Vysarn Limited (Vysarn, the Group, ASX: VYS) is focused on the integration and development of water specialised services and technologies by designing, manufacturing, installing and maintaining wastewater, sewage treatment, and potable water plants. These activities cover hydrogeological drilling, test pumping, reinjection water services and water consultancy services. The Group services blue chip clients across the mining, oil and gas and industrial sectors, as well as municipalities and the large scale domestic urban development sector.
Step change in FY26 earnings run rate
Management have expressed a high degree of confidence that the acquisition of Waste Water Services in November 2024 and CMP Consulting Group in December 2024 will materially enhance Vysarn’s earnings profile beyond FY25. The two acquisitions position Vysarn to become a vertically integrated industry leader in end-to-end water services throughout Australia.
This confidence was unambiguously reflected in the Proforma Financial Performance table presented to shareholders at the 2024 AGM on 22 November 2024. The table revealed, on an annualised, run-rate basis from the second half of FY25, Vysarn is targeting a 73 percent Net Profit After Tax uplift to $13.8 million and 39 percent higher earnings per share. The Proforma annualised run-rate projections were based on FY24 Proforma numbers as a base and exclude any potential synergies arising from either acquisition.
The credibility of these projections can be assessed in terms of the highly successful $2.6 million acquisition and subsequent integration of Project Engineering (WA) Pty Ltd (ProEng) in October 2022. ProEng’s core competency is the provision of managed aquifer recharge systems to tier one iron ore clients in the Pilbara. At the time of acquisition ProEng was delivering $0.85 M of annualised EBIT; and by FY24 under Vysarn’s ownership, it achieved a nearly five-fold increase to $4.1 M of EBIT.
Waste Water Services and CMP Consulting earned $2.2 million and $6 million Net Profit Before Tax respectively in FY24 and once integrated with Vysarn, both businesses have ‘cross-sell’ opportunities to generate organic growth and boost base-line earnings.
Waste Water Services has the potential to expand its base from Western Australia and grow beyond the resource sector. CMP Consulting has significant opportunities to expand across new East Coast markets in metropolitan and regional treated wastewater disposal and agriculture water banking and irrigation projects. CMP Consulting currently has a dominant position consulting to Victorian Water Authorities and this capability is readily transferable to Sydney Water which plans to grow its infrastructure spend from $5.3 billion during FY19 -23 to $15 billion during FY24-28. Victoria Water Authorities plan to spend $14.8 billion on water infrastructure projects in FY24-28, an increase of 66 percent on FY18-23. This ‘generational’ water infrastructure boom on the East Coast potentially underwrites Vysarn’s next phase of earnings growth.
Vysarn Asset Management
Beyond FY26 Vysarn’s growth strategy incudes the development of world-class, sustainable water assets by leveraging its IP to identify and secure ownership of water resources of scale. These water assets will be the foundation for the establishment of a water infrastructure asset management business that controls, owns and tolls water. This has the potential to add significant shareholder value to the Group by earning asset management fees payable from the tolling of water infrastructure assets.
Initial steps to develop water infrastructure assets have included discussions with large-scale infrastructure funds, offtake partners and equity focussed Australian institutions aimed at owning water and selling it into Port Headland.
To source the water, Vysarn has in place a Joint Resource Agreement with the Kariyarra Aboriginal Corporation, which represents people living in the town of Port Headland. The agreement provides for a 50:50 Joint Venture with the Kariyarra Aboriginal Corporation that has been granted a licence to test a bore field on the land. This may lead to a licence being granted that allows Vysarn to sell 10 gigalitres (10 billion litres) of water to industrial users.
Potential buyers include tier-1 mining companies and Port Headland industrial investors. Indicative demand from the Pilbara region of Western Australia materially outweighs current regional supply capacity.
The proposed water asset management business is supported by Vysarn’s existing capabilities and the strong, long-term, underlying national water thematic.
Positive earnings growth outlook
Once the Waste Water Services and CMP Consulting acquisitions are fully integrated within Vysarn’s operations, management have indicated on an annualised, run-rate basis, FY25 after-tax earnings will be 73 percent higher than the FY24 result ($7.96 million), taking after-tax earnings to $13.8 million.
FY25 earnings can be considered as base-line earnings that should grow strongly in future years as synergies and cross-sell opportunities are realised from the Waste Water Services and CMP Consulting acquisitions.
