💡 Idea Generation | ASX:BRI | Big River Industries Limited

Details:	Info:
CURRENT PRICE:	$1.455 (AUD)
TICKER:	BRI
EXCHANGE:	ASX
COUNTRY:	AUSTRALIA
MARKET CAP:	$124 Million
OUTSTANDING SHARES:	85.34 Million
LTM P/E:	7.48x
ENTERPRISE VALUE:	$172.15 Million (AUD)
INDUSTRY:	Construction & Building Materials

DISCLAIMER: This is not an in-depth analysis or review of the company. It is a simple and brief snapshot of a company that is on my watchlist. Should I proceed further I will conduct a thorough Investment Thesis and publish it after I have completed my research. As always DYOR.

TABLE OF CONTENTS:

What does Big River Industries Limited do?

Big River Industries Limited (ASX:BRI) and its subsidiaries are involved in the manufacture, distribution, and retail of timber products and building supplies in Australia and New Zealand.

The company operates through two segments: Panels and Construction. Its range of products includes builders’ hardware, LVL and laminated beams, doors, timber mouldings, door furniture, particle board flooring, external timber cladding, structural plywood, fibre cement, sheet products, timber flooring, decking, pine framing, formwork products, structural hardwoods, insulation, landscape and fencing supplies, formwork accessories, bridge products, engineered plywood bridge decking, girder beams, and structural kerbing.

Additionally, the company offers flooring products, engineered wood panels, stair tread coverings, and flooring accessories such as trims, beading, scotia, foam and rubber flooring underlays, aluminum trims, floor coatings, adhesives, fixings, and nails.

Big River Industries Ltd also provides a variety of plywood products including sound barriers, T&G ply flooring, roofing products, V-grooved, hardwood, anti-slip, structural, structural appearance grade, and structural bridge decking plywood products, autoclaved aerated concrete flooring products, and walling panels. The company’s products cater to residential, commercial, civil, and infrastructure construction industries.

The company run physical trade stores in addition to supplying a variety of clients. Their biggest threat and competition is Bunnings Australia.

Established in 2015, Big River Industries Limited is headquartered in Junction Hill, Australia.

What are the Highlights?

I have been keeping an eye on Big River Industries Ltd ever since it dropped to $1.25 AUD (52-week low). It’s a strong company that I’m familiar with from my construction days. The company has been hit hard by the challenges in the Australian construction industry.

Rising construction costs, timber supply issues due to the Russian war, and COVID-related supply chain problems have significantly impacted the company’s operations. As a result, its stock price has declined by about 40.2% over the past year.

Despite the challenges, the company has been consistently paying dividends as a small cap ASX stock. The dividend yield has increased significantly due to the drop in share price, now standing at 11.8% (at the time of writing).

Big River Industries Ltd supplies the construction and infrastructure sector in Australia and is poised to benefit from the increasing demand in the industry. Australia has experienced a surge in construction costs and a shortage of new projects, prompting me to delay a few development projects myself due to industry pressures.

With Australia’s construction and infrastructure sector picking up, the next few years look promising for this cyclical industry. I am closely monitoring this trend and considering investment opportunities.

Big River Industries Ltd is expected to benefit from this positive industry trend in the coming years. It presents a classic deep value opportunity in a cyclical company that has weathered industry challenges, geographical and economic pressures thanks to its healthy balance sheet and operations.

Unlike many other construction and related companies in Australia, Big River Industries Ltd managed to stay afloat.

How has the business performed?

Big River Industries Ltd is experiencing a mix of ups and downs. While some areas are performing well, others require careful attention. I believe the company has reached a point where it needs thorough research but has also proven resilient enough to make a comeback.

The company although has seen a slump in the share price is a classic “Good Business – Bad Stock”.

The company’s overall performance has been quite good. Revenue has been steadily increasing from $217 million in 2019 to $449 million in 2023. The company maintains attractive gross margins, averaging around 28% in this industry.

Although there has been some dilution over the years, the number of shares remains healthy at around 84 million. The company’s balance sheet shows a relatively healthy position (for this industry) with approximately $30 million in cash and equivalents. They hold long-term debt of $42 million, with total debt standing at $72.42 million.

The company is generating positive cash flow and, at the time of writing, has accumulated $40.90 million in Free Cash Flow, which has steadily increased over the past 5 years.

In terms of performance, the company has been steadily growing in a challenging environment, managing its books prudently to survive, and has managed to acquire some value-adding companies in the meantime, particularly in the timber space.

As of April 30th, 2024, year-to-date EBITDA was reported at $25 million, but we are still waiting for the full year’s reports. There has been a decline in profitability, which is now being reflected in the share price.

The business is predominantly involved in the residential construction industry, making up about 60% of its operations, with the rest being government and commercial construction projects.

What interests me about Big River Industries Limited?

The company is currently facing challenges due to the overall downturn in an industry that has been performing poorly. However, I believe that the industry will rebound, and I am allocating a portion of my portfolio to companies that can benefit from the upcoming resurgence in residential construction and the growing infrastructure boom driven by increased government spending.

This company appears to be a potential beneficiary of these trends. Its stock is currently undervalued, and I anticipate that it will close the valuation gap, resulting in multiple increases. The forward-looking P/E ratio for the next twelve months is projected to be 12.74x, and the dividend remains steady.

After considering all the information and conducting a quick back-of-the-envelope valuation, it seems possible to achieve a minimum 10% annualised return. While the stock price could potentially decrease further, I view this strong small-cap stock with growing demand, ample cash reserves, a strong management team, and a low single-digit P/E ratio as an attractive buying opportunity.

It’s worth noting that there has been a significant sell-off by one of the largest shareholders, NAOS Asset Management, which runs the NAOS Small-Cap fund, a boutique management fund in Australia.

The company has started offloading its entire position, which has unsettled many shareholders. However, I am cautious about putting too much trust in a fund that has consistently lost money every year in its small-cap fund.

It appears that they entered the market at a different phase of the cycle and ended up facing significant losses.

What am I watching?

I’m keeping an eye on the upcoming full-year results, set to be released on August 22, 2024. These results should provide insight into the company’s performance and strategy for the next 12 months.

I am particularly interested in the structural tailwinds, especially in the Australian housing market, which is experiencing a significant housing shortage. It will take the construction industry a few years to address this shortage, and as a result, Big River Industries Ltd is poised to benefit from this situation.

Furthermore, the company has a significant pipeline of commercial projects and is actively acquiring smaller suppliers and operators in various sectors to expand its revenue, contracts, and supply chain opportunities. This consolidation strategy is expected to enhance its ability to win more contracts across the country.

Additionally, there is a possibility that the company itself may be acquired, given its strong business brand and operations as a small-cap company valued at less than $200 million.

Before conducting a comprehensive valuation and investment thesis, I am eager to see how the next few months unfold and to understand the company’s outlook for the upcoming operational year. The management has demonstrated commitment to the company and successfully navigated through challenging periods.

Why I am not invested?

Despite the current prices, I am considering initiating a position in the company, pending confirmation of certain metrics and a thorough review of the full-year results, the financial statements, and other important information. Positive results could potentially drive a short-term increase in the stock price, but I am not worried about missing a few points.

If our long-term theme is correct we will be alright.

Ultimately, my focus is on the overall potential for growth in the sector and the company’s ability to capitalise on it. If the company can strategically position itself to benefit from the growing sector, I anticipate substantial growth.

I see the company making a recovery to its 52-week high of $2.53 over the next 1-2 years due to improved operations, growing revenue, higher profitability, dividend payments, and an increase in its valuation multiple.

Note that this is a quick assessment of the business and not an in-depth analysis. It’s simply an update on what I’m watching. If you want to discuss it further drop me an email CONTACT ME

DISCLOSURE: The author of this article, The Stoic Investors LLC (Company) and Associated Entities do not have a position in the business mentioned at the time of publishing this idea generation article. This article is not intended to form the basis of an investment decision and is not an official recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Do your research and conduct careful Due diligence on all companies mentioned within this blog. There is NO substitute for thinking and taking responsibility for your own investment decisions.