Saunders Intl wins $24m in new contracts

Saunders International (ASX: SND) was trading flat at the open after the smallcap engineering and construction company announced $24m in new contracts.

No fewer than seven projects across NSW, Qld and Vic are expected to contribute to the group’s revenue and earnings during FY23.

Management expects to update the market in more detail once an additional five projects, currently under negotiation, valued to $29m, have been executed.

Included within today’s contract wins are the design and construction of a new unleaded petrol tank in Qld, a fuel terminal tank refurbishment in NSW and a paper mill shutdown and refurbishment works in Vic.

What does Saunders do?

The group specialises in innovative cost-effective solutions to the oil & gas, infrastructure, defence, water, power, new energy, mining and minerals sectors.

Commenting on today’s update, CEO Mark Benson notes record levels of tender activity are being converted into new projects wins, which are expected to increase the orderbook across all diversified services.

Recent developments

Today’s announced contract wins follows $17m in new infrastructure projects in NSW announced to the market early March 2022.

Included within the projects awarded back in March was the manufacture and delivery of 166 Super T bridge girders for four bridges as part of the Sydney Gateway project.

Saunders was also charged with the design and construction of a 52-metre bridge in the Narrabri region and the construction of a four span, 45 metres long bridge including approach road works around Port Macquarie.

The group has consciously targeted federal and NSW government’s infrastructure spending and expects to capitalise on more bridge construction opportunities through the ‘NSW Replacing Country Bridge’ program.

What happened at the half year?

For half year ending 31 December 2021 group revenue of $46.40m, was down -13% over the previous period, while earnings (EBITDA) of $5.15m was an improvement of $0.13m.

Cash on hand was $30.54m, and work in hand as at 31 January 2022 was at a record $223m.

The board paid an interim dividend of 1.00 cents per share fully franked.

Revised revenue for FY22 was expected to be between $115-$130m with earnings (EBIT) expected to be between 6.5% to 7.5%.

At the end of FY21 the group’s return on total capital was 27.5%, return on assets was 11.2% and free cash flow (ex-dividend) was $13.4m.

What happened this morning?

Twenty minutes out from the open there appeared to be little to no trading in the stock.

The stock is up 33% over one year and has seemingly bounced higher on the back of nothing in particular.

Investors should note that the top 20 shareholders control around 84% of the share on issue, which means the stock in susceptible to moves (up or down) on shallow trading.

Consensus does not cover this stock.

Based on Morningstar’s fair value of $1.23 the stock appears to be undervalued.

Shaw & Partners rates the stock a Strong buy.

Saunders International share price over one year.