Just a brief scan of the PRG result released this morning increases my belief that PRG holds the strategic high ground in relation to any merger discussions with SKE:
Besides the PRG balance sheet that looks better than I had expected (Net Debt is just $7.0m), the business units within PRG (namely Resources and Workforce) that are the most similar to SKE's major businesses (Engineering & Marine and Workforce Services) demonstrated significant pressure from the weak external business environment.
For context, compared to pcp, in the last half:
PRG's Resources business (representing 16% of Total Group Revenues) reported an EBIT fall of 32% on Revenue drop of 26% .
PRG's Workforce business (26% of Group Revenue) fell 20% despite Revenue growth of 4% (so big margin squeeze, to 2.1% from 3.1% in pcp.
[Disconcertingly, these two businesses mirror those within SKE (Engineering & Marine and Workforce Services) that together make up over 80% of SKE's Revenues and EBIT (before corporate overheads).]
Interestingly, PRG's largest business, namely the Property and Infrastructure division (which constitutes 57% of Group Revenues and 62% of Group EBIT, pre corporate overheads), actually did very well, growing Revenue by 11% and EBIT by 25%. Importantly, almost all of this improvement came from new contract wins or improved efficiencies, and not from acquisitions.
So, in summary, the SKE-look-alike businesses within PRG went backwards in the past half at a somewhat alarming rate, and are clearly under significant pressure, while the largest part of PRG that is not reflected in SKE, is showing good operational momentum.
Oh, and PRG declared a 4.5% increase in dividends. By comparison, SKE, I am 100% certain, will be forced to cut its dividend going forward.
Which simply reinforces my belief that the SKE board should not try to be overly cute, and should be willing to deal at a realistic price. Which I think is what SKE's major institutional shareholders will have been telling SKE's directors.
Reflecting on the insights garnered from today's PRG result, the alternative to SKE being acquired is further (and not immaterial) downgrades being required to SKE's forecasts, and a SKE share price well below the current price - probably closer to $1.00/share, on my estimates - is a highly probably outcome.
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