Venture Advisory Monthly Wrap - January 2019

Updated: Jun 27, 2019


Key Market Activity Takeaways

Contact the author Pooja Mallard


  • The results of the critical 3.6GHz band of spectrum was announced in December with a significant amount being spent on acquiring this infrastructure. The infrastructure is a significant part of the 5G network race

  • Venture Insights believes that 5G will see faster adoption rates alongside this IOT and M2M devices will see strong growth rates. Telstra is the 5G leader in the market which can result in market share and ARPU gains due to the faster adoption rates

  • January saw TPG’s decision to cease the rollout of its mobile network, which would have otherwise positioned the telco as the fourth competitor in the Australian mobile phone market. This sudden turn of events was said to be a consequence of the Federal Government’s ban on the use of Huawei equipment for 5G rollout

  • Notwithstanding that January was a rather quiet month in the M&A space, ELMO Software entered a binding sale agreement to acquire 100% of BoxSuite’s shares for a cash consideration of $1.4m and Link Administration Holdings agreed to sell its CPC business to Apex Group for a cash and debt free consideration of £240m

  • In other news, GTN is considering an on-market share buy-back and Speedcast announced that its subsidiary UltiSat was awarded a $23m, 5-year contract to provide MNS for the U.S. Government. Furthermore, Inabox has released the first tranche of the capital return to shareholders at $0.50 per share


Telcos

Best and Worst Monthly Performers

The 5 best and worst performers for the months of December 2018- January 2019 were as follows:

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Source: Factset as of 31 January 2019


5G Networks (4 December) announced it had secured a debt facility from CBA to complete its acquisition of Asia Pacific Telecommunications (APTel) from The Deague Group

5G Networks (20 December) announced that it had won a further $5m of new revenue and recontracted all key customers which will deliver $6m of retained revenue. The new revenue has been driven by its new solutions such as data connectivity with managed services

Chorus Limited (17 January) announced that in the 2Q FY19, UFB uptake grew to 51% with stronger fibre demand, total broadband and fixed line connections decreased by 4k and 21k respectively

Inabox Group (12 December) announced that the sale to MNF Group has been completed and $0.90 per share would be distributed to shareholders via a special dividend of $0.29 per share and $0.61 per share of capital return. The special dividend went ex-div on the 18th of December. The company has also voluntarily delisted

Inabox Holdings Limited (31 January) announced that the Board of Directors of the company has resolved to release the first tranche of the capital return to shareholders at $0.50 per share. The second and final tranche will be announced once the Directors are satisfied that all liabilities have been met and the delisting timeframe has been approved by the ASX

Megaport Limited (9 January) announced that its revenue for 1H FY19 were up 80% for the North America region with its Monthly Recurring Revenue increasing to $1m from $0.55m

Megaport Limited (17 January) announced that the company is continuing its growth trajectory with its solid performance in the 2Q FY19. In this quarter, Megaport has gained 1,277 customers, generated $8.32m, representing a 21% increase from the previous quarter, and operated a total of 245 Installed Data Centres

MNF Group (7 December) received shareholder approval for its acquisition of Inabox Group’s core business and completed the transaction after a competitive bidding process which saw SB&G Group attempt to interlope on the deal

Spark New Zealand (18 December) announced Telstra has agreed to become an anchor customer for the planned Southern Cross NEXT project, subject to regulatory approvals and definitive documentation. This would see Telstra become a 25% shareholder in Southern Cross Cable Network and Spark New Zealand’s shareholding diluted to 37.5%

Speedcast International (6 December) announced it had received CFIUS approval for the acquisition of Globecomm

Speedcast International (24 December) announced it had renewed its contract with Carnival which will produce 8-9% of full year 2019 revenue. Speedcast also downgraded full year 2018 underlying EBITDA guidance to approximately US$130 million to US$135 million. This was due to a longer than expected Carnival renewal process, slower implementation of new project wins in EEM and the Energy division performing below expectations

Speedcast International (2 January) announced that Sebastien Lehnherr is taking on the role as Chief Operating Officer, assuming global responsibility over the organization

Speedcast International (14 January) announced that its subsidiary UltiSat Inc. was awarded a 5-year, $23m contract to provide managed network services for the U.S. Government

Superloop (24 December) achieved “Final Splice” on its INDIGO Central cable. This has created the first submarine cable system connecting Singapore to Sydney

Telstra (10 December) secured 30-80MHz nationwide in the 3.6GHz spectrum auction with an investment of $386 million. The company believes that this will support its roll-out of a 5G network nationwide. Telstra completed Australia’s first 5G video call and made the world’s first connection of a 5G mid-band commercial device – the HTC 5G Hub mobile smart device

TPG Telecom (10 December) announced that its Mobile JV with VHA Australia acquired 60MHz of the 3.6GHz band for $263.3 million. The spectrum was spread across the following regions: Sydney, Melbourne, Brisbane, Canberra, Adelaide and Perth.

TPG Telecom (13 December) announced that the ACCC had expressed concern that removing TPG as the fourth mobile network operator would substantially lessen competition from the Australian telecommunications market

TPG Telecom (29 January) announced that due to factors outside of TPG control, it has decided to cease the rollout of its mobile network in Australia even though $100m of capital expenditure has already been incurred to-date

Vita Group (12 December) announced that its Telstra Dealer Agreement and Master License has been extended and rolled on for a further year through to 30 June 2024

Vita Group (23 January) announced that Paul Mirabelle has joined the Board as Non-Executive Director and will continue his role as Non-Executive Director of Healthshare, an Australian private digital health company

Vocus Group (24 December) announced the 5-year extension of its current Mobile Virtual Network Operator with Optus Wholesale. This deal will give Vocus access to the Optus 5G network and future technologies


EV / Forward EBITDA Multiples Chart

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

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Source: Factset, as at 31 January 2019


Media

Best and Worst Monthly Performers

The 5 best and worst performers for the months of December 2018- January 2019 were as follows:

📷

Source: Factset as of 30 November 2018

Carsales.com Limited (18 December) announced that it was recognising a $48 million impairment charge for its investment in Stratton Finance Group. Stratton is estimated to contribute $1 million to FY19 net profit

Crowd Media Holdings Limited (29 January) received confirmation of the extension of the current JCB debt facility to 28 February 2019 whilst the company evaluates a few Term Sheets it has received for the refinance of the entire debt facility. The current JGB outstanding is $2.3m and the net debt position of the company as at 31 December 2018 is approximately $1.5m

Domain Holdings Australia Limited (17 December) announced the acquisition of CommercialView by a subsidiary called Commercial Real Estate Media (“CREM”). The consideration for the proposed transaction is between $4.2 million and $17.2 million, which is linked to the performance of the business

GTN Limited (20 December) announced that its 1H19 Adjusted EBITDA will be 10% to 15% less than the prior comparable period

GTN Limited (23 January) announced the appointment of media specialist Corinna Keller to its Board as a Non-Executive Director, effective 1 March 2019. It was also announced that GTN is considering an on-market share buy-back as a capital management initiative to help maximize shareholder value. GTN will only conduct a buy-back if the company’s share price trades at a significant discount to its underlying value

HT&E Limited (3 December) announced it eliminated the position of Australian Radio Network CEO so Rob Atkinson will leave the business in early 2019

iCar Asia Limited (11 January) announced that in the 4Q of 2018, its cash receipts grew 36% to $3m and its Thailand and Malaysia operations were EBITDA and net cashflow positive

Macquarie Media Limited (5 December) responded to speculation that Nine would purchase the outstanding shares in Macquarie Media following the close of the Fairfax transaction. Nine stated that it is assessing its options regarding the shares

Nine Entertainment (7 December) announced it had achieved $35 million of synergies in the Fairfax transaction and has upgraded the forecast synergies to $65 million on an annualised basis. There is also further opportunities for synergies through rationalisation of technology costs

Nine Entertainment (14 December) has been added to the S&P/ASX 100 Index

Prime Media Group Limited (21 December) announced that December 18 total advertising revenue is forecast to be 15% above the prior comparable period. As a result of the improved outlook for December and one-off content costs savings, Prime’s 1HFY19 EBITDA is expected to be between $24 million and $27 million

QMS Media Limited (10 December) announced the merger of its QMS NZ business with Mediaworks. QMS will receive a 40% stake in the expanded Mediaworks business as well as a capital return of A$35 million. The transaction is expected to be EPS accretive in FY20, post cost and revenue synergies

QMS Media Limited (14 December) announced a reorganisation into three business units: QMS Media, Mediaworks and QMS Sport. CLSA Australia has been appointed to undertake a review of the options for the QMS Sport business

QMS Media Limited (19 December) confirmed speculation that it has been in preliminary discussions to explore a potential acquisition of TLA Australia

REA Group (18 December) announced that Owen Wilson will replace Tracey Fellows as CEO. Owen Wilson has been the CFO of REA Group since 2014

Seven West Media Limited (12 December) announced the appointment of Colette Garnsey OAM as a new non-executive and independent Director of the company

Trade Me Group Limited (12 December) announced that it had entered into a scheme of arrangement with Apax Funds to be acquired for NZ$6.45 per share. This coincided with the rejection of the proposal by Hellman & Friedman which was received on the 5th of December

Village Roadshow Limited (21 December) announced the successful refinancing of its $340 million existing debt facility with ANZ acting as lead manager.


EV / forward EBITDA Multiples Chart

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

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 Source: Factset, as at 31 January 2019


Technology

Best and Worst Monthly Performers

The 5 best and worst performers for the months of December 2018-January 2019 were as follows:

📷

Source: Factset as of 31 January 2019


Afterpay Touch Group Limited (18 January) provided an update on key business developments, showing that underlying sales in 1H FY19 was over $2.2bn, a 140% increase from the previous period and there were over 3.1 million active customers in the last 12 months

Bravura Solutions Limited (30 January) announced the introduction of a dividend reinvestment plan (DRP). The Board of Directors will determine whether the DRP will apply to a specific dividend

Catapult Group International Limited (19 December) announced the appointment of Rick Wingfield and Kelly Hutchison as Chief Technology Officer and Chief People Officer, respectively. Mark Hall resigned as CFO and Catapult is undertaking a search for a new CFO

Citadel Group Limited (3 December) announced the acquisition of Gruden Pty Ltd to strengthen Citadel’s software capabilities in key government sectors. The business has also experienced numerous contract wins across different businesses

Class Limited (10 January) indicated through their quarterly update that total accounts and total class customers grew by 1,760 and 57 respectively. The lower expected growth in accounts reflects regulatory uncertainty, increased competition and lower number of average accounts per new customer

Data#3 Limited (16 January) indicated that the estimated first half pre-tax profit is likely to be in the $8.5m to $9m range as compared to the previous guidance of $7m to $8.5m

Elmo Software (7 December) acquired HROnboard for $7 million upfront and a deferred cash payment of $3 million, with an earn-out component of an estimated $5 million. The acquisition gives ELMO the opportunity to cross-sell its extensive HR & Payroll SaaS offering

ELMO Software Limited (24 January) announced the execution of a binding sale agreement to acquire 100% of the shares in BoxSuite. The total acquisition consideration is $1.4m settled in cash, of which $1m is to be paid on completion with a deferred payment of $0.4m based on agreed milestones

ELMO Software Limited (30 January) released its 2Q cash report e showing a positive net operating cash flow of $50k, strong growth in cash receipts of $9.8m and a closing cash balance of $39m. A company update indicated the appointment of James Haslam as ELMO’s new CFO, commencing 4 February 2019

GetSwift Limited (18 December) announced that the solicitors for the Perera Proceeding have made an application to the High Court of Australia for special leave to appeal from the decision of the Full Court of the Federal Court of Australia

GetSwift Limited (30 January) lodged its unaudited Appendix 4C Report for the period ending 31 December 2018 that indicated a net loss after tax of $4.9m due to significant investment into R&D platform enhancements. Administration and Corporate Costs remain significantly high due to legal defence costs and increased governance expenses following the competing class actions filed against the company the previous year

Impelus Limited (4 December) appointed Brendan Birthistle as Non-Executive Chairman

Impelus Limited (29 January) announced that it has entered a performance partnership with Stay at Home Mum (SAHM) whereby Impelus’ Digital Customer Acquisition products and technology will be integrated with the SAHM website and social media channels

Integrated Research Limited (10 December) appointed Matt Glasner as Chief Commercial Officer

Integrated Research Limited (21 December) appointed Peter Adams as Interim CEO. He is currently the CFO of Integrated Research

Integrated Research Limited (10 January) released its profit guidance indicating that revenues are expected to be within the range of $49m to $50.5m, representing 7% to 11% growth and after-tax profit is expected to be within the range of $11.1m to $11.7m, representing 19% to 26% growth

Isentia Group Limited (14 January) announced the appointment of Abigail Cheadle as an Independent Non-Executive Director and chair of the Audit and Risk Committee effective 14 January 2019  

Kogan.com Limited (17 January) announced that the business generated record trading in the peak Christmas period with the company’s core divisions of Exclusive Brands, Partner Brands and Kogan Mobile growing in revenue and active customers, contributing to a total revenue growth of 9.7% 

Link Administration Holdings Limited (31 January) has entered into a binding agreement to sell its Corporate & Private Clients business, which is part of the Link Asset Services division, to global fund administrator Apex Group Ltd for a cash and debt free consideration of $433m

MYOB Group Limited (20 December) announced that it could not recommend the proposal by KKR however remained in discussions with KKR after the offer was revised down to $3.40 per share

MYOB Group Limited (24 December) recommended KKR’s scheme of arrangement at $3.40 cash per share with a ‘go shop’ arrangement. MYOB also confirmed FY18 guidance

Nearmap Limited (10 January) announced that the company’s key growth metric, Annualised Contract Value (ACV) has increased substantially in the US and Australia with the Group ACV portfolio having grown 42% year-on-year to $78.3m

Netwealth Group Limited (25 January) released its quarterly business update showing that its Net Funds Under Administration (FUA) were at $19bn with net flows offsetting adverse global markets.

OFX Group Limited (19 December) provided guidance that the company will incur non-recurring operating expenses of approximately $4 million in relation to Currencies Direct. The company expects 2HFY19 EBITDA, excluding these non-recurring expenses, will be stronger than 2HFY18 EBITDA

Pro Medicus Limited (10 December) signed a contract extension with a German Government Hospital network. The extension is worth in excess of $3 million to Pro Medicus

Pushpay Holdings Limited (7 January) achieved its target of breakeven on a monthly cash flow basis prior to the end of calendar year 2018. The company confirms that it will achieve its revenue guidance of between US$97.5m to US$100.5m and a positive EBITDAF for the year ending 31 March 2019

Zip Co Limited (30 January) announced its quarterly performance for the period ending 31 December 2018, highlighting a record quarterly revenue of $19.2m and transaction volume of $304.4m. Customer numbers have risen to over 1 million with Bunnings Warehouse, Appliances Online and Officeworks joining the platform


EV / forward EBITDA Multiples Chart

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

📷

Source: Factset, as at 31 January 2019


Reference stocks

Our reference portfolio is as follows:

Telecom Stocks:

5G Networks (5GN-AU), Arq Group (ARQ-AU), amaysim Australia Ltd. (AYS-AU), Chorus Limited (CNU-NZ), DWS Group (DWS-AU), Hutchison Australia (HTA-AU), Inabox Group Ltd. (IAB-AU), Macquarie Telecom Group Limited (MAQ-AU), Megaport (MP1-AU), MNF Group Limited (MNF-AU), Netcomm 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:

Carsales.Com Limited (CAR-AU), Domain Holdings Australia Ltd. (DHG-AU), Asia Pacific Digital Limited (AJD-AU), Event Hospitality & Entertainment Ltd. (EVT-AU), Fairfax Media Limited (FXJ-AU), GTN Group (GTN-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), QMS Media (QMS-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), Altium (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), ELMO Software Ltd. (ELO-AU), GBST Holdings (GBT-AU), GetSwift Ltd. (GSW-AU), Gentrack Group Ltd (GTK-NZ), Hansen Technologies Limited (HSN-AU), Impelus Ltd (IMS-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), MYOB Group Ltd. (MYO-AU), Nearmap Ltd. (NEA-AU),   OFX Group Ltd. (OFX-AU), Pro Medicus Limited (PME-AU), Pushpay Holdings Ltd (PPH-NZ), Reckon Limited (RKN-AU), Retech Technology (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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