SRG Global (ASX: SRG) is an ASX-listed diversified industrial services company, standing at the forefront of innovation with a mission to simplify the complex in the asset lifecycle.
The company operates across diverse market sectors and geographies and over the last few years has undergone a strategic transformation to progress towards an earning profile offering more than two-thirds annuity/recurring earnings through its maintenance work. This shift positions the company for sustainable growth while also returning capital to shareholders through its dividend strategy.
So what is SRG Global?
In its simplest form, SRG Global can be broken down into three segments.
Asset Maintenance Segment:
SRG Global's Asset Maintenance segment is a cornerstone of its diversified industrial services. Employing an engineering mindset, the company offers integrated maintenance services, covering mechanical, electrical, and plumbing aspects for fixed plant maintenance. With a large, multi-disciplinary workforce and comprehensive access solutions, SRG Global simplifies the upkeep of critical infrastructure. The breadth of skills allows for continuous maintenance, large-scale shutdown solutions, and sustaining capital projects. Clients benefit from a single contractor, reducing risk, time, cost, and complexity. Core services include industrial cleaning, paint and blast, non-destructive testing (NDT), insulation and lagging, refractory installation, and civil maintenance. SRG Global is positioned as a contractor with diverse technical know-how, a skilled workforce, and all the necessary access equipment to extend the life of any critical asset.
Mining Services Segment:
SRG Global stands out as the sole drill and blast contractor offering an integrated range of technical services in mining services. Employing the custom-built software 'Orbix,' the company optimises drilling and blasting for improved safety and productivity on mine sites. With a dynamic approach, SRG Global executes drilling programs with precision and adapts confidently to daily challenges in open-pit environments. Core services encompass production drill and blast, specialist drilling services, and specialist geotech services, providing geotechnical investigations, instrument installations, rope access, and ground support product supply.
Engineering & Construction Segment:
SRG Global's Engineering & Construction segment addresses infrastructure challenges with specialist technical expertise, innovative technology, and a highly skilled workforce. The company offers services in key markets such as dams, bridges, mine site infrastructure, wind farms, aviation, and tanks. With decades of experience, SRG Global has developed innovative techniques and specialised tools, making infrastructure projects more efficient and cost-effective. Core services cover civil infrastructure, engineered products, specialist facades, and end-to-end delivery of structural concrete construction. SRG Global's commitment to "Making the Complex Simple" is evident in its approach to engineering and construction challenges across diverse sectors.
SRG Global has hit the ground running in FY2024.
The business has already secured ~$176 million in contracts. It secured a 10-year term maintenance contract with Transpower New Zealand Limited worth approximately NZ$130m (circa A$121m). The contract, commencing on July 1, 2024, for an initial five years with a further five year right of renewal from 1 July 2029. The contract involves specialist industrial services such as coating removal, protective coating application, and minor steel replacement. With a 30-year history with Transpower, this renewal reinforces SRG Global's industry-leading position in New Zealand's maintenance services sector. The renewal underscores SRG's relationship-based strategy, showcasing its ability to consistently provide critical services with innovation to blue-chip clients in thriving markets.
This follows on from the February 2023 acquisition of ALS Industrial Pty Ltd (Asset Care).
The addition of Asset Care has complimented the business's strategy to grow recurring asset maintenance services with 99% of Asset Care's FY23 revenue generated from recurring, annuity-style maintenance services. Furthermore, the acquisition provides an increased ability to cross-sell its services with existing customers. The $80 million acquisition implied a multiple of 5.2 times Asset Care’s FY23 Earnings Before Interest Tax Depreciation and Amortisation (EBITDA).
The Financial Position
SRG Global reported its full year 2023 results in August showcasing strong revenue growth of 26% to $809 million.
The result flowed through to Net Profit After Tax (NPAT) of $31.8 million up 42% on the prior period. It’s important to note that the company excluded one-off transaction costs of $4.5m for Asset Care and $2m of costs for exiting the Building Post-Tensioning business in Australia and the Middle East from this calculation.
The company’s cash position dropped over the 12 month period and operating cash flow reduced on the back of movements in working capital.
SRG Global declared a full year dividend of 4 cents per share, an increase of 33%. At the time of writing it provides a yield of around 6%.
Upon release of the result, Managing Director David Macgeorge said:
“SRG Global has delivered a record profit result in FY23. This provides further evidence of the execution of our strategy and transformation to a truly diversified industrial services company which is delivering outstanding results for shareholders. Our FY23 result is underpinned by strong business fundamentals, positive cash generation and solid operational delivery and is a testament to the hard work of all 3,300 people at SRG Global.”
SRG Global's business outlook remains promising.
The company has reaffirmed its FY24 guidance, projecting around 20% EBITDA growth, supported by its status as a high-yield dividend company. With a record Work in Hand (WIH) of $1.9 billion, 46% of which stems from FY22, SRG is well-positioned for both domestic and international growth. The company has noted that it will strategically focus on selective acquisitions to complement its capabilities and footprint.
Propelled by a strategic shift towards annuity and recurring earnings, a robust FY23 result and a promising FY24 outlook, SRG Global remains a promising play for shareholders and one to watch going into 2024.
Disclosure: SRG Global (ASX: SRG) is currently held in the TAMIM Portfolio.
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