Savcor (SAV)

[mark100]

Savcor (SAV) listed on the ASX in Dec 2007 at $2. SAV raised $110m which was paid to existing shareholders. The IPO was heavily oversubscribed but listed at a bad time and has been drifting down ever since. It’s now $1.65.

SAV is an interesting company. It is an industrial technology company with 27 years of operations, Finish origins, established manufacturing in China and a provider of services to the Australian resource industry.

SAV has 2 main divisions, FACE and Advanced Rehabilitation Technology (ART). They seem completely different but apparently the underlying technology is quite similar.

FACE is China based and provides shielding, flexible circuits and decorative coating for the mobile phone industry. Nokia is a major customer and a Nokia executive sits on the board of SAV.

ART is primarily Australia based and provides electrochemical protection systems and remedial solutions to the mining and infrastructure sector.

The CY07 result came in above ahead of prospectus forecasts and the company reckons the outlook remains strong. Prospectus forecasts are for NPAT of $22m (EPS of 15.4c) putting SAV on a CY08 PE of around 11. The represents 25% NPAT growth. It should be noted a rising AUD relative to the Chinese currency has a negative impact on SAV’s earnings.

Net debt currently stands at $18.5m (Net Debt / Assets of 20%). Current market cap is $235m.

There is an audio presentation on www.brr.com.au The prospectus and recent ASX release gives a good overview.

[The Big Ease]

great intro post mark100.
thanks.

[mark100]

SAV doesn't seem to be happy with their share price. After only being listed 4 months they have announced their intention to buy back 10% of their issued capital over the next 12 months. I hold a few. It's an interesting business but is still very much under the radar

[mark100]

SAV director, Hannu Savisalo, has bought over $400k worth of shares on market over the past couple of weeks

[Lizard]

Spectacular fall for SAV since listing - now at 9cps from Dec 2007 listing at $2.

After a few initial acquisitions and falling returns, it seems SAV have ended up with a significant debt issue. Savcor FACE now sold - albeit cheaply when compared to listing value - to reduce debt. Still needs to prove that the ART business can provide ongoing profitability.

ART should be in a good space with access to mining and infrastructure projects. It has contributed over two-thirds of revenue to SAV and the majority of profits in past 18 months. However, the market (rightly) still looks sceptical on the future for Savcor - and until they can demonstrate improved financial management, report profits and further reduce debt, a recovery seems unlikely.

However, given the $85m+ revenue base for the remaining ART business, with the possibility of more normal profit levels ($4m+ NPAT seems to me to be realistic if well-managed in 2011), then a $12m market cap leaves room for upside. Worth putting on watch.

[Lizard]

Still watching this one, now down at 4.8cps (having been even lower). After the poor showing in the first half, would have to think there is no way they will be reporting a profit for 2011 now - even after removing the equity accounted loss on Cencorp shares (Savcor FACE). My estimate for a possible $4m+ NPAT looks a bit off target, as needed to allow for more corporate overhead allocation against the remaining Savcor ART.

Revenue should be on track for $85m+, but at some stage, they probably need a chomp taken out of the debt level to reduce financing burden. The plan seems to be to achieve this through disposal of the Cencorp shares, although until this weeks bounce, there hasn't looked too much hope of them realising value there. At least they managed to re-jig the debt arrangements a little to see them through the current period. Still looks a bit tenuous, but gives them another six months to prove their viability and/or find a buyer for Cencorp parcel. Though, oddly, they haven't yet called the EGM they flagged for late 2011 to decide on conversion rights for the $1m facility received from controlling shareholder.

Second half report should provide some more insight as to survival odds.

[Lizard]

FY report out an reportedly a $0.25m profit if the losses on shares of Cencorp are excluded.

Could be the start of a turnaround. Still way too much debt to chew through to rest easy, but at least op cashflow has turned positive, so can start nibbling at it. Brightest hope rests on a sharp Cencorp turnaround (EBITDA profit is forecast for 2012) which might allow them a partial or full exit and allow debt to be repaid. Then this would be a $4m market cap with $90m in revenue - i.e. potential multibagger of the "fingers-crossed" type...

(Warning: Liquidity is low, spreads are wide, so likely to be impossible to get out of if things don't improve!)

[Lizard]

Replacement of Finnish CEO and founder, with Australian local. Along with departure of Finnish CFO...

For a struggling founder-owned business with good revenue, but poor margins a change of management is one of the better markers for a coming inflection point. Though it does come to depend in the quality of incoming management - which tends to become apparent after around 6 months.

Cencorp side not looking too good though - not sure they'll get the chance to sell the shares and pay down debt, but at least they are probably better off without the FACE business after all.