SRG Global (ASX: SRG) and RPM Global (ASX: RUL) Update The Market

During the last few weeks, construction and asset maintenance firm SRG Global (ASX: SRG) and RPM Global (ASX: RUL) both updated the market. This article briefly covers their announcements, and examines what they mean for shareholders.

SRG Global (ASX: SRG)

Over the last couple of weeks, SRG Global announced two material contract wins. The first was a 10 year Energy Maintenance with Transpower, valued at ~NZ$130m. The long-term contract builds on a 30 year relationship with Transpower, and highlights the company’s “portfolio of annuity / recurring earnings agreements.”

In contrast, the other big contract win was a one-off agreement with Transport for NSW (TfNSW) to construct the upgraded Princes Highway and Jervis Bay Road intersection at Falls Creek (just south of Nowra), for around $90m AUD. While this is a one-off contract, the CEO hinted at the potential for further work with when he commented that the:

“contract reaffirms SRG Global’s market leading position for the delivery of complex road and bridge projects, [and] we look forward to working with TfNSW to deliver a safer Princes Highway with projects that include new and improved roads and bridges as part of the Australian and NSW Government’s significant investment in transport infrastructure to meet the needs of regional communities.”

Finally SRG Global also held its Annual General Meeting during the week. The Chairman’s speech didn’t have much commentary about specific company performance, but the Managing Director’s presentation reaffirmed FY 2024 guidance of ~20% underlying EBITDA growth with at least two thirds of revenue being recurring in nature. The presentation also flagged “potential new partners primarily in gold, iron ore and lithium” for its (largely recurring) mining services business.

Taking into account the growth arising from a full year contribution of ALS Asset Care, this guidance implies organic growth of around 7% – 8%.

Notably, some 29% of votes were cast against the issue of performance rights to the managing director, hinting at some disquiet amongst shareholders.

RPMGlobal (ASX: RUL)

RPM Global updated the market on its Q1 FY 2024 results, noting that “The company’s Advisory division has also had a strong start to the financial year with demand exceeding expectations.” This meant the company has upgraded its FY 2024 guidance as follows:

“Total revenue is projected to now be in the range of $107.0 million to $112.0 million (previously projected to be in the range of $105 million to $110 million (FY2023: $98.4 million));

Underlying EBITDA is now projected to be in the range of $18.5 million to $20.5 million (previously projected to be in the range of $17.5 million to $19.5 million (FY2023: $15.0 million before management incentives);

Profit before Tax is now projected to be in the range of $13.5 million to $15.0 million (previously projected to be in the range of $12.5 million to $14.0 million (FY2023: $9.2 million before management incentives)).”

Using the bottom end of profit before tax and management incentives this announcement is an upgrade of about 8%.

On top of that, the company noted that at the end of the quarter it had “Annually recurring revenue (ARR) from software license and maintenance” of $56.0 million. This is an increase of just $1m on the figure at 11 July, 2023. Therefore, it is fair to say that ARR growth has been pretty sluggish, even though Advisory revenue is strong.

Your guess is as good as mine what the final profit result will be (after opaque management incentives). But what we can say for sure is that it should be an improvement on FY 2023; and that will be good to see.

In my view, the most positive element of the Q1 FY 2024 update was the the company signed a trusted supplier global framework agreement (GFA) with a global tier1 miner. While this does not bring any revenue in itself, it does provide “a platform of pre-agreed terms and conditions to enable future software purchases by that tier-1 mining group to be made quickly and efficiently at any time over its term through to 31 December 2028.” This may bode well for ARR growth in the coming quarters.

Disclosure: the author of this article owns shares in RUL and SRG and will not trade them 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 Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).

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