Great write up! TEA is clearly undervalued even with a general discount applied due to not being a general operating services/maintenance business. Agree as well with the potential catalysts, especially the ASX300 inclusion.
Do you have perspective or thoughts into the recievables growth YoY for TEA? Trade receivables % growth was well ahead of rev for 2025 (I believe aroudn 70% v 37%) - noted TEA completed roughly $150m in acquisitions for 2025, so these acquired businesses accounts go onto the books, I would assume most of the AR growth would be applicable to the $80m acquisition of FEG group. Do you see this as an area of concern/investigation given TEA's operating and acquiring performance to date?
Thanks for reading and for your question. With the current share price and the index inclusion end-date (end of Feb) nearing, I don’t see them getting included this year though. Perhaps if they print some very strong results next week.
Good point on the receivables, as these are key warning signs in this industry. I don’t think its concerning here. As you mention they did a lot of M&A in FY25 (of which 2 in Q4), which inflates receivables without the corresponding revenue. It’s better to compare it with PF revenue growth, which was +52%. You also need to add contract assets to trade receivables, as they're broadly the same thing just at different invoicing stages. In FY25 there was a material shift from contract assets to receivables as some projects progressed. It will never balance perfectly given the messiness of acquisitions and differences in contract structures across segments and customers (larger customers can demand better terms). Trade receivables + contracts assets as % of PF revenue are slightly above historical levels, but nothing concerning in my opinion. If growth were to slow down and receivables go up, then I would start to get worried.
As Quiet Compounders mentioned, the receivables growth versus revenue doesn’t look like a red flag at this stage.
That said, I’d flag a potential deterioration in receivables quality: as of 30 June 2025, just over 50% of trade receivables were covered by letters of credit and credit insurance, versus more than 80% the prior year.
Given TEA’s concentrated customer base, that drop in coverage matters. When Arrium, a customer, went bankrupt in March 2016, trade credit insurance substantially reduced the financial damage to TEA. This underlines how important these protections can be.
TEA's days receivable improved in the last twelve months (LTM), but not as much as it first appears.
In the LTM ending 31 Dec 2025 (H1'FY26), days receivable fell to 76 days from 93 days in FY25.
However, TEA disclosed in the WorkPac acquisition announcement that it had factored receivables to finance the acquisition. TEA implied the factored amount was around AUD 10 mn.
If you add this back, total receivables at 31 Dec 2025 are closer to AUD 157m and the “true” days receivable are about 82 days.
82 days are higher than 62 days at both Mader Group Limited (MAD AU) and Monadelphous Group Limited (MND AU). SRG Global Limited (SRG AU) reported 71 days.
This could be because of TEA's acquisitions. The peers are not as acquisitive.
That said, I think you're right that receivables deserves close monitoring.
Thanks for the writeup. Do you have thoughts on share issuance being a major dilutant long-term? I get it's to align incentives, but for me I would prefer if the rollup did not have to dilute shareholders to acquire. Do you think this is a concern?
Aside from aligning incentives, it's highly accretive to issue shares at a low-teens EBIT multiple to acquire companies at 4x (pre-synergies). It also allows management to do multiple of these attractive ROI deals a year without having to stretch the balance sheet.
It is really impressive how Tasmea manages to maintain such high ROIC while keeping a decentralized model—usually, that’s a tough balancing act to pull off as a company scales. Do you think the "preferred buyer" status they enjoy will hold up if larger private equity players start noticing these 3-5x EBIT multiples, or is their specialized niche a strong enough moat to keep competition away? :)
I’ve subscribed and would be happy to support each other.
Thanks for the question and apologies for the late reply. Management has repeatedly told me that they see a sufficiently large pipeline for at least 5-10 years with around 3-4 deals per year. Every time I speak to them they either just had or are about to talk to another prospect. That said, I can’t find any data on the real pipeline, so we must take management’s word on this. Given their track record and skin in the game, I am inclined to give them the benefit of the doubt.
Naturally, the inorganic growth impact will come down as the business scales. I only model excess FCF (after dividends) going to M&A, which is why my >20% EBIT growth is more conservative than management’s guidance (double within 3 years).
I think they can continue to pay these attractive multiples as competition for these assets is limited. Other contractors won’t try to replicate this as going from a centralized to a decentralized model is operationally near impossible. PE could theoretically compete. However, they typically don't operate decentralized models, and these businesses are too remotely located and too small for most PE firms to run. Even if they emerge, the fact that Tasmea can prove that they keep the brand intact, allow the business owner to keep running the business, grow the business instead of slim it down and make them rich by giving them equity that historically served previous sellers very well, serves as an attractive selling point. Finally, most leads come from subsidiary heads that previous sold to Tasmea and these deals are closed directly instead of being brokered around.
Thanks to Quiet Compounders for sharing your deep dive into Tasmea Limited (TEA AU). This is the best analysis I've seen on TEA.
(1) How do you assess the risk of margin compression during the next downturn? What mitigants are available to TEA?
In Jan 2016, TEA reported “Whilst revenue [at Tasman Power] was up during the first half [of FY16], margins have been impacted as our clients have insisted that we undertake maintenance work at reduced hourly rates.”
(2) "The top 10 customers account for 50% of revenue with the largest, Rio Tinto, being 25%. This revenue is not linked to just one contract. For Rio Tinto, the revenue is spread over 7+ subsidiaries, 8+ contracts, and 20+ sites. These contracts are independent from another."
Can you confirm the source of this information? I could not find this in TEA's annual report or prospectus
Excellent write-up.
Thank you!
Great write up! TEA is clearly undervalued even with a general discount applied due to not being a general operating services/maintenance business. Agree as well with the potential catalysts, especially the ASX300 inclusion.
Do you have perspective or thoughts into the recievables growth YoY for TEA? Trade receivables % growth was well ahead of rev for 2025 (I believe aroudn 70% v 37%) - noted TEA completed roughly $150m in acquisitions for 2025, so these acquired businesses accounts go onto the books, I would assume most of the AR growth would be applicable to the $80m acquisition of FEG group. Do you see this as an area of concern/investigation given TEA's operating and acquiring performance to date?
Thanks for reading and for your question. With the current share price and the index inclusion end-date (end of Feb) nearing, I don’t see them getting included this year though. Perhaps if they print some very strong results next week.
Good point on the receivables, as these are key warning signs in this industry. I don’t think its concerning here. As you mention they did a lot of M&A in FY25 (of which 2 in Q4), which inflates receivables without the corresponding revenue. It’s better to compare it with PF revenue growth, which was +52%. You also need to add contract assets to trade receivables, as they're broadly the same thing just at different invoicing stages. In FY25 there was a material shift from contract assets to receivables as some projects progressed. It will never balance perfectly given the messiness of acquisitions and differences in contract structures across segments and customers (larger customers can demand better terms). Trade receivables + contracts assets as % of PF revenue are slightly above historical levels, but nothing concerning in my opinion. If growth were to slow down and receivables go up, then I would start to get worried.
Hope this helps!
Lachie,
As Quiet Compounders mentioned, the receivables growth versus revenue doesn’t look like a red flag at this stage.
That said, I’d flag a potential deterioration in receivables quality: as of 30 June 2025, just over 50% of trade receivables were covered by letters of credit and credit insurance, versus more than 80% the prior year.
Given TEA’s concentrated customer base, that drop in coverage matters. When Arrium, a customer, went bankrupt in March 2016, trade credit insurance substantially reduced the financial damage to TEA. This underlines how important these protections can be.
TEA's days receivable improved in the last twelve months (LTM), but not as much as it first appears.
In the LTM ending 31 Dec 2025 (H1'FY26), days receivable fell to 76 days from 93 days in FY25.
However, TEA disclosed in the WorkPac acquisition announcement that it had factored receivables to finance the acquisition. TEA implied the factored amount was around AUD 10 mn.
If you add this back, total receivables at 31 Dec 2025 are closer to AUD 157m and the “true” days receivable are about 82 days.
82 days are higher than 62 days at both Mader Group Limited (MAD AU) and Monadelphous Group Limited (MND AU). SRG Global Limited (SRG AU) reported 71 days.
This could be because of TEA's acquisitions. The peers are not as acquisitive.
That said, I think you're right that receivables deserves close monitoring.
Thanks for the writeup. Do you have thoughts on share issuance being a major dilutant long-term? I get it's to align incentives, but for me I would prefer if the rollup did not have to dilute shareholders to acquire. Do you think this is a concern?
Issuing shares to fund acquisition by itself is not a bad thing.
The key question is whether the shares are issued at prices above or below intrinsic value.
If the shares are materially overvalued, existing shareholders effectively “win” at the expense of the new shareholders (the sellers).
Ok thanks. Yeah that would be the key. If they are acquiring when the stock is high then it's not bad
Aside from aligning incentives, it's highly accretive to issue shares at a low-teens EBIT multiple to acquire companies at 4x (pre-synergies). It also allows management to do multiple of these attractive ROI deals a year without having to stretch the balance sheet.
It is really impressive how Tasmea manages to maintain such high ROIC while keeping a decentralized model—usually, that’s a tough balancing act to pull off as a company scales. Do you think the "preferred buyer" status they enjoy will hold up if larger private equity players start noticing these 3-5x EBIT multiples, or is their specialized niche a strong enough moat to keep competition away? :)
I’ve subscribed and would be happy to support each other.
Jorrit
Thanks for the question and apologies for the late reply. Management has repeatedly told me that they see a sufficiently large pipeline for at least 5-10 years with around 3-4 deals per year. Every time I speak to them they either just had or are about to talk to another prospect. That said, I can’t find any data on the real pipeline, so we must take management’s word on this. Given their track record and skin in the game, I am inclined to give them the benefit of the doubt.
Naturally, the inorganic growth impact will come down as the business scales. I only model excess FCF (after dividends) going to M&A, which is why my >20% EBIT growth is more conservative than management’s guidance (double within 3 years).
I think they can continue to pay these attractive multiples as competition for these assets is limited. Other contractors won’t try to replicate this as going from a centralized to a decentralized model is operationally near impossible. PE could theoretically compete. However, they typically don't operate decentralized models, and these businesses are too remotely located and too small for most PE firms to run. Even if they emerge, the fact that Tasmea can prove that they keep the brand intact, allow the business owner to keep running the business, grow the business instead of slim it down and make them rich by giving them equity that historically served previous sellers very well, serves as an attractive selling point. Finally, most leads come from subsidiary heads that previous sold to Tasmea and these deals are closed directly instead of being brokered around.
Great work! Would love to see some diagrams and visuals to complement your analysis as well.
Thanks to Quiet Compounders for sharing your deep dive into Tasmea Limited (TEA AU). This is the best analysis I've seen on TEA.
(1) How do you assess the risk of margin compression during the next downturn? What mitigants are available to TEA?
In Jan 2016, TEA reported “Whilst revenue [at Tasman Power] was up during the first half [of FY16], margins have been impacted as our clients have insisted that we undertake maintenance work at reduced hourly rates.”
(2) "The top 10 customers account for 50% of revenue with the largest, Rio Tinto, being 25%. This revenue is not linked to just one contract. For Rio Tinto, the revenue is spread over 7+ subsidiaries, 8+ contracts, and 20+ sites. These contracts are independent from another."
Can you confirm the source of this information? I could not find this in TEA's annual report or prospectus
Thanks
Very informative