Venture Advisory Monthly Wrap - January 2018

Updated: Jul 1, 2019

Key Takeaways

Due to rising competition and falling prices, telecom companies are expanding their operations and networks. As a result, acquisition activity has remained high in the telecom sector from the very start of the year

In addition to growth in traffic on mobile phones, a surge is expected in the number and type of devices online in the much-vaunted IoT space

Australia's smartphone penetration is set to increase rapidly by the end of 2018 as 88.0% of Australians already own a smartphone, up from 84.0% in the prior year

Cloud computing has continued to drive M&A activity in technology in Australia in January 2018 as businesses increasingly shift to cloud computing as part of their long-term strategy

Digital and advanced technologies are disrupting and gaining presence in almost all sectors; this trend is expected to continue in the near future

In line with this trend, Oracle agreed to acquire Australian company Aconex to provide cloud solutions for construction projects for A$1.6bn

Telco Monthly Wrap
Telco Best and Worst monthly performers

Inabox Group closing up 14.0% in January, regaining some of its share price loses from late 2017.

After receiving expressions of interest from various parties (above the offer made by Macquarie Telecom), Bulletproof Group’s share price increased by 8.0%

The 5 best and worst performers for the month of January 2018 were as follows:

 Key company announcements

Bulletproof Group Ltd (22 Dec) lodged a Target's statement with Australian Securities and Investments commission and Australian Securities Exchange unanimously recommending REJECT offer to Macquarie Telecom's takeover bid. The primary reason for REJECT recommendation was because of the independent expert opinion that the offer is not fair and reasonable and that it is opportunistic and reflects an historical low in the price of Bulletproof shares

Bulletproof Group Ltd (22 Jan) announced that it has received interests in the acquisition of Bulletproof from various parties. All of the offers, though not directly comparable offer higher price than the A$0.1 per share quoted by Macquarie Telecom. As an example, the statement also said that the most executable proposal at this moment is the one from klikon Group Holdings Pty Limited to acquire 100% shares at A$0.2 per share in all cash deal

Chorus Ltd (11 Dec) was advised by the Crown that L1 Capital Pty Limited in respect of some of their funds have been granted approval to acquire >10.0% but <15.0% of Chorus' shares in case they choose to do so. Historically under Chorus' constitution, Crown approval is required if a shareholder wishes to have an option to hold more than 10.0% of the Chorus shares

Chorus Ltd (18 Jan) announced Q2 FY 18 operating metrics. The trends for Q2 period to 31/Dec/2017 more or less in line with Q1 trends. The fibre uptake in UFB areas now at 42.0%, up from 39.0% in September and the adoption of video streaming continues to drive growth in data demand

Inabox Group Ltd. (4 Dec) announced that it intends to put in place a cost reduction plan in order to improve profitability. The plan aims to achieve annualized cost savings in excess of A$2.0mn. Under the plan, two of the company's operations centers will be merged and management of the company's engineering field force along with monitoring and maintenance function would be centralized to exhibit better control over resource management. Also the company, plans to reduce staff by 10.0% to right size and better align its personnel cost

Inabox Group Ltd. (6 Dec) announced signing of an agreement by its Telcoinabox business with Telstra to provide white-labelled enablement services to Telstra Wholesale. The contract leverages strong existing relationship with Telstra to deliver Telcoinabox's system and network enablement services

Maquarie Telecom (1 Dec) announced plans to open a network operations center in Sydney's CBD. This will allow at least 13 jobs to remain in Australia. The company previously provided network operation services through a third party, which recently decided to off-shore roles to another region

Megaport Limited (1 Dec) announced that it now provides direct, high speed, secure connectivity to IBM Cloud from any of its 179 data centers globally to optimize the transfer of business-critical data between private infrastructure and the cloud. Megaport customers can effortlessly access IBM Cloud's expanding global footprint and cloud-native services such as AI, analytics, blockchain, Internet of Things, server less and more. Megaport-enabled data centers offer a global footprint beyond major metros to previously underserved regions.  Megaport's platform helps remove barriers to entry for cloud adoption. The addition to IBM Cloud to the Megaport Ecosystem provides enterprises direct access to one of the world's leading cloud service providers

Megaport Limited (18 Jan) reported revenue of $4.6mn, an increase of 12.7% from the last quarter

Megaport Limited (24 Jan) announced launch of Megaport Vloud Router (MCR). MCR will make it easier for companies to connect to cloud services without the need to physically deploy network infrastructure

NEXTDC Ltd (22 Dec) announced that it has experienced significant interest in its new Sydney S2 facility with in hand orders for 5MW of capacity. Development and construction of S2 is currently underway and the site is expected to open in 1HFY19 with an initial capacity of 6MW. Based on the strength of the demand, the company plans to develop an additional 4MW capacity into FY19

Singtel Optus, an operating subsidiary of Singapore Telecommunications Ltd. (3 Dec) announced that is has acquired new metropolitan licenses in the 2300MHz and 3500MHz spectrum bands. Singtel Optus has won two 2300MHz lots in Sydney and Melbourne, and three 3500MHz lots (Globally recognized as 5G pioneer band) in Sydney, Brisbane and Adelaide for a total bid of A$6,513,000.  The 3500MHz acquisition expands on the company’s extensive 3500MHz metro network and will allow Optus to offer 5G services for customers in Sydney and Melbourne

Optus (11 Dec) has launched its 7,000th Australian network site in Alloway, Bundaberg (includes mobile sites, small cells and in-building coverage) as part of an A$1.0mn Bundaberg and Wide Bay Burnett area investment and an A$1.0bn regional Australian network investment program. The mobile tower will deliver improved mobile and data coverage across Alloway and its surroundings

Singapore Telecommunications Limited (2 Jan) sold its 25.0% stake in ACPL Marine Pte.Ltd to Asean Cableship for SGD 15mn in cash. Singapore Telecommunications Limited holdings has reduced from 41.7% to 16.7% stake

Speedcast International Ltd (17 Jan) announced appointment of Mr. John Truschinger as Chief Information Officer (CIO)

Speedcast International Ltd (19 Jan) announced a contract with Noble Corporation Plc to provide new IT communications equipment and fully-managed connectivity services to their global drilling feet

Telstra Corporation Ltd (1 Dec) revised its FY18 guidance by reducing Total Income by A$0.7bn to a range of A$27.6-29.5bn. This was majorly due NBN Co's announcement that it would cease sales on hybrid co-axial HFC technology for 6-9 months starting December 2017. The EBITDA guidance was revised downwards by A$0.6bn

Telstra Corporation Ltd (13 Dec) acquired Virtual Machine Technology Pty Ltd

Vocus Group Ltd. (08 Jan) announced appointment of Mr. John Ho as Non-Executive Director effective Jan/2018. Mr. Ho has acquired extensive global experience including with the Boston Consulting Group in Australia, Citadel Investment Group in the US and as Head of Asian investing at the Children's Investment Group in the US and as Head of Asian Investing at The children's Investment Fund

Vocus Group Ltd. (15 Jan) announced its new organizational structure with separation of Enterprise and Wholesale segment of the Vocus Australia business into two operating segments aimed at allowing senior executive focus on the growth opportunities for individual segments. As part of the structure, Vocus also made following announcements: Michael Simmons, the current CEO of Enterprise and Wholesale will now lead the dedicated wholesale and international division, Scott carter, the Current CEO  of Consumer will move into role of CEO - Enterprise and Government, Ms Sandra de Castro will take over as the new CEO - Consumer. Ms Castro brings extensive decade long knowledge and experience in digitization and transformation formed in ASX 50 companies

Forward EV / EBITDA Multiples Chart

The forward EV / EBITDA multiples for leading telco stocks at the end of the month is as follows:

Telecom stocks were trading on an average forward EV / EBITDA of 10.0x and a median forward EV / EBITDA of 8.7x.

Media Monthly Wrap
Media Best and Worst monthly performers

Following the announcement of its acquisition of broadcast media company Crocmedia, Pacific Star Network saw its share price increase by 43.0%

The 5 best and worst performers for the month of January 2018 were as follows:

Key Company Announcements

APN Outdoor Group (9 Jan) announced resignation of Chief Financial Officer and acting Chief Executive Officer Mr. Wayne Castle with immediate effect. The company also announced appointment of Mr. James Warburton as CEO

Asia Pacific Digital Ltd (18 Dec) announced that it has raised A$2.0mn through a placement of shares at 10.0 cents per share and 9.8mn unlisted options to sophisticated investors. Prior to placement, company's major shareholder group provided it with funding of A$2.0mn towards working capital under an unsecured loan arrangement

Domain Holdings Australia (22 Jan) accepted the resignation of CEO Antony Catalano. Domain Chairman Nick Faloon will serve as Executive Chairman in the interim period while the board starts the process for recruiting a new CEO either domestically or internationally. The Senior leadership team of Domain will report to Mr Nick Faloon with regard to strategic matters

Fairfax Media Ltd. (12 Dec) announced that its Australian Metro publishing business has entered into partnership with Google across digital advertising, technology and product development. The move aims to deepen partnership with Google, providing advertisers with a new way to work with Fairfax and would empower and enable advertisers' to access Fairfax's brands and reach valuable audiences

Fairfax Media Ltd. (19 Dec) announced that the High Court in New Zealand upheld New Zealand Commerce Commission’s decision not to clear the proposed merger of NZME and Fairfax New Zealand Limited

Fairfax Media Ltd. (22 Dec) announced that Kelli Brett, Editor of Cuisine Magazine, and Vanessa Stranan, Advertising Manager of Cuisine Magazine acquired the Cuisine Magazine from Fairfax New Zealand through a management leveraged buyout transaction. The deals includes Good Food Awards programme and event

HT&E (22 Dec) denied the speculation in a daily newspaper of it approaching private equity investors for proposed investments and confirmed that it is on track to meet EBITDA consensus for the year of A$118-A$119mn

iCar Asia Ltd (7 Dec) announced closure of its fully underwritten, non-renounceable entitlement offer to raise A$10.0mn

News Corporation (7 Dec) announced that Australian Competition and Consumer Commission has decided to not oppose the proposed merger of Fox Sports (in which News Corporation holds 100% stake) and Foxtel after finding that the transaction would not substantially reduce competition

oOh!media ltd (23 Jan) announced appointment of Sheila Lines as Chief Financial Officer, effective 1/Mar/2018. Ms Lines has extensive in public practice and in listed companies within technology, banking, telecom, payments and personal transport sectors

Pacific Star (8 Jan) announced merger with Crocmedia Pty Ltd in a cash deal of A$91.6mn for 100% equity stake. The merger is expected to create a leading sports content and entertainment business of scale with complementary services across multiple media platforms, providing a clear point of differentiation and an attractive platform for growth

SEEK Limited (29 Jan) announced broader key organizational changes to take advantage of the long term growth opportunities including creation of a larger operating business known as Asia Pacific & Americas ( AP&A and creation of a dedicated function to manage SEEK's investments for long term capital appreciation

Village Roadshow (22 Dec) announced a sales and leaseback of its 154 hectares of freehold land on the Gold Coast to Altis Property partners. Net proceeds to VRl from this transaction would be ~A$100mn. The proceeds will be used to reduce VRL's debt levels

Village Roadshow Ltd (30 Jan) announced a trading update stating that Theme parks and Cinema exhibitions, its two main divisions have experienced challenging trading conditions and the overall VRL Net Profit after Tax  for 1H FY 18 would be substantially lower at A$12.0-17.0mn compared to 1H FY17

Forward EV / EBITDA Multiples Chart

The forward EV / EBITDA multiples for leading media stocks at the end of the month is as follows:

Media stocks were trading on an average forward EV / EBITDA of 9.6x and a median forward EV / EBITDA of 7.5x.

Tech Monthly Wrap
Tech Best and Worst Monthly performers

After announcing record quarterly transaction volumes of A$140mn (up 47.0%), online financier zipMoney closed up 73.0%. The market showed further support for the growing sector, as competitor Afterpay Touch Group was up 23.0% following strong results announcements and a strategic relationship with US-based Matrix Partners. Following concerns raised about the company’s disclosure, last-mile logistics firm GetSwift was down 21.0% before going into a trading halt.

The 5 best and worst performers for the month of January 2018 were as follows:

Key Company Announcements

3P Learning Ltd (8 Dec) announced promotion of Marta Lielich, General Counsel of 3PL and previously Assistant Company Secretary as the new Company Secretary. Mr. Jonathan Kenny, CFO resigned from his role as Company Secretary in a planned transition move

Aconex Limited (18 Dec) announced signing of a binding Scheme Implementation Deed with Oracle (NYSE : ORCL) to acquire 100% of ACX at A$7.8 cash per share. Both Aconex and Oracle businesses are a natural fit and expected to benefit from providing the most comprehensive cloud-based project management solution

Afterpay Touch Group (16 Jan) provided a business update with underlying Q2 FY 18 revenue at A$551mn (up from A$367mn in Q1 FY18 and up from A$103mn in Q2 FY17). Also reported key operating metrics like 11,500 merchants on-boarded (up from 8,700 at the end of Q1 FY 18) and currently over 1.5mn customers (up from 1.1mn at the ends of Q1 FY18)

Afterpay Touch Group (16 Jan) led by co-founder Nick Molar announced a strategic relationship and new share issuance transaction with US based Matrix Partners, a long-established, technology-focused venture capital firm. Matrix will invest ~A$18.9mn in Afterpay Touch via a new share issuance (~A$18.8mn) and a convertible note issuance from Afterpay US, Inc. (~A$0.1mn). Also Mr. Dana Stalder, a General Partner of Matrix will join the Afterpay Touch Board post transaction

Computershare Ltd (21 Dec) announced preliminary assessment of the implication of US Tax Cuts and Jobs Act, on surface the US Corporate Tax rate was reduced from 35.0% to 21.0%, however the act also eliminated/reduced certain tax deductions that were available to the company. Company also made an immediate assessment on NPAT for FY18, as a one-time FY18 statutory NPAT benefit associated with the reduction of Computershare's US net deferred tax liability position. This benefit will be excluded from Computershare's Management earnings

Data#3 ltd (15 Dec) announced that it expects the first half profit to be substantially lower than the prior year's record first half result. The second half performance, however, is expected to be strong and the company expects to achieve its overall financial goal for FY18, an improvement over FY17's result. Supplier delivery constraints in Nov and Dec delayed a number of projects. The company also plans to decommission the Data#3 cloud in order to help its customers transition to either public or private clouds

ELMO Software (12 Dec) announced acquisition of Sky Payroll, a native cloud-based Australian SaaS payroll software system for A$1.4mn. The acquisition will be funded by a mixture of cash and scrip. The transaction represents a logical and complementary extension of ELMO's current integration product suite, from nine to ten modules. The transaction also strategically positions ELMO to leverage the opportunity presented by the Australian Tax Office's (ATO) mandatory Single Touch Payroll Reporting (STPR) event where companies will be required to have a compliant payroll solution by July 2018

Integrated Research Ltd (19 Jan) announced its profit guidance for 6 months ended December 2017. The company expects Profit after tax to be in the range of A$8.9 to A$9.3mn compared to A$7.7mn for the equivalent prior period, representing 15.0-21.0% growth. The company also expects License Sales to be in the range of A$25.0-26.0mn representing 5.0-7.0% growth

Kogan.com (12 Dec) entered into a 3 year agreement with Medibank Group to offer budget health insurance policies under a new brand "Kogan Health". The brand will focus on offering budget health insurance policies on commission basis with underwriting provided by Medibank group

Kogan.com (18 Dec) entered into an agreement with PetSure (Australia) Pty Ltd, a wholly owned subsidiary of the Hollard Insurance Company Pty Ltd. Kogan plans to distribute and promote pet insurance policies under a new brand "Kogan Pet Insurance", the brand will focus on offering a range of affordable pet insurance products

Kogan.com (22 Jan) announced its cash position of A$28.2mn as of 2QFY18. The company also announced revenue growth of 36.2% y-o-y and EBITDA growth of 58.3% y-o-y

Kogan.com (25 Jan) entered into an agreement with Greenstone Financial Services Pty Ltd enabling it to offer life insurance and funeral insurance policies under a new brand "Kogan life insurance"

OFX Group Limited (20 Dec) announced appointment of Ms Wendy Glasgow as Chief Technology Officer with effect from 19/Feb/2018. Ms Glasgow joins OFX from Google where she led the Asia Pacific Advanced Data solutions team. Wendy has a wealth of experience in data science, analytics, product, technical delivery and client engagement

MYOB Group (8 Dec) announced that Bain Capital sold 97mn shares in the capital of company. Post sell down, remaining holding of Bain Capital in the company is 139mn shares representing 23.1% stake

WiseTech Global (13 Dec) announced acquisition of Microlistics, a leading provider of warehouse management solutions for upfront A$20.0mn with a further multi-year earn-out potential of A$20.0mn related to product integration and significant revenue growth to FY20. The acquisition helps WiseTech in deepening their warehouse capability, expand presence in Asia pacific and strengthen their ability to penetrate key global markets across the Americas, Europe and Asia

WiseTech (20 Dec) announced two acquisitions of European customs solutions providers, both headquartered in Dublin. ABM Data Systems, a leading pan-European developer and provider of customs clearance solutions accredited for the UK, Ireland, Belgium, the Netherlands, Switzerland, Sweden and Germany, and CustomsMatters, the leading customs solution provider in the Republic of Ireland and Northern Ireland. The transactions are expected to provide WiseTech with market leadership and execution capability across Ireland and further insights in European Customs

zipMoney Ltd (6 Dec) announced that Australian lifestyle retailer Spotlight retail Group has joined the Zip interest-free payments platform. The move aims to give Australian customers flexibility and convenience of interest free programs such as zip

zipMoney Ltd (29 Jan) announced Quarterly performance with Transaction volume of A$140mn, up A$45.0mn, a 47.0% increase on Q1 and exceeding previous guidance. Record quarterly Revenue of A$9.3mn, up 35.0% on Q1

Forward EV / EBITDA Multiples Chart

The forward EV / EBITDA multiples for leading tech stocks at the end of the month is as follows:

Technology stocks were trading on an average forward EV / EBITDA of 16.1x and a median forward EV / EBITDA of 14.1x.

Reference stocks

Our reference portfolio is as follows:

Telecom Stocks:

5G Networks (5GN-AU), amaysim Australia Ltd. (AYS-AU), Bulletproof Group Limited (BPF-AU), Chorus Limited (CNU-NZ), Hutchison Australia (HTA-AU), Inabox Group Ltd. (IAB-AU), Macquarie Telecom Group Limited (MAQ-AU), Megaport (MP1-AU), MNF Group Limited (MNF-AU), Netcom Wireless (NTC-AU), Nextdc Limited (NXT-AU), Over the wire (OTW-AU), Singapore Telecommunications Limited (Z74-SG), Spark New Zealand Limited (SPK-NZ), SpeedCast International Ltd (SDA-AU), Spirit Telecom (ST1-AU), Superloop Ltd. (SLC-AU),  Telstra Corporation Limited (TLS-AU), TPG Telecom Limited (TPM-AU), Vita (VTG-AU), Vocus Group Limited (VOC-AU)

Media Stocks:

APN Outdoor Group Ltd. (APO-AU), Carsales.Com Limited (CAR-AU), Domain Holdings Australia Ltd. (DHG-AU), Asia Pacific Digital Limited (DIG-AU), Event Hospitality & Entertainment Ltd. (EVT-AU), Fairfax Media Limited (FXJ-AU), HT&E Ltd (HT1-AU), iCar Asia Ltd. (ICQ-AU), Macquarie Media Limited (MRN-AU), Nine Entertainment Co. Holdings Pty Ltd. (NEC-AU), News Corporation Shs B Chess Depository Interests repr 1 Sh (NWS-AU), oOh media Ltd (OML-AU), Pacific Star Network Limited (PNW-AU), Prime Media Group Limited (PRT-AU), REA Group Ltd (REA-AU), Seek Limited (SEK-AU), SKY Network Television Limited (SKT-AU), Seven West Media Limited (SWM-AU), Southern Cross Media Group Limited (SXL-AU), Trade Me Group Limited (TME-NZ), Village Roadshow Limited (VRL-AU), WPP AUNZ Limited (WPP-AU)

Tech Stocks:

3P Learning Ltd. (3PL-AU), Aconex Ltd (ACX-AU), Altiumc (ALU-AU), Afterpay Touch Group Ltd. (APT-AU), Appen Ltd. (APX-AU), Big Un Limited (BIG-AU), Bravura Solutions Limited (BVS-AU), Catapult Group International Ltd. (CAT-AU), Citadel Group Ltd. (CGL-AU), Class Ltd. (CL1-AU), Crowd Mobile Limited (CM8-AU), Computershare Limited (CPU-AU), Data#3 Limited. (DTL-AU), DWS Limited (DWS-AU), ELMO Software Ltd. (ELO-AU), GetSwift Ltd. (GSW-AU), Gentrack Group Ltd (GTK-NZ), Hansen Technologies Limited (HSN-AU), Infomedia Ltd (IFM-AU), IRESS Limited (IRE-AU), Integrated Research Limited (IRI-AU), iSentia Group Limited (ISD-AU), Kogan.com Ltd. (KGN-AU), Link Administration Holdings Ltd. (LNK-AU), Impelus Ltd (MBE-AU), Melbourne IT Ltd (MLB-AU), Megaport Ltd. (MP1-AU), MYOB Group Ltd. (MYO-AU), Nearmap Ltd. (NEA-AU), Netwealth Group Ltd. (NWL-AU), Nextdc Limited (NXT-AU), OFX Group Ltd. (OFX-AU), Pro Medicus Limited (PME-AU), Pushpay Holdings Ltd (PPH-NZ), Reckon Limited (RKN-AU), Technology One Limited (TNE-AU), Webjet Limited (WEB-AU), Wisetech Global Ltd. (WTC-AU), Xero Limited (XRO-NZ), Zip Co Ltd. (ZML-AU)

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