Here’s why BSA (ASX:BSA) plunged over 80% earlier this week

When a stock falls over 75% in a day, you know there’s an existential crisis – and this appears to be the case with BSA (ASX:BSA). Well, at least that is what appears to be the case. But is it seriously that dire?

Who is BSA?

BSA designs, builds, installs, operates and maintains major infrastructure – mostly telco infrastructure. The company, headquartered in the Sydney suburb of Chatswood, boasts over 2 decades of experience and prides itself in being a one-stop shop from project conception to operational maintenance. It has over 1,000 staff. One of its major clients was the NBN (National Broadband Network). A major, major client – responsible for 80% of its revenues – $255m in FY24.

It can be good to have one particularly large client responsible for revenues, as it shows to potential customers that you can be trusted. But if that customer walks, it spells big trouble. And this is just what happened.

The NBN walked away from BSA

BSA released an announcement to the market telling it that BSA,’ Has been verbally notified by NBN Co that, at this stage, it has not been selected as a preferred tenderer on the new nbn Field Services Contract’.

‘As a result of the notification, BSA believes an award to be unlikely and steps are being taken to try and optimise its position in relation to the tender outcome’.

The announcement revealed that the current contract, which expires on 30 September 2025 not counting potential 12-month extension options, remains in place for now. But in FY24, it accounted for 80% of revenues – not a typo. With $255.7m in revenue during FY24, the loss of this contract would represent a loss of ~$200m in revenue.

The board told investors it had been planning for a range of outcomes and would assess the impact of not being ultimately successful. The announcement comes 2 days before it was due to release its results for the first half of FY25. It is inevitable that the company will have more to say at that point.

The end of the world?

With four-fifths of its revenue at risk, the company is in trouble, no doubt. It is plausible that this could be the wake up call it needs to diversify into new industries. The company’s announcements list smart metering and EV charging solutions as industries it service and it may have no choice but to pivot to these lucrative opportunities.

But investors now face significant uncertainty. The company only has a 6.6% NPAT margin, had less than $2m cash at bank as at the end of FY24. It had told investors it was targeting double-digit EBITDA margins in the medium-term but this is probably out the door.

It is anyone’s guess what will happen to the company. Perhaps it will struggle for a couple of years, but turn itself around over time. Perhaps it’ll eventually go out of business. Maybe, by a miracle, it will get this tender in the end. Maybe it could get bought out by a competitor. But all of these are just speculation at this point.

It would have been much better for investors had BSA been able to keep nbn as a client because of the significant revenues it is deriving – but this won’t happen.

The takeaway

We hope this serves as a lesson to investors about companies that rely significantly on one major client for such a significant share of its revenues. It is one thing to lose one customer that brings in 20-25% of revenue, but to lose the one that brings in 80% of revenue is another altogether.

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