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Author: Ron Shamgar
CDD released a strong trading update in July with the business not being impacted by Covid, benefitting in fact, as governments and corporates require help with community planning due to Covid restrictions. CDD is guiding to EBITDA of $41-$43m in FY20 and a positive net cash position. Operating cash flows were also strong and we believe there’s a good chance of dividends being reinstated. We estimate that FY21 will see further earnings growth as management has indicated a strong backlog of work. CDD is trading on a 6x PE multiple and we value it at 55 cents.
ISU announced in July that its largest shareholder and competitor, Compare the Market, has lobbed a cash takeover offer of 40 cents. Unfortunately, the companies could not agree on some clauses related to Covid, and so the bid was cancelled for the time being (even though the price was not the issue). We think the bidder will eventually come back and may end up paying more.
In the meantime, ISU divested its loss making iMoney Asian business which will remove $4-5m of annual losses. During July, ISU grew profit substantially to $1.5m EBITDA or 65% growth on July FY19. This bodes well for profitability next year which we think can be about $15m in EBITDA. At the very least, we think ISU is worth 40 cents with potential for much more.
In addition, TNT announced FY20 milestones of a $40m of annualised revenue run rate and reaching cash flow positivity in June. The company is now well funded with a newly established debt facility to acquire more cyber security firms in the short term. We expect at least one “bolt on” during August and a larger one thereafter. The shares reacted favourably since the deal was announced and TNT has now officially made us 5x our money since we bought the stock at 5 cents last year. We have taken some profits but still retain a sensible position.
The company’s strategy revolves around their SpiritX platform which allows both business customers and telco dealers to use the online platform and see which is the best data connection for their location. ST1 offers not just its own fixed wireless network but also NBN and other provider’s fibre services. Overall, this increases the market size opportunity for ST1 and has resulted in strong growth.
FY20 2H revenues grew 80% to $22.4m, with 14% revenue growth from Q3 to Q4. The recurring revenue base of B2B customers grew 82% in 2H. EBITDA for FY20 is approximately $3.8m. The company also recently made an acquisition of VPD which will add further growth in FY21. We see SpiritX as a strong lead generation tool with 12,000 addresses qualified through the platform in 2H. This provides visibility on customer demand and is valuable IP that the company is building.
Management also provided FY20 financial results of 30% growth in revenues, to $195m, and about $29m in underlying EBITDA. The company finished the year with a net cash position and, together with the proceeds of the raise, should have over $60m to deploy on future deals. We expect 80% of group sales next year to come from online. The global opportunity in North America and Europe provides CCX a long runway for growth and management are astute in their opportunistic buying of other businesses. We value CCX at over $4.00.
During tough economic times, invoice payments get delayed, and we are already seeing this with industry data showing invoice payment delays in June now at 49 days (compared to 15 days last year), with some industries seeing delays of over 60 days. This bodes well for CGR. The acquisition of Skippr in July provides an automated technology platform for the company to acquire smaller customers at a lower cost and thus increase their market size opportunity. We think investors will gradually begin pricing CGR as more of a fintech rather than a traditional finance company. CGR currently trades on 7.5x PE and a 6% ff yield. We value the company at more than 50 cents.
The deal will be financed partly through cash and a new debt facility structure with CBA bank. Following the deal we estimate net debt of about $30m. This deal presents good upside, as the group can double earnings through cost outs, but also adds further risk as the debt levels are now high. Overall we think management have shown themselves to be conservative and we think the risk reward proposition is still attractive. We value NTD at 70 cents.