Acrow Formwork and Construction Services Limited (ASX: ACF) is engaged in providing formwork and scaffold hire. It was officially listed on ASX in June 2008.
On 21st May 2019, the company updated the market about its trading performance in Q3. ACF has outlined multiple operational achievements, which strengthened the company’s earnings stream and set the business up well for FY20.
Additionally, the company experienced an ongoing positive revenue mix change. Since listing, the company’s objective was to increase revenue in formwork hire generated from civil, infrastructure and commercial customers. ACF’s EBITDA contribution from formwork now stands at ~55% when compared to 40% in pcp. The revenue growth from the formwork hire was primarily driven by the deployment of recently landed new hire equipment bought under the carefully managed capital investment program.
With respect to the new contract wins, the company achieved various new pipeline wins in large infrastructure projects in the market, which includes QLD and VLC. The current pipeline of new contract won remains strong, and it expects positive momentum in the early part of Q4. The company is well positioned to report its best EBITDA full year results in its history.
ACF is anticipating ending FY19 with a higher quality of earnings, which will be driven by a meaningful and positive change in revenue mix. The favorable change in revenue mix to higher margin formwork hire is driven by the contribution from Natform, the acquisition that took place in September 2018, wherein the business had been actively cross-selling opportunities by offering Acrow customers Natform products and Natform customers Acrow hire products, the wins in Queensland commercial market in the recent months, among many other factors.
Following the strong 1H FY19 EBITDA of $6.7 million, the company is projecting a slight fall in 2H FY19 EBITDA as ACF accelerates the transition from low-quality scaffold residential hire to a higher quality civil and commercial framework.
ACF’s earnings from formwork hire continued to grow Y-o-Y; however, is forecasted to contribute less than one-third of total group earnings in FY20. In terms of growth in quality of earnings, Acrow formwork hire, excluding Natform witnessed a rise of circa 8% and circa 46% including Natform for FY19.
In another update, the company reported the change of interests of the substantial holder, wherein Schroder Investment Management Australia Limited’s voting power has increased to 8.33% as opposed to comparison voting power of 6.07%.
On the price-performance front, at market close on May 21, 2019, the stock of Acrow Formwork and Construction Services Limited was trading at $0.275, with a market capitalisation of $55.91 million. The stock has yielded a negative YTD return of 35.05% and exhibited returns of -31.52% and -26.74% over the past six months and three months, respectively. Its 52-week high price stands at $0.565, with a 52-week low price of $0.255 and an average trading volume of 381,415. The stock is trading at a PE multiple of 1.47x.
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