Market cap: $52m
AGM date: 16 November 2017

Workplace services provider Konekt (KKT) held its AGM during November. At the AGM, KKT confirmed forecast revenue growth of more than 70% and underlying EBITDA growth (excluding one-off items) of greater than 70%.

A key focus of the AGM was therefore on updating the market on its recent Mission Providence acquisition – pleasingly, KKT noted that there have been no surprises following completion and that the business was tracking to expectations. The acquisition diversifies KKT’s existing revenue streams, and enhances its ability to provide return-to-work (RTW) employment services, to complement its existing core offering of delivering RTW injury management programs (essentially managing the process of rehabilitating injured workers and getting them back into jobs – and where it is the current national market leader).

KKT noted the acquisition also provides KKT the capacity to enter new or underserviced markets. The logical potential new market here is providing RTW disability employment services – an attractive opportunity with the Federal Government’s 2017 budget highlighting an additional investment of over $3 billion in disability employment services to help people with disabilities get and keep long-term jobs.

A private equity fund has recently bought a majority shareholding in one of KKT’s key competitors – APM, the largest provider of disability employment services to the Federal Government (see here). Apart from this transaction, there has been growing private equity interest in the sector – possibly driven by the potential to capture some of the increasing amount of government funding committed to the disability sector.

KKT continues to trade on a PE multiple of less than 10x, with EPS growth (excluding amortization, abnormals and potential cost synergies) of 15% – 20% forecast over the next two years – a powerful combination of value and growth.

There would also appear to be little upside priced into KKT’s current share price to reflect the further growth available to KKT from the larger scale opportunities it is looking to capture, as the business transitions from its injury management focus to a larger, diverse, more integrated employment services company, operating in multi-billion dollar markets.

Market cap: $48m
AGM date: 30 November 2017

Diversified investment company Joyce Corporation reported a strong trading update at its AGM in respect of each of its businesses lines:

• Lloyds online auctions – revenue growth for Q1 of FY18 of 61%
• KWB Kitchens – revenue growth for Q1 of FY18 of 13%
• Bedshed network – revenue growth for Q1 of FY18 of 5%
• Investment properties – both now generating external rent with revaluation gains expected.

JYC continues to invest in the intellectual property and development of each business unit to ensure long term sustainable growth. JYC reiterated that on the whole, its businesses are resilient to economic cycles and are unlikely to face any significant threat from Amazon.

To summarise our investment case here, JYC has interests in:

• The fastest growing, and one of the largest, online auction sites in Australia (FY17 revenue growth of 56%, and YTD growth of 61%);
• The largest specialist kitchen renovation business in Australia;
• A large bedding and furniture franchise business; and
• Approximately $20m of recently refurbished real estate.

We view the sum of each of these equity interests to be significantly higher than JYC’s current $48m market cap.

Market cap: $52m
AGM date: 17 November 2017

Blackwall Limited (BWF) – fund manager, property manager and manager/developer of the Wotso shared workspace business, held its AGM during November. BWF highlighted that by locating its Wotso workspaces in city fringe and suburban sites, it is able to achieve industry leading margins of 25% to 30%. This is because it incurs significantly lower rental expenses but is still able to charge similar rates for its spaces as city-based co-working spaces.

Wotso is a very fast growing business – during FY17, Wotso grew its revenue by 84% and operating profit by 93%. It manages the largest number of coworking sites in Australia, together with a Singaporean business, and is currently looking at New Zealand opportunities.

At the end of November, BWF confirmed that following the uplift in value of a fund that it manages, it had generated performance fees of approximately $11m. This fee will be converted into units in the fund – providing BWF with an ongoing income stream and the potential to benefit from further capital gains in the fund. This is an $11m asset that BWF did not have this time last year – and is quite material in the context of a $52m market cap company.

In addition to this ‘new’ asset, BWF has a number of other ‘surplus’ investment assets on its balance sheet – we estimate BWF’s net assets to be worth approximately $35m in total.

Deducting the value of these net assets from BWF’s market cap of $52m implies that BWF’s three operating businesses (the fast growing Wotso business, and BWF’s fund and property management businesses) are being valued at just $17m. The fund management business has generated performance fees of $14m in the last 6 months alone! To provide an indication of sector values for larger co-working companies, we note that WeWork, the world’s largest co-working company and Wotso’s largest Australian competitor, is currently valued at an incredible 20x its forecast
annual sales. (Wotso’s annual sales are currently tracking at approximately
$8m).

Market cap: $138m
AGM date: 22 November 2017

Healthcare equipment and consumables supplier, Paragon provided revenue and EBITDA guidance at its AGM which was in-line with market expectations and translates to ~10% organic EPS growth for the year (pre any acquisitions).

A number of growth drivers for PGC were articulated in the AGM
presentation:

• – A growing demand for the provision of preventative equipment service and maintenance throughout the medical, scientific and allied health industries, with these recurring service revenues now expected to contribute ~10% of PGC’s FY18 revenues;
• – Extending PGC’s geographic footprint – i.e. the rolling out of a new South Australian warehouse and logistics site in January 2018. Queensland and New Zealand are areas that remain underserviced
• by PGC;
• – PGC continues to benefit from increasing demand in the aged care sector with these revenues increasing 20% to $14m for FY17
• – PGC’s e-health offering Midas, a web reporting software platform, is making strong progress towards contributing profit; and
• – Strong pipeline of value accretive M&A to add to PGC’s product range, service and maintenance offering and geographical footprint are being reviewed.

Despite these positive developments the PGC share price continues to be weak. We believe the weakness can be explained by the following:

• An upcoming CEO transition – short term in nature;
• The market expecting a capital raise at some point to fund a potential large acquisition – again short term in nature if it happens;
• Seasonality of the business becoming more pronounced as hospitals buying increasingly trends to the third and fourth quarters of the financial year (structural – but can be mitigated through increased service and maintenance and consumable revenues).

Whilst the current share price is disappointing, we expect the PGC share price to be materially higher this time next year. PGC have stated some aggressive financial targets (revenue of $250m and EBITDA of $37.5m) – and have an excellent track record in achieving its targets.