Tasmea’s Secret Sauce For Higher-Margin Growth

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New research illustrates Tasmea’s high margins derive from a unique operating model, small acquisitions and cross-selling between subsidiaries.

-Tasmea’s margins exceed many industry peers
-Distinctive operating model, boosted by acquisitions
-Recent increase to FY26 guidance
-Strong structural advantages, notes Shaw

By Mark Woodruff 

Tasmea ((TEA)), a diversified specialist trade services provider, listed on the ASX in April 2024 and has since delivered strong organic growth, complemented by steady bolt-on acquisitions, a trend analysts expect to persist.

With its focus on specialist maintenance and a high-quality, blue-chip customer base, the company consistently generates strong recurring revenue, lower operational risk, and superior margins compared to many industry peers, explains broker Morgans.

Offering further insight into Tasmea’s specific margin advantages, new research coverage by Ord Minnett highlights the company’s distinctive operating model.

Ensuring an owner-operator culture, the company structures its operations as 24 separate businesses, with a corporate arm providing strategy advice, financing, and back-office services.

This approach allows individual subsidiaries, whose services are highly specialised, to operate with maximum focus on each business’s own clients and employees.

Services offered

Tasmea delivers specialist maintenance and shutdown services for fixed plant assets across six key sectors: mining and resources, oil and gas, defence, infrastructure and facilities, power, and renewable energy.

Maintenance of fixed assets, usually in remote locations, generates higher margins, and accounts for around 80% of group revenue.

Additionally, services are provided for telecommunications, retail, and water and waste management.

Importantly, Tasmea’s subsidiaries specialise in maintenance, as distinct from construction, production, or exploration. This, according to company management, effectively insulates the group from direct exposure to commodity price volatility.

Acquisition strategy

Tasmea has a nationwide footprint with a workforce of over 1,500 employees, expanded through strategic acquisitions to meet rising demand for its services.

Emboldened by funds raised in the April 2024 IPO, companies such as Dingo Concrete Services, West Coast Lining Systems, and Future Engineering Group were acquired during FY24.

Management has continued to invest in growth during FY25, completing further bolt-on acquisitions and expanding capacity. These acquisitions have been funded via a mix of equity and debt.

The company targets acquisitions in the $10-40m range, where competition from other buyers is typically limited, explains Ord Minnett.

One such example is the acquisition of Kalgoorlie-based civil & maintenance services provider Flanco Group in April this year for an initial -$27m outlay.

In line with strategy, Morgans notes management anticipates unlocking revenue synergies by cross-selling Tasmea’s specialist maintenance services through its expanded customer base.

The transaction is expected to be 12% EPS accretive for Tasmea, yet still preserves strong incentives for the vendors, explains Shaw and Partners.

If the acquired business delivers EBIT above $16.2m per annum for four consecutive years under Tasmea’s ownership, the former owners stand to receive up to $50m in total consideration.

Acquired businesses continue to operate independently, while benefiting from the strategic, financial, and operational support of the central management team.

Given management’s proven track record, Ord Minnett anticipates at least one, and potentially up to four, bolt-on acquisitions each year.

Alignment to shareholders

Ord Minnett research highlights the strength of Tasmea’s leadership, noting a high-calibre management team with meaningful alignment to shareholders which fosters a strong performance-driven culture across the organisation.

Founders Stephen Young (Managing Director) and Mark Vartuli (Executive Director) hold approximately 60% of the company, while around 100 employees participate in Tasmea’s long-term incentive (LTI) plan.

Recent boost to FY26 guidance

While FY25 profit (NPAT) guidance for $52m was retained on June 25, management expected to achieve FY26 earnings (EBIT) of $110m and $70m for profit, tracking one year ahead of its Long-Term Incentive plan (LTI) earnings target.

Broker Morgans comments a record contracted order book of $600m provides strong visibility into future earnings.

This strong outlook implies 34% profit growth for FY26 compared to FY25, prompting this broker to raise its 12-month target price to $4.35 from $3.80.

Management noted the FY26 pipeline points to $711m in potential revenue, 6% ahead of the consensus forecast.

The company is experiencing robust tender activity and sustained demand from its blue-chip customer base, especially in the iron ore sector.

The outlook is further strengthened as Rio Tinto ((RIO)) has only just received all approvals to proceed with its US$1.8bn Hope Downs 2 project. This comes just a few months after Rio announced it had received all approvals for its US$1.8bn Brockman Syncline project. Tasmea serves as a key contracting partner for both projects.

The company has consistently delivered sustained compound earnings growth, highlights Shaw, achieving a five-year net profit compound annual growth rate (CAGR) of over 50%.

The broker adds multiple structural advantages include the expansion of high-quality, recurring revenue streams from long-term maintenance contracts, also pointing to strong revenue synergies across the company’s national network of businesses and robust organic performances from already-acquired operations.

Outlook

Ord Minnett, which commenced research coverage on Tasmea with a Buy rating and 12-month target of $4.75, forecasts a compound annual growth rate (CAGR) of 27% for revenue and 28% for EPS across FY24-FY28.

Following record first half revenue and earnings, along with upgraded profit guidance in February, Shaw (Buy, High Risk; target $4.10) noted numerous positive catalysts for the Tasmea share price including further accretive acquisitions, liquidity improvement as stock comes out of escrow, and potential inclusion in the ASX300 index.

Buy-rated Morgans has a $4.35 target, bringing the average target price of three daily covered brokers in the FNArena database to $4.40, implying circa 25% upside to the $3.51 closing price on Friday, July 4.

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