On December 12, 2024, the investment manager of Lanyon Asset Management, David Prescott, who is also a director of BSA Limited, disclosed his interest in BSA shares had been reduced by over $3.7 million dollars. This resulted from a sale of shares on market by Lanyon, at an average price of over 93 cents per share.
The original announcement failed to disclose Prescott’s interest in options and failed to disclose whether the trade occurred in a closed period. Less than a week before Christmas, the company filed an amended announcement that this trade did NOT occur during a closed period where permission to trade was required.
This news was surprising given the importance of the company’s bid for a large NBN contract, which was first announced in September, and which the company confessed it was unlikely to win on 18 February 2025.
Personally, based on the fact that the company was in the process of tendering for an extremely important contract, I would have thought that board of directors would, at the very least, declare a closed period during which any trades would require permission from the board.
In the event, however, permission to trade was not required when Lanyon managed to cash out $3.7m at 93 cents. At the time of writing, the BSA share price is down another 9% to 14.5 cents per share, which is more than 80% below the price Lanyon received 71 days ago.
Why Was This Contract So Important To BSA?
Until 13 February, BSA Ltd (ASX:BSA) was a $75M market cap contractor in the telco services market. It had more than doubled since late 2022, with the stock price rising from ~40c to $1. However, BSA presented a rather significant and somewhat unusual risk for a listed company.
If you turn to page 37 of BSA’s 2024 Annual Report, there’s a note under the segment reporting which reads:
“The Group supplies a single external customer in the CUI segment who accounts for 83% of external revenue (2023: 74%).”
Getting more than 80% of revenues from a single customer would be a major risk for any company. But BSA earned a net profit of $10.6M in FY24 (FY23: -$3M) off revenues of $255.7M (FY23: $239.8M), giving them a net profit margin of 4.2% (FY23: -0.1%).
Concerningly, its balance sheet was not strong. It had just $1.6M in cash, while carrying $8M in debt, and $2.8M in lease liabilities, $1.2M of which were current liabilities – meaning they were due in the coming 12 months. Finally, and perhaps most concerningly, it had produced negative net operating cash flows for four consecutive years. In total, it had racked up $37.3M of negative operating cash flows over that time.
I think it’s fair to say most people realised that the company faced a grim future if it were to lose its biggest contract.
The contract in question was its Unified Field Operations contract with NBN Co, and it expires on 30 September 2025 (with an extension option at nbn’s discretion for up to another 12 months). The contract was up for tender, to be replaced by a new Field Services Contract, which BSA was bidding on together with UGL.
But then, on 14 February, the company went into a trading halt “to allow an update to the market on a material contract.” Yesterday (18 February), the announcement that investors were no doubt dreading was released. BSA said that it had been notified by nbn that it had — at this stage — not won the new contract. The stock fell 83.9%.
An hour before the announcement advising that the company had not won the new contract, a separate announcement was released to the market that Mr Prescott had resigned as a Director “effective immediately on 17 February 2025.”
Given BSA had announced in September that it was bidding for the new contract with UGL, it seems clear that the tender process was already underway when Lanyon made the share sale in December.
We are not suggesting any impropriety on behalf of Lanyon or David Prescott, but we definitely think ASX Listing rules need improvement if directors do not even require permission from the board to make a trade when shareholders are actively waiting for the outcome of a super-important contract tender.
Would it really be such a bad thing if investors who also happen to sit on the board of a company faced some additional oversight in such situations? At the very least they should be getting their disclosure correct, the first time.
One way or another, I believe that the ASX would benefit if fund managers who also sit on the boards of investee companies faced additional oversight of and restrictions on their trading.
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Disclosure: The author of this article does not own shares in BSA and will not trade BSA shares for at least 2 days following the publication of this article. The editor of this article Claude Walker also does not own shares in BSA and will not trade BSA shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 343937).
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