The Offering

Company Overview

Ventia Services Group Limited is one of the largest providers of infrastructure services in Australia & New Zealand. The Company was founded in 2015. The Company provides minor capital works, operations and maintenance, asset management and facilities management.

Revenue Mix

Source: Company Filing

Key Highlights

• Offer Statistics: The company’s total proceeds under the offer (assuming the Over-allocation Option is exercised in full) will be in between AU$1,097 – AU$1,202 million. Proceeds of the Offer raised by the issue of Shares in the Company will be in between AU$394 – AU$397 million. Proceeds of the Offer paid to Existing Shareholders (assuming the Over-allocation Option is exercised in full) will be between AU$703 – $805 million.

• Sources & Uses of Funds:

     Source:   IPO Prospectus

• Shareholders Summary: CIMIC Group Limited and Apollo Global Management, Inc together holds approximately 94.1% stake in the company. Post completion of the offer, the combined holding of these two investors will come down to 44.5%.

Source: IPO Prospectus

• Dividend Policy: The board of directors intends to distribute between 60% and 80% of Ventia’s pro forma NPATA as dividend. For the period from completion to 31 December 2022, 75% of pro forma NPATA is expected to be distributed as dividend. However, the first dividend would be payable around April 2022.
• Superior Earnings Quality: The company’s historical operating cash flow conversion is between 80% and 90% of EBITDA between CY2018 and CY2020, which is estimated to increase to over 90% in CY2022F.
• Capital Light Business Model: The company has a capital-light business model with capital expenditure typically less than 1% of total revenue. This Implies that the company can generate larger free cash flow.
• No Balance Sheet Risk: As of June 30, 2021, the company Pro forma net debt stood at AU$721.9 million, and Net total indebtedness to CY2021F pro forma EBITDA stood at 2.0x, implying that the company is using debt quite sensibly and having no balance sheet risk.
• Industry Overview: The company’s total target market for Maintenance Services in FY21 is estimated to be at AU$62.0 billion and it is estimated to grow at a CAGR of 5.5% from FY21F to FY25F, reaching AU$76.9 billion by FY25F.

Total estimated addressable market for Maintenance Services across Australia and New Zealand ($bn)

Source: IPO Prospectus

Financial Highlights

Source: IPO Prospectus

• During the H1CY21, the company’s reported revenue stood at AU$2,309.6 million, a decline of ~3% against the previous corresponding period.
• EBITDA in H1CY21 surged by 18% to AU$ 188.8 million against AU$159.8 million reported in H1CY20.
• EBIT rose by 65% in H1CY21 to AU$122.1 million vs AU$ 73.9 million reported in H1CY20.
• Net Profit After Tax jumped by 88% to AU$67.5 million vs. AU$35.9 million reported in H1CY20.
• As of June 30, 2021, the company Cash and Cash equivalent position stood at AU$459.2 million, increasing by AU$15.2 million from the Cash position in H1FY20. This was mainly due to APP sale proceeds, partly offset by the repayment of borrowings and the payment of dividends to existing Shareholders.
• Gross total indebtedness of the company as of June 30, 2021, stood at AU$1,447.7 million and Net Indebtedness stood at AU$1,078.7 million.

Key Management Highlights

Risk Associated (Moderate to High)

Investment in the IPO of "VNT" is exposed to a variety of risks such as:

• Fail to Renew Existing Contracts:The company’s ability to renew contracts with existing clients and win new contracts is the cornerstone to its business, growth, and profitability.
• Termination of Contract:Termination of the company’s services by a client before the end of a contract’s term will reduce the company’s future revenue.
• Joint Venture Risk: The contractual terms governing the company’s joint venture arrangements may give joint venture partners rights that are adverse to the interests of VNT. 
• Talent Retention: Ventia’s performance is linked to attracting and retaining key management and skilled labour. 
• Other Macro Economic Risks:Other macro-economic risks include a slowdown in the global economic activities on the back of a resurgence in the COVID-19 cases, inflationary pressure, increase in the cost of capital, etc.
  

Conclusion

The company operates in a large and growing market backed by several growth catalysts for demand drivers, including population growth, size and growth of the asset base, increasing outsourcing rates, technology adoption and automation and environmental regulations.

Moreover, the company maintains strong earnings quality with operating cash flow conversion of between 80% and 90% of EBITDA, and this percentage is expected to improve in the upcoming financial year. Further, the company has a strong balance sheet with robust debt protection metrics.

However, Ventia is also exposed to various risks ranging from failure to renew existing contracts successfully to winning new contracts, which could negatively impact Ventia’s financial performance. In addition, a resurgence in COVID-19 cases could also have a significant impact on the company’s performance.

Therefore, given the robust business model, strong client base, superior earnings quality, and vital risk metrics, the IPO of Ventia Services Group Limited is looking “Attractive“ at the current price band. However, the risk associated with this IPO ranges from Moderate to High Risk.