Shares in offshore services provider Bhagwan Marine Ltd (ASX: BWN) have not exactly set the world on fire since the company listed on the ASX in mid-2024.
But according to the team at Shaw and Partners, the company is deeply undervalued and is looking good following a recent acquisition.
Image source: Getty Images
Complementary acquisition
Bhagwan, in February, announced to the ASX that it would buy Riverside Marine Holdings for $130 million.
The company said at the time that it "represents a step-change in scale and scope for Bhagwan, strengthening the company's position as a preferred marine solutions provider''.
Bhagwan said the 100-year-old Riverside operated about 30 vessels across five brands and had longstanding clients in the industrial resources, scientific research, transport, and logistics sectors.
It also said that 88% of Riverside's revenue was repeatable, while its forecast EBITDA for FY26 was $26.2 million.
Bhagwan Managing Director Loui Kannikoski said regarding the deal:
This is a transformational milestone for our company. Riverside is an excellent strategic and cultural fit. Its highly complementary operations enhance diversification across service offerings, commodity exposure and geographic presence, creating meaningful synergies that strengthen our collective capabilities.
Mr Kannikosi said they were also excited by Riverside's long-term growth potential.
Shares looking cheap
The Shaw team said the acquisition was a good fit.
Riverside significantly boosts repeatable revenue for Bhagwan from 40%-50% through long-term multi year contracts with tier- 1 clients. Riverside also geographically diversifies Bhagwan into North QLD and the Pilbara and diminishes Bhagwan's exposure to oil and gas (from 66% of rev to about 50%.) Riverside operates a capital-light business model whereby it manages vessels owned by its clients. Finally, Riverside achieves industry-leading EBITDA margins of about 40%.
The Shaw team said Riverside's industrial sands business could benefit from the construction boom in the lead up to the Brisbane Olympics, and it also had good growth opportunities in its Port Hedland business in Western Australia.
They added that Riverside had key relationships with BHP Group Ltd (ASX: BHP) and Mitsubishi in the region, while Bhagwan offered sub-sea services to the oil and gas sector.
Shaw has a price target of 90 cents on Bhagwan Marine shares, which it has increased by 10 cents following the announcement of the Riverside deal.
Bhagwan shares were trading at 44 cents on Friday, compared to the 63 cents listing price in mid-2024.
The company was valued at $137.1 million at the close of trade on Thursday.
