SHAPE Australia Corporation: Leading National Fit-Out and Construction Specialists

About Shape Australia Corporation Limited

Shape Australia Corporation Limited (SHAPE, the Group, ASX: SHA) is a national fit-out and construction services business specialising in commercial properties. Its services include design and construction, fit-out and refurbishment, façade restoration and new builds. Sectors serviced range from commercial office, education, health, hospitality, and retail to defence. The Group has delivered 7,250 projects valued at $10 billion, over the past 35 years.

SHAPE is headquartered in Sydney, and listed on the ASX in December 2021, with an IPO price of $1.96. The closing price on the first day of trading was $2.01 a share.

Strategic risk mindset builds earnings resilience

The Board and management at SHAPE understand the concept of Risk Mastery, which is the systematic anticipation, evaluation, and mitigation of the risks associated with strategic and operational business decisions. This understanding is evidenced by the Group’s ongoing track record of growth and profitability, despite a tough economic and industry backdrop.

A fundamental aspect of the SHAPE risk management strategy is diversification beyond office fit out and refurbishment. The Group’s business expertise now includes modular construction, new builds, façade remediation, facilities maintenance, and design and build services. The design and build service offering attracts clients looking to procure workplace design services, particularly for projects typically under $1 million. Projects of this size enhance buildability and reduce risk by ensuring cost certainty, adding to higher gross margins.

More recently, aftercare and facilities maintenance capabilities have been incorporated into the business. These recent additions to SHAPE’s service offering maintain relationships with clients beyond the initial project lifecycle and attract new clients through contracted maintenance agreements. This style of work has the potential to create regular and recurring income streams for the business and enhance earnings resilience.

This strategic approach to risk management positions the business to adapt to changing market conditions to avoid demand volatility. Diversity across different market segments and capabilities enables SHAPE to navigate economic cycles more effectively and respond to global macroeconomic challenges with agility and confidence.

Apart from diversifying across multiple segments and specialist capabilities, the Group is expanding outside the traditional office space to sectors such as hotels, healthcare, education and defence. These sectors are leveraged to population growth, an aging population, and geopolitical tension and are beneficiaries of ongoing government investment.

SHAPE’s geographic diversification into regional areas such as the Gold Coast, Tasmania, and Newcastle in recent years is another element to the Group’s risk mitigation strategy. This initiative resulted in a 211 percent lift in sales and a 60 percent rise in revenue in FY24. The move solidified SHAPE as a national fit out and construction specialist.

In managing risk, SHAPE is constantly alert to both threats and opportunities. Risk mastery is the ability to consider those possibilities in advance, and implement plans that avoid them, or position the business to respond to them by taking corrective action if they occur.

Non-residential building activity to grow by 7.3 percent over 5 years

The industry body, Master Builders Australia, has forecast non-residential building activity to total $285.6 billion over the five years to 2029. This is a 7.3 per cent increase on the value of work over the five years to June 2024.

Construction of social, cultural, and recreational buildings is forecast to top $145 billion over the five years to 2029. This represents a 17.9 per cent increase on the value of work over the five years to June 2024. The role of government demand is crucial in that the public sector presently accounts for 63.8 per cent of the work approved in this part of the market.

Retail and commercial building activity is forecast to expand over the next five years and Master Builders anticipates that the value of work here will total $98.6 billion over the five years to 2029, a 2.7 per cent increase over the five years to June 2024.

Office building is expected to remain soft as demand for new office space continues to suffer from legacy ‘work from home’ provisions, particularly from the public sector. However, in contrast to this forecast, SHAPE have reported that landlords are increasingly prioritising interior improvements to encourage employees to return to offices.

Meanwhile, the construction of retail and wholesale buildings is expected to be stronger on the back of continued expansion in population and employment. The forecast for industrial buildings is more subdued, at $42 billion over the forecast horizon, a 10.9 per cent decline compared to the five years to June 2024. Australia’s stock of industrial buildings has seen huge expansion since the end of 2020. Part of this was due to a one-off attempt to bolster domestic production and storage capacity because of supply chain disruptions experienced during the pandemic.

Looking ahead

With a backlog order book of $480 million, this conservatively managed business has no borrowings, and enough franking credits to frank the FY24 dividend three times over. Accordingly, shareholders can expect consistent dividends and steady earnings growth in the period ahead.