Site Group is in the process of recapitalising its balance sheet as it pursues clear and large opportunities in Saudi and the Philippines.

Global provider of critical training services, Site Group International (ASX: SIT), is a striking example of how Covid can decimate a thriving Australian business.

In pre-Covid FY19, the company was cruising along nicely with a revenue of almost $31m.

But in the three years since, revenue has declined to $7m in FY22 while its share price was  slashed by 95% since February 2020.

For the astute investor however, it is times like these that opportunities can be found to pick up good companies at bargain prices.

For Site, the investment proposition is pretty clear: The company has forecast a rebound in revenues to over $31 million in FY 2025 while the share price has remained near all-time lows.

Site has pinned its rebound on a number of assets and business units that are now starting to recover from what has been a heavily Covid-impacted three years.

Land development potential in the Philippines

First, there’s the potential development of the Group’s 38.4% stake in the 30ha leasehold facility in Clark Campus in the Philippines – a location that’s attracting major investments in a drive to diversify the country’s infrastructure away from Manila.

The zone has recently attracted some of the biggest hotel brand names in the world, including the Marriott, Hilton and Swissotel – who have all set up hotels in the Clark area.

Around 10% of the 30ha is designated as a training development area, and includes a GE owned turbine (worth ~$US70 million), as well as an OceanaGold underground mine simulation environment – both for training purposes.

Site is currently running a six-month program involving the assessment and deployment of 400 qualified scaffolders and riggers for the Snowy River Scheme.

The training business onsite has a positive growth outlook, however Site believes the real value of the Clark site is in rezoning the land from education and training to commercial development by selling, or partnering with a local developer.

The leasehold land was independently valued at around A$26 million in 2022, based on its current low-use zoning, however the company is working on increasing this value through a rezoning for commercial development or sale.

A $25m opportunity in Saudi Arabia

Another key opportunity lies in the Kingdom of Saudi Arabia (KSA), where Site offers vocational programs in welding, pipefitting, electrical, instrumentation, and safety through its Al Ajmi Consortium partnership.

The Consortium supports the Saudi Government’s nationalisation objectives as part of its Vision 2030 strategy, and Site believes it is well positioned to negotiate an extension for an additional five years when the contract is due for renewal in Q1 2024.

In welcome signs of the post-pandemic recovery, the December 2022 intake at the Maharat Construction Training Centre (MCTC) saw enrolment numbers rise by 62% over previous intakes.

In addition, there is also high demand for Fire and Safety programs in the country.

Site is currently progressing works related to the recruitment of key staff and international accreditations for the facility around these programs, with operational go-live expected in the second quarter of this year.

Developing nations like Saudi Arabia are constantly battling the crucial problem of having large but unskilled workforces.

And when it comes to building large infrastructure or commodity projects, there is often no alternative other than to upskill the local population.

Without the capabilities that a company like Site provides, many of these critical projects operations would never go ahead, or could be stopped dead in their tracks.

The KSA is a perfect example of a country that is flushed with cash to fund such training and upskilling requirements.

The nation is highly ambitious and has become one of the fastest growing countries in the world, recording an estimated real GDP growth of 8.7% and a budget surplus of US$27.68 billion in 2022.

The KSA government has made it clear that as part of its Vision 2030 initiative,  it wants to reduce dependence on oil and create growth in other parts of the economy.

The Kingdom also wants to reduce its dependence on expatriate labour and increase the participation of women in the workforce,  which brings significant opportunities for first movers like Site to train the local workforce.

Site indeed has a huge head start in this regard, with a training business that has been active for nearly 10 years.

The company is one of only a few international partners of Saudi Aramco, the oil giant which just recorded the largest corporate profit ever at $240 billion.

Prior to the pandemic, the company’s operations in the KSA grew over 50% from FY18 to FY19.  This level of pace has now just picked up again, with Site’s KSA revenue growing over 100% from FY21 to FY22.

According to forecasts, Site’s operations in the KSA are on track to achieve revenue at a rate of over $25 million in 2025 when their current facilities hit capacity, even before the opening of more training facilities in the country.

Site forecasts revenue for their Australian operations of $6.3 million in FY 2025. This brings the total FY 2025 revenue forecast to over $31 millionfrom all domestic and international operations.

Recapitalising to strengthen balance sheet

To strengthen its financial position and pursue clear opportunities ahead, Site is currently conducting a recapitalisation through a 1:1 entitlement offer to raise up to $3.9 million. This follows a placement to institutional investors in early March 2023 for $750k.

Site’s management have set their eyes on achieving profitability, and are confident this recapitalisation is a key step in enabling the company to pursue its rich and diverse pipeline with the goal to return to and exceed its pre-Covid growth.

Throughout the challenging Covid period until today, Site has enjoyed the ongoing support of key investors.

The recent placement was supported by EGP Capital, Lucerne Investment Partners, Altor Capital’s Alpha Fund and Site’s founder and International Operations director Vernon Wills, while former Macquarie CEO Tony Berg added to his investment in Site last year.

This article was developed in collaboration with Site Group International, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.