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Bilby has started to turn around

Analysing companies' finances and value from their financial statements using ratios and formulae
Aublune
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Bilby has started to turn around

#383178

Postby Aublune » February 2nd, 2021, 7:44 pm

Chart
Broke out today after weeks of sideways trading. Flag breakout pattern that started in November 20 targets 35p in the coming weeks.
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Who
Bilby is a £17m valued provider of property services to local authorities and housing associations. The service work may be around gas and electric fittings, retrofits and reactive maintenance. In a £2.2b repair and maintenance market Bilby is a small fish with two or three percent share and room to grow. On top, I see Bilby morphing some of its business in the future to cover high growth services on renewable energies and EV charging points like Providor is doing for smart metering for Sureserve.

Why
Bilby has a stained history under old management with weak corporate governance and poor systems and processes that caused contract problems. Now Bilby have strong management. The new CEO is David Bullen who joined in April 2019 and he has worked his magic. He used to be the CEO of Kiotech international that was renamed Anpario. From the end of 2011 he helped with revenue and profit growth and helped create a 4-fold increase in the share price from when he joined in December 2011 to when he left in 2016. He left Anpario to found Boleyn Consulting a strategic management consultancy so knows all about corporate turnaround and business improvement.

He has set about a radical transforming of the business starting with the group culture, then pruning the contract work to be higher margin and more value added (like electric vehicles charging point installations in the future), and investing in corporate governance and office functions that Bilby has missed before. Cost savings of £1.00m have been found and reinvested in green accreditations and those office functions to make the business protocols and processes stronger. Bilby will come out of the covid pandemic a better business and Emerging Stronger was the title of the 2020 annual accounts.

The stock
Bilby did far better in the March 2020 year than in the March 2019 year and was bouncing back on profits. Profits before taxation were £3.691m up on £2.501m and eps was 7.10p. With a fundraising in November 2019 Bilby reduced debt to £7.214m at the end of March 2020.

Sadly Bilbys progress has been slowed by the Covid outbreak. Revenue was down 21% to £23.432m in the 6 months to September 2020 but Bilby was still profitable at £1.160m and eps was 1.92p so even with a pandemic Bilby was able to run towards 3.84p eps on an extrapolated 12 months calculation. Focus by Bullen on working capital has improved the net debt position with £3.004m of get cash generated from operating activities in the 6 months to September 2020 and this will continue. It may be at a bit of a slower pace but Bilby said that they expect further improvement in working capital through operational excellence. Debt it is now down to under 1 times 2020 ebitda before the pandemic so not a headache any more I believe.

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Bilby is on less than 8 times pe where they were heading with a pandemic.

I think they can get back to much higher profits next year once the pandemic is done. The lower revenue is revenue deferred not revenue lost because a lot of the projects Bilby has contracts for is not discretionary and it must be done so a backlog of work is building. Purdy founded in 1984 and DCB Kent founded in 2001 have strong histories winning long term contracts. Two of the last big contracts won are a 5 year £29m contract for gas servicing, repairs and installations for Homes for Haringey and a 4 year £58m contract for heating installation, servicing and maintenance with Eastern Procurement.

The future
The short term will not be great because of covid but everyone knows that like they know that with most companies. Longer term, Bullen has got the visible revenue book back to growth. At 30 September 2020 visible revenues had risen from £172.1m to £182.4m because of new, renewed and extended contracts. Bullen sees a path to deliver long term sustainable growth.

Bilby will benefit too from the governments greener building initiative. The government has pledged over £1.00b of funding for these new era buildings and there is a need to build more than 380000 homes every year for the next 15 years. Bilby discuss that these buildings will not be connected to the gas grid from 2023 and will be zero carbon ready. The government in addition is aiming for 600000 heat pump installations per year by 2028 and £1.3b has been made available for electric vehicle charge point rollouts across UK councils. Bilby has prepared itself for these opportunities.

The chart looks positive for more gains and the valuation leaves a lot of room for Bilby to recover with Bullen in charge. I can see Bilby at 80p in 2 years, worked out on 13 times earnings of 6 eps.

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