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Summary
- Government spend in the defence sector forecast at 2% of GDP by 2020–22 and reach $175 billion to 2022-23.
- Saunders eyeing increasing opportunities in the sector, with a varied portfolio of services including new builds, rehabilitation, design, construction, and maintenance.
- First defence project completed and commissioned, with two further contracts in the sector and a healthy pipeline of opportunities.
Multi-disciplined engineering and construction company, Saunders International Limited (ASX:SND) delivers high-quality engineered solutions across the complete asset lifecycle. The Company, driven by a commitment to safety, innovation, excellence and growth, offers design, fabrication, construction and maintenance services to prominent organisations across Australia and the Pacific Region.
SND has the vision to deliver project excellence consistently to facilitate clients in meeting their present and future challenges. Carrying extensive experience of around 70 years, the Company uses in-house expertise to deliver a comprehensive range of projects and services.
Of late, SND has been eying the defence sector closely, as the Company believes that Australia’s defence sector presents continued opportunities for growth and there is a large pipeline of defence related projects in the region.
Saunders’ Interest in Defence Sector
The Company offers a wide range of services to the defence sector including new builds, rehabilitation and maintenance. Major services include design, construction and maintenance of fuel storage and distribution facilities for air bases, naval facilities and other sites, construction and maintenance of marine structures, general civil works and structural, mechanical, and piping work, and asset maintenance for defence facilities.
In the defence sector, the Government spend is projected to be 2% of GDP by 2020–22 and total spend is forecast to be worth $175 billion to 2022-23. Market trends demonstrate that there are increasing opportunities in the sector.
Saunders is specifically focused on expanding its market share in defence, given the increased tendering activity with stable margins forecast in the defence sector. To facilitate the same, its strategic objective includes evaluation of options to diversify and get required scale. The Company is also willing to pursue international opportunities with its key clients.
Moreover, evaluation of acquisitions to expand maintenance activities and increase scale are also being considered.
Recent Achievements in Defence Sector
A diversified business model positions SND well for future growth with exposure to key sectors in the current economy, one of them being defence.
In its FY19 AGM in October 2019, SND intimated that its entry into the defence sector was tracking ahead of schedule. The Company unveiled to have bagged two further contracts in the sector along with a healthy pipeline of opportunities. The Mechanical Infrastructure division of SND was awarded a $4.5 million project in FY20 and a preferred contractor status for a $7.3 million project for the construction of tanks.
A major highlight of the Company in HY20-H1 was the completion and commissioning of the first defence project.
Moreover, in February 2020, SND informed to have bagged a new contract in the defence sector, adding to the Mechanical Infrastructure project announced at the FY19 AGM. The contract involved delivery of four new tanks across two sites in New South Wales and in the Northern Territory. The combined value of these projects was reported at around $12 million.
The projects are expected to contribute to FY20-H2 through to FY22 revenue. The scope of work for both is outlined below-
The NSW Project pertains to SND’s client Lendlease Building Pty Limited. The Company has bagged its second contract with this client wherein the project is valued at $5.2 million. The Northern Territory Project valued at $7.0 million has been awarded by NAVFAC.
As deciphered, defence is indeed a sector with increasing opportunities. With SND successfully expanded into the same, and at the back of its current projects and future possibilities, it will be interesting to watch how the Company unfolds its activities and further grows in the defence sector.
SND was trading at $0.460 on 26 May 2020 (AEST 01:20 PM).
