Venture Advisory Monthly Wrap - May 2017

Key Takeaways

Melbourne IT announced it has acquired digital ad agency WME Group for A$39.7m

Southern Cross Media announced the sale of its northern NSW's television assets and operations to the WIN Television Network for A$55m

Fleetcor acquired Cambridge Global Payments, a leading B2B international payments provider

Softbank invested US$1.4bn in One 97 Communications which owns mobile payments provider Paytm

Go-jek, the motorbike on-demand start-up raised US$1.2bn from Tencent, increasing the company's valuation to US$3bn

In May 2017, the Australian information technology sector [AXIJ] was down 1.2% while the telco sector [AXTJ] experienced a modest rise of 2.4%. Both the All Ordinaries [AORD] and ASX 200 [AXJO] were down 3.6% and 3.9% respectively. The acquisition of SMS was interrupted by a rival bidder as ASG Group submitted a last-minute Expression of InterestPrivate Equity firms TPG Capital and Hellman & Friedman made preliminary offers to acquire Fairfax Media

The proposed merger between APN Outdoor and oOh!media was terminated following the Statement of Issues by the ACCC

Telco and ICT Monthly Wrap

Melbourne IT announced it has acquired digital ad agency WME Group for A$39.7m. The acquisition is expected to help improve Melbourne IT’s ARPU through enhanced customer retention and providing cross-selling opportunities

Telco and ICT Best and Worst Monthly performers

Following revised FY17 results guidance below previous estimates, Bulletproof Group’s share price lost 17% of its value throughout May

The 5 best and worst performers for the month of May 2017 were as follows:

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Key Company Announcements

Melbourne IT (1 May 17) announced acquisition of WME Group for A$39.7m. The transaction will improve Melbourne IT's ARPU through enhanced customer retention and cross-selling. The transaction is expected to have a positive impact of approximately A$6.5-7.5m on FY17 underlying EBITDA and earnings per share accretion of between 12-18% for Melbourne IT

Vocus Communications (2 May 17) downgraded guidance for FY17 with revenue to be around A$1.8bn (vis-à-vis previous guidance of A$1.9bn) and EBITDA to be between A$365-375m (vis-à-vis A$430-450m). Revised due to the negotiated contract terms on a number of large projects included in the 2HFY17 forecast; the revenue will be recognized in the future periods instead of FY17

Spark New Zealand (8 May 17) acquired Auckland and Tauranga Operations from Computer Group New Zealand for undisclosed purchase consideration

TPG Telecom (16 May 17) successfully completed a retail entitlement offer raising A$320.3m, bringing the total amount raised with the institutional entitlement offer to A$400.3m. Proceeds from the transaction will be used support the company's mobile strategy and plan for its own mobile network

Megaport (16 May 17) subsidiary Megaport (Singapore) announced a partnership with Alibaba Cloud, to provide businesses with direct and scalable access to Alibaba Cloud through the Megaport global SDN. The deal will enable Alibaba customers to access Megaport's global network in over 20 major markets including Asia Pacific, Europe and North America.

Singtel (17 May 17) reported operating revenue of SG$ 16.7bn (down 1.5%) and EBITDA of SG$5bn (down 0.3%) due to a decline in mobile termination in Australia. Additionally, Telkomsel’s strong performance was offset by Airtel's weak earnings. Hence, the company reported net profit of SG$3.9bn (down 0.5%), while net profit excluding Airtel was SG$3.6bn (up 2.3%)

Ratesetter (26 May 17) launched Australia’s first peer-to-peer green bond lending platform, with the A$20m backing provided by Clean Energy Finance Corporation

Megaport (22 May 17) announced appointment of Belle Lajoie as Chief Commercial Officer. Belle is founding member of Megaport and was previously Executive Vice President, Asia-Pacific at Megaport

Forward EV / EBITDA Multiples Chart

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

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Telecom stocks were trading on an average forward EV / EBITDA of 11.0x and a median forward EV / EBITDA of 8.8x

Media Monthly Wrap

US based Private Equity firms TPG Capital and Hellman & Friedman made preliminary offers to acquire Australian media giant Fairfax Media

After an unfavourable finding by the ACCC, due to concerns around the lessening of market competition, outdoor advertisers APN Outdoor and oOh!media have called off their proposed merger

Media Best and Worst monthly performers

Publishing giant Fairfax traded up 17% as multiple Private Equity companies made preliminary acquisition offers

The 5 best and worst performers for the month of May 2017 were as follows:

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Key Company Announcements

News Corp (10 May 17) announced 3Q17 revenue at A$1.98 (up 5% YoY), reflecting growth of the News and Information Services segment, driven by News America Marketing and the acquisitions of Australian Regional Media and Wireless Group. The total segment EBITDA was A$215m with sunstantial contributions from Digital Real Estate Services and News & Information Services segments

Fairfax Media (18 May 17) received a preliminary and non-binding proposal from TPG Capital and Ontario Teachers’ Pension Plan Board (together TPG consortium) alongside rival bidder Hellman & Friedman

APN Outdoor Group (19 May 17) - The proposed merger between APN Outdoor and oOh!media was terminated following ACCC's Statement of Issues highlighting that the proposed merger would create a leading company with over 50% of market share. This would significantly reduce competition and potentially result in increasing the advertiser's prices or lowering the level of quality, service or innovation

oOh!media (19 May 17) released FY17 guidance stating the company expects underlying EBITDA to be in the range A$88-92m. The board also voiced its intention to spend A$35-40m in capex on conversion of signs to digital as well as development of business and data systems

Southern Cross Media Group (19 May 17) announced sale of Southern Cross Media's northern NSW's television assets and operations to the WIN Television Network for A$55m. The transaction will impact the group's FY18 EBITDA by A$10m and NPAT by A$6m

Village Roadshow (22 May 17) confirmed it is in discussion regarding the sale of its 50% stake in the Golden Village cinema exhibition business in Singapore. The company is keen to sell its assets to reduce debts, especially after reporting a 9.4% YoY dip in the number of visitors in the nine months ending March 31, 2017

Forward EV / EBITDA Multiples Chart

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

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Media stocks were trading on an average forward EV / EBITDA of 11.0x and a median forward EV / EBITDA of 8.8x

Technology Monthly Wrap

ASG Group submitted a rival Expression of Interest in IT services provider SMS Management and Technology. DWS had previously made an offer that was expected to go through prior to ASG Group’s announcement

Fleet and equipment leasing provider Eclipx announced it had acquired Grays eCommerce for A$178.9m

Technology Best and Worst monthly performers

Impressing investors at the Macquarie Australia Conference, Wisetech’s share price hit a record high and at month end was up 24%

The 5 best and worst performers for the month of May 2017 were as follows:

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Key company announcements

Grays eCommerce (4 May 17) acquired by Eclipx, a fleet and equipment leasing business for A$178.9m and FY17 Pro-forma PE of 9.7x. The implied EV/LTM Revenue was 1.3x, while implied EV/EBITDA was 13.4x. The rationale behind the transaction is less clear, however, Eclipx can benefit through online vehicle auctions and optimise end-of-lease fleet disposal

Xero (11 May 17) reported FY17 operating revenue of NZ$295.4m (up 43%) with subscription revenue of NZ$290m (up 44%) as 318,000 subscribers were added. The EBITDA loss was NZ$28.6m (improved 52%) and net loss was reported to be NZ$69.1m (improved 16%)

Technology One (23 May 17) reported 1H17 revenue of A$113.9m (up 13%) and net profit of A$8.1m (up 10%), driven by strong growth in initial licence fees of A$24.1m (up 30%) and annual licence fees A$47.9m (up 10%). The company expects full year profit growth of 10-15%. Technology One also announced 1H17 dividend of A$0.26 per share to be payable on June 16, 2017

OFX (23 May 17) reported FY17 turnover of A$19.4bn (down 1.1%). Active clients grew to 157,000 (up 3.7%) and transaction volumes to 852,000 (up 8.7%); partially offset by a decrease in Average Transaction Value to A$22,800 (down 8.8%). Net operating income grew to A$105.1m (up 1.2%), while EBITDA and NPAT were A$27.8m (down 23.1%) and A$19.6m (down 18.0%), respectively. Announced a A$0.29 dividend per share payable on June 23, 2017

ASG Group (29 May 17) submitted an Expression of Interest to acquire SMS Management & Technology Limited for A$120m, offering A$1.80 per share. The transaction is subject to completion of due diligence, final internal approvals, unanimous recommendation of the Board of SMS Management & Technology Limited (SMS). Following this, SMS's board released a statement advising shareholders not to accept the deal

Afterpay (31 May 17) estimates its retail sales to be around A$165m in the two months April and May 2017 (substantially higher than 3Q17). The platform was reported to have more than 5,000 live retailers and 700,000 customers. The company estimated its annual sales to cross A$1bn based on the recent performance

Megaport (16 May 17) announced appointment of Belle Lajoie as Chief Commercial Officer. Belle is founding member of Megaport and was previously Executive Vice President, Asia-Pacific at Megaport

Forward EV / EBITDA Multiples Chart

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

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Technology stocks were trading on an average forward EV / EBITDA of 11.0x and a median forward EV / EBITDA of 8.8x

Reference stocks

Our reference portfolio is as follows:

Telecom Stocks:

amaysim Australia Ltd. (AYS-AU), Bulletproof Group Limited (BPF-AU), Chorus Limited (CNU-NZ), Inabox Group Ltd. (IAB-AU), Macquarie Telecom Group Limited (MAQ-AU), MNF Group Limited (MNF-AU), Nextdc Limited (NXT-AU), SpeedCast International Ltd (SDA-AU), Superloop Ltd. (SLC-AU), Spark New Zealand Limited (SPK-NZ), Telstra Corporation Limited (TLS-AU), TPG Telecom Limited (TPM-AU), Vocus Group Limited (VOC-AU), Singapore Telecommunications Limited (Z74-SG)

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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