SKS Technologies Group Limited (SKS Technologies, the Group, ASX: SKS) provides advanced audio-visual and IT convergence, electrical and communication networking solutions and integration synergies. The Group services the commercial, retail, health, defence and education sectors, and has a dominant market position in servicing data centres.
Quantum leap in key financial metrics appears sustainable
A notable feature of SKS Technologies’ performance is the extraordinary growth across all key financial metrics over the past five years.
Sales revenue and net profit after tax have grown at a compound annual growth rate of 50 percent and 56 percent respectively since FY20. The high profit to cash conversion ratio has seen cash flows from operations grow at 80 percent annually over the same period.
These impressive financial outcomes appear set to continue in FY25. Management have forecast sales revenue to increase to $260 million in FY25, from $136 million in FY24. Net profit before tax for FY25 is expected to hit $17 million, up from $6.5 million in FY24. The ambitious FY25 $260 million sales revenue forecast is supported by current work on hand of $185 million, significantly higher than the $96 million work on hand at 30 June 2024.
The unrelenting market demand for data centre infrastructure is driving SKS Technologies’ extraordinary revenue growth and accounts for 63 percent of work on hand at 30 November 2024. Data centre services and infrastructure demand is strong because the market is large and growing. This explosion in demand was well anticipated by management resulting in early mover advantage with few established competitors.
Execution is key
Exponential growth requires the need to bed down sophisticated processes and formal structures expected of a larger and more complex ASX-listed business in the period ahead. This includes a formal governance framework to manage and implement robust compliance obligations, systems and processes covering risk mitigation, sustainability goals, and ethical business practices. Rapid growth also simultaneously requires disciplined management of the cost base in support of an expanding operating platform.
SKS Technologies appear to be making sound progress on this front by recruiting, retaining and rewarding the right people with specialist and unique capabilities by anticipating client demand ahead of competitors in a complex operating environment.
These steps are likely to ensure the successful execution of SKS Technologies’ strategic plan and deliver on the significant existing and future shareholder value accretion opportunities around the business.
Positive short-term and long-term outlook
FY24 revenue was $136.3 million, and SKS has clear visibility to $260 million of revenue in FY25, based on $185 million work on hand at 30 November 2024, which includes the $90 million data centre contract win announced in July.
Based on the Group’s anticipated expected profit before tax margin of 6.5 percent, the expected $260 million of revenue is estimated to deliver $17 million in net profit before tax in FY25. This is significantly above the $6.5 million pre-tax profit earned in FY24.
The long-term earnings outlook is also attractive.
Management appears confident in growing the business organically by building state-based customer accounts into national accounts, while ensuring margins are maintained as the Group invests in a rapidly growing operating framework including IT systems to achieve scale benefits and build market share.
SKS Technologies’ medium term strategic intent requires a focus on growth across all market sectors and across all product and service offerings. Management have stated that the Group’s plan is not to become a narrowly focused data centre service supplier.
Management also recognise that the broader marketplace has an increased focus on electrification and decarbonisation, creating demand for energy efficient electrical systems, smart grids and sustainable energy solutions. This is anticipated to create new opportunities in connecting key clients such as data centres, defence infrastructure and health service providers and retailers to these new technologies to maintain the uninterrupted operation of their essential services. This structural demand growth is not
cyclical, and is likely to generate ongoing maintenance service income in addition to infrastructure demand.
These attractive market dynamics, with growth being funded by strong internally generated cash flow, without over reliance on external debt funding, should deliver consistently higher earnings in the medium term.
