Powerful water scarcity thematic drives profitable growth for diversified water services provider

Water scarcity and water crises are high priority global risks, and climate change is already having a significant effect on global water cycles. Certain industries are particularly taxing on the vital liquid, and increasing competition for finite water resources is becoming prevalent in industries such as mining and agriculture.

Vysarn Limited (ASX: VSY) is a diversified water services company focused on the integration and development of water specialised services and technologies. Vysarn operates a vertically integrated model that provides end-to-end water services to various sectors, including resources, agriculture, urban development, government and utilities.

Currently, their main business centres around the 12 dewatering drill rigs that are locked into multi-year contracts with the major iron ore miners such as BHP, Rio Tinto and Roy Hill. It’s this aspect of their operations that underpin the company’s valuation, but its Vysarn’s growth prospects amongst their broader diversified water services that really excite Mr. Winchester. 

Luke outlined that Vysarn have “already established water consulting, test pumping and aquifer recharge… all of which are growing strongly and generating some really good profits”.

Indeed, each aspect of Vysarn’s business is profitable. As a whole, the company recorded $64.95 million in revenue in FY23, up 40% from FY22’s $46.29 million. FY23 EBITDA was $12.45 million, up 37% from FY22’s $9.075 million, and Net Profit Before Tax (NPBT) came in at $7.075 million in FY23, up 73% from FY22’s $4.095 million.

The bulk of these numbers come from their dewatering drill rig business Pentium Hydro, which accounted for $50.98 million in revenue, $11.945 million in EBITDA and $7.33 million in NPBT in FY23. While this division’s 14.38% NPBT margin is delivering substantial free cash flow to the company, Vysarn’s other divisions that have stronger growth prospects are delivering higher margins. Project Engineering delivered $7.149 million revenue in FY23 but produced a 22% NPBT margin. 

Iron ore mining in the Pilbara is more frequently being conducted under the water table, which is continuing to increase demand for Vysarn’s main dewatering business. It’s a long term trend that is becoming so prominent that the company is considering double shifting their drill rigs to further improve utilisation.

Vysarn has clearly communicated their intentions of growing their less capital intensive business divisions to the market, and they are keen to do this both organically and through acquisition. Luke is confident in management’s ability to execute through both of these pathways, and is especially fond of the company’s model of funding acquisitions from existing cash flows.

Click here to view more videos from Luke Winchester ‘s The Insider: Meet the Fund Manager session.

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. 

The information we are giving you is for educational purposes only. “Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss.

Past performance is not a reliable indicator of future performance.