BSA Limited (BSA)

Market Cap: $60m
P/E: 6.4
P/B: 0.88
Dividend Yield: 7.1%

On the surface, BSA ticks all the boxes for value investors. Selling for 6.4x earnings and 0.88x book value, BSA is sitting on $17m of cash, has less than 50% debt to equity ratio, and hasn’t missed a dividend since they commenced paying in 2006. (management aims for a payout ratio of 50%).

Turning to the underlying business, I am going to frame my analysis of the business the same way management do, into 2 separate streams: Contracting Solutions and Building Services.

Contracting Solutions
BSA’s legacy business is centred around the telecommunications and subscription television market. As long-term contractors to Foxtel, Silcar and Optus, BSA have a strong practice in maintenance installation and troubleshooting of telecommunications infrastructure, as well as installation and setup of pay TV services. BSA also own the Mr Antenna and Mr Alarms brands. While revenue has declined since FY09, in HY11 Contracting Solutions won the national ADSL provisioning and service assurance contract for Optus (having previously only held the East Coast contract).

Building Services
In 2007 BSA branched out from their core contracting business by acquiring the Triple M group of companies, who are focused on the HVAC and Fire Alarm markets. Further acquisitions have expanded the practice, with Building services generating $176M in revenue in FY10. Building services continued to perform well in HY11, generating $120M revenue, and the order book has grown in the 6 month period ending December 2010 from 180m to 260m. I anticipate more acquisitions of smaller HVAC and Fire Panel operators over the coming years, and the currently challenging market conditions are going to create opportunities for BSA to acquire smaller competitors at great prices, with plenty of cash on hand.

Aggregate performance for HY10 saw outstanding growth with revenue up 39% and NPAT up 72%. While much of the growth I expect to see in BSA will be through the Building Services arm, Contracting Solutions are exposed to a large potential upside in the medium term through subcontracting on the NBN project. BSA already participated in stage one, winning work in Tasmania and NSW. If the NBN goes ahead in the future, BSA will be in the right position to potentially win a large chunk of the subcontracting work.

My holding horizon for BSA is forever (barring a major change to the underlying business), and I intend to continue adding to my position given the low share price. The 5% discount for dividend reinvestment gives me another reason to buy, hold and reinvest.

2 thoughts on “BSA Limited (BSA)

  1. Hi Leon do you feel the gov money for set top boxes will improve BSA bottom line? And as you have DYOR but .20 looks a good entry point

  2. Hi John

    I haven’t researched all the detail on those subsidies but I don’t think the upside will be significant – any teenager can install a set top box. If BSA didn’t have the HVAC business I wouldn’t be in them, they are too exposed to Foxtel which I think is a diminishing market as freeview and IPTV rises. The NBN gives them significant upside exposure but without that Network Services will slowly shrink.

    The HVAC story is better than a lot of people give BSA credit for, they have some great reference sites for new 6-star energy rating buildings, and they have been picking up smaller operators who are getting squeezed in the tight markets.

    If I wasn’t already satisfied with my portfolio commitment to BSA I’d be adding at these levels, of course DYOR but even if they stay at 20c for 5 years the dividends are very generous. I reinvest for the 5% discount.

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