it deserves a higher valuation.
- Vysarn is projected to experience substantial growth and diversification of earnings over the next few years.
- The business comprises five distinct verticals under a water management thematic, enhancing its revenue potential.
- Pentium Hydro, Vysarn's core business, has shown significant growth due to the ~65% of the Pilbara’s resource being below the water table.
- Management anticipates 3 rigs contracted on a double shift basis by FY24, contributing an additional ~15% to revenue.
- There is a plan to ramp up to 6 double-shifting rigs by FY26, indicating robust near-term growth.
- Pentium Water has rapidly grown from zero revenue in FY22 to $4.1m in FY23.
- Demand for Managed Aquifer Recharge (MAR) solutions is increasing among clients to meet sustainability standards.
- Pentium Test Pumping is capitalizing on the growth of the MAR business despite earlier constraints in capacity.
- The newly announced Vysarn Asset Management unit aims to offer further earnings diversification.
- Vysarn currently trading at ~4.2x EBITDA multiple presents strong asymmetric return potential relative to the industry average of ~3.15x.
- Vysarn's core services are less cyclical compared to traditional drilling businesses, enhancing profit stability.
- Forecasts show Vysarn's EBITDA growth at ~20%, in stark contrast to its drilling peers at ~2.85%.
- Cerutty Macro Fund believes Vysarn deserves a significant rerating due to its predictable cash flows and growth strategy.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
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