Vysarn (ASX: VYS) released their 2024 full-year results and commentary today, and this article builds on my previous coverage of Vysarn stock. This article provides a quick snapshot of what I see as my key takeaways from the FY 2024 Vysarn results.
Firstly, the headline numbers. Vysarn produced a NPBT of $11.06m, which was largely inline with previous management guidance of $11m. This was up 56% on 2023 FY, and if you zoom out over the last 4 years, you will see that they have produced a net profit before tax compound annual growth rate of around 114%, which is very impressive for a company that mainly operates in the mining services space.
Operating cash flow of $10.2m showed that cash conversion for the full FY was weak. This was explained by management as resulting from ‘the retention of due payments by Tier 1 debtors and a material number of ProEng MAR unit deliveries and sales being held back until late June in FY2024’. This can be clearly seen from the increase in debtors from $10m last year to $16m in 2024.
I will be monitoring the conversion of profit to cashflow moving forward.
The company reported meaningful growth in earnings from all of their operating segments, which was again in line with management’s commentary throughout the year. I have provided a brief rundown of each segment’s results below:
Pentium Water:
This segment is a water consulting business that was originally organically set up to allow Vysarn a line of sight on current water projects and opportunities to identify availability of water resources for their other subsidiaries such as Vysarn Asset Management to exploit. Although this was never meant to be a business that contribute meaningfully to NPBT for Vysarn, it has shown significant growth in 2024 as NPBT climbed 48.9% from $642k to $956k and headcount
Increased from 20 to 30.
Pentium Hydro:
The original Hydrogeological water pumping business that was the foundation of this company continues to provide meaningful earnings growth as NPBT climbed 24.4% from $7.3m to $9.1m.
The plan for Pentium Hydro is to continue to increase utilization rates and operational efficiencies in order to provide cash generation for expansion into other capital light subsidiaries. A new dual rotary rig that is planned to be available from HY1 2025 FY is set to provide further earnings growth in 2025 FY. While this segment had exposure to Nickel West, which has been shut down by BHP, it seems they have come away reasonably unscathed as all rigs have been redeployed into either existing customers or new ones.
Pentium Test Pumping:
Acquired as yield test pumping, this subsidiary provides aquifer testing for clients to work out the efficacy of their borefields and what happens to the aquifer under different pumping stress. This testing can then drive major capex decisions for business in relation to the size of their borefield. This subsidiary produced the weakest result with NPBT climbing 22% from $430k to $524k.
Management has called out the acquisition of a number of scaled down test pumping units which have been acquired to provide testing capabilities to smaller tier 2 miners within the Pilbara region. This is expected to drive year on year earnings growth through 2025 FY and beyond.
Project Engineering:
This segment of the business manufactures Managed Aquifer Recharge (MAR) units and continues to go from strength to strength posting an increase in NPBT of 159.5% from $1.6m to $4.08m. The use of MAR technology in the Pilbara region sees up to 180GL of an estimated 600GL of surplus water produced annually by the iron ore sector now disposed of via MAR units. Vysarn does all of this and holds a monopoly on this in the Pilbara currently, although James in a previous presentation did state that ‘competition certainly is coming’. Regardless, I believe Vysarn holds a big first mover advantage in this space.
Project Engineering doubled their production facility in the back half of 2024 FY, and this should provide meaningful earnings growth moving into FY 2025 and beyond. For a company that was acquired for $2.6m in October 2022 the Project Engineering business continues to exceed expectations. This reflects well on management’s ability to make and integrate acquisitions.
Vysarn Asset Management (VAM):
There were no earnings in 2024 FY for this segment of the business, however significant progress was made on their ambition to target investment opportunities in water, infrastructure assets and associated opportunities to control, own and toll water.
VAM signed a 50/50 JRA for the whole of Kariyarra country, which grants them exclusive rights to develop all underground water within the region. Along with this, they were granted a 26D license to investigate the potential of extracting for commercial use up to 10 GL of water from an aquifer located within this region. From a recent presentation, VAM believes commercial value per Kl for this water could be in the range of $4 to $10.
VAM is targeting the back half of this calendar year for drill testing to be completed on the efficacy of this project while continuing to negotiate with both infrastructure investors and potential off-takers. This is an exciting part of the business and could provide a major catalyst for a re-rate in the years to come should they execute.
VAM are targeting multiple projects within the Kariyarra land as well as other and are engaging with traditional owners as they look to provide a solution to the estimated 100 gl per annum water demand in the Pilbara moving forward.
Overall I think FY 2024 was a good result for Vysarn. Arguably, however, Vysarn’s current share price of around $0.38 probably assumed a result like this. Earnings per share of 1.95 cents in FY 2024, put Vysarn on a trailing twelve month P/E ratio of just under 20x.
That said, as I have outlined in my previous articles, I see significant potential upside if the company can grow the asset management side of the business efficiently.
Disclosure: the author Benjamin Sayers owns shares in VYS and will not trade shares within 2 days of publication. The editor Claude Walker does not own shares in VYS and will not trade within 2 days of publication. This article is not intended to form the basis of an investment decision. 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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