What is the stock?

Veris (VRS) is a surveying and professional services business. The company announced its ninth surveying acquisition in June and has grown to become Australia’s largest surveying services provider. Current market share is roughly 2%, highlighting how fragmented its industry is.

How long have you held the stock?

Our new Microcap Fund invested in March 2017 in the wake of a soft 1H17 result. VRS had been suffering from declining earnings in its infrastructure division, which coupled with a delay in progress on the integration of recent acquisitions weighed on sentiment.

We added to our position in May post sizeable buying by two of the VRS directors, including founder Adam Lamond (who owns 14% of VRS). At this point, VRS become one of our core holdings in the Microcap fund.

What do you like about it?

We had been looking for exposures to the east coast infrastructure theme. The ramp up of east coast construction projects is starting to accelerate and we expect solid demand for all infrastructure facing professional services, which is exactly what VRS offers.

In addition, the highly fragmented nature of the surveying sector allows scope for further accretive acquisition, in association to what we expect to be solid organic growth.

Lastly, due to the headwinds of declining earnings in VRS’ infrastructure division (now discontinued), the stock was offering very cheap multiples at the time of entry, even though the balance sheet was net cash.

How is it better than its competitors?

Being the only national surveying business, VRS offers continuity of service to the larger national builders. There is also the potential to cross sell Geospatial, 3D Spatial and other specialist surveying services which are not offered by a single competitor.

What do you like about management?

Managing Director Adam Lamond owns 14% of the company, with the other non-executives holding 1.0% to 1.4%. Adam successfully grew the predecessor to Veris (OTOC) through the mining boom and commenced the diversification strategy well ahead of the subsequent decline in mining expenditure.

What is your target price?

At $0.23, VRS would be approaching a market multiple. Additional acquisitions, if successfully integrated, would justify a higher price.

At what point would you sell it?

As the tailwinds of the current infrastructure build-out ease we would look to reassess out position.

Where do you see value?

When demand for services exceeds the ability of the market to supply them, upward pressure on rates will result. This is occurring in civil engineering and other infrastructure related disciplines. So VRS should achieve volume and margin increases through this infrastructure cycle. It’s this potential for organic growth that doesn’t appear to be captured in consensus estimates.

The fact that shares in Veris (VRS) may have been mentioned should not be interpreted as a recommendation to buy, sell or hold that stock.

Source: ASX

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