Acrow secures foothold in Australia's tumultuous construction sector

The Insider: Meet the Fund Manager sessions are a great way to hear directly from leading fund managers. They share their approach to investing, favourite companies and their market view for the year ahead.

2023 has sent much of Australia’s construction industry into a downward spiral the likes of which have never been seen since the 2008 global financial crisis – and the verdict is that the situation could only get worse in the year. Yet there are businesses surviving, even thriving amidst the turmoil.

At its core, Acrow Formwork and Construction Services (ASX: ACF) is a provider of engineering formwork solutions for the civil infrastructure market. As at December 2022, it was estimated that the five-year pipeline of major public infrastructure projects is valued at $237 billion – an increase of $15 billion in the past 12 months.

Speaking on Reach Markets’ The Insider: Meet the Fund Manager in February 2023, Gregg Taylor, Investment Director at Salter Brothers Emerging Companies Limited (ASX: SB2) selected Acrow as one of his favourite stocks. Watch the full The Insider: Meet the Fund Manager session.

“It’s a company that listed on the ASX over 5 years ago and has consistently grown its revenue north of 20% and its earnings closer to 30% over that time per annum. It’s also generating good cash, has a strong balance sheet and is quite profitable…dividend paying,” Mr Taylor said, adding that Acrow was delivering a fully-franked yield of closer to 6% per annum and is at growing earnings of 25-30% over the next 12 months.

According to Mr Taylor, Acrow has continued its strong share price performance due to the business’s ability to win major contracts in big civil projects which he thinks are defensive in nature: “We’re talking about government-funded road and rail projects, airports, Snowy Hydro… big infrastructure projects that have got a long life and good certainty being backed by the government’s funding.”

Mr Taylor also counted Acrow’s ‘great quantitative aspects’ including a valuation where it was trading on a price-to-earnings multiple between 7-8x times the year’s expected earnings and the backing of a really strong management team: “The CEO Steve Boland’s been behind the wheel for over 10 years and has great insight and control over this business.”

Mr Boland joined Reach Markets’ The Insider: Meet the CEO session in April 2023 where he described the company’s solution in more detail, provided a business update and highlighted Acrow’s key competencies in the industry. Watch the full The Insider: Meet the CEO session.

Listing some of Australia’s biggest civil infrastructure projects including NSW’s Snowy Hydro 2.0 and Sydney Gateway, Victoria’s Metro Tunnel and Westgate Tunnel, and Queensland’s Bruce Highway Upgrade and Cross River Rail, the CEO said “These are the most important civil infrastructure projects in the country and we’ve now become the premier supplier of both hire and sales equipment into these projects.”

“Compared to our competitors we’ve got a range of products across all of the branches that we operate in every state in Australia that puts us in a position where we really, it’s a massive competitive advantage,” he added, before discussing Acrow’s consolidation of its engineering function and its transition from primarily a commercial scaffold company.

Acrow is moving into product development, developing their own products for hire, specifically for the Australian market, using a dedicated product development team with an internal testing facility. “We believe that we’ll have products as good if not better than our European competitors at a significantly better price point,” Mr Boland said.

According to Mr Boland, between FY18 and FY22, the total value of the contracts won increased by an average of 28% per year and the business’ pipeline has increased by 30% per year. Moreover, the company’s WA business profitability doubled in the last 12 months with the introduction of new products into the WA market. “In the last three months, we are experiencing the best ever results in terms of winning new work.”

“What’s peculiar to Acrow is our ability to grow new revenue streams from taking new products into existing markets..We know for the markets that we operate in, they are going to be extremely strong for the next at least five years,” Mr Boland said.

Recently, Acrow acquired Heinrich Screens including its assets, intellectual property and both existing and forward contracts worth $11.5 million which secured hire contracts up 34% on the previous corresponding period for nine months up to 31st March 2023. The company also secured a $3.7 million sales order for formwork and scaffold equipment for the Commonwealth Government funded Lombrum Naval Base upgrade project.

Click here to view more videos from Gregg Taylor’s The Insider: Meet the Fund Manager session, or click here to view the full The Insider: Meet the CEO session with Acrow CEO Steve Boland.

Reach does not assume responsibility for the accuracy or completeness of any information provided, and the views expressed are not reflective of Reach Markets’ position. Any advice contained within this presentation is general advice and does not consider your personal circumstances, you should consider whether it is appropriate for you. 

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Past performance is not a reliable indicator of future performance.