Swift Networks Group Limited

 
Acquisition of Medical Media likely to create synergies of ~$3 million per annum:Swift Networks Group Limited (ASX: SW1) has recently announced that it has agreed to purchase all the shares in Medical Media at an upfront payment of $4.5 million in shares and an additional $20.5 million payable on revenue driven targets. Swift’s shares have been valued at 20% premium to $0.3010 per share for the issue to Medical Media shareholders. In order to fund support the acquisition cost, the company intends to replace its current facility with a new $6 million banking facility by a tier-one lender. On the financial front, the integration of Swift Networks and Medical Media is estimated to unveil the cost synergies of approximately $3 million per annum. This acquisition transaction is expected to be completed by 15 February 2018, subject to shareholders’ approval in the General Meeting and other pre-requisite conditions.

The company had registered revenue of $ 22.28 Mn for the FY 2018, up by 31% on a YoY basis. This was on the back of growth in the ARR (annualized recurring revenue) by 44% to reach to reach $15 Mn. Also, it was on account of the signing of several strategic reseller agreements. These agreements were instrumental in the delivering of key contracts and thus accounted for 43% of the new sales during the year. Also, the EBITDA saw a turnaround and was recorded at $2.67 Mn, up by 167% on a YoY basis. Going forth, the company will try to include the hostel and the backpacker accommodations in the company’s target markets keeping in view that around 2 Mn nights are spent by the backpackers in Australia each year. The company seems to be perfectly positioned to provide brands with access to potential customers, understanding their behaviours and their purchasing power.
 
 

 
SW1’s Financial Highlights (Source: Company Reports)
 
As of now, the company is trading at a trailing EV/ EBITDA multiple of ~10.50x as compared to the Industry median of 9.30x, exhibiting fair valuation at the current juncture. In the meantime, the share price has fallen by 13.24% in the past six months as on 11 January 2019. Given the backdrop of mixed scenario, we have a wait and watch stance on the stock at the current market price of $0.300 (up 1.695% on January 14, 2019).
 

DroneShield limited

 
Emerging opportunities in the unmanned defence equipment space – a catalyst:DroneShield limited (ASX: DRO) stated via a recent release that U.S. regulator has approved for the sale of DroneGuns, Tactical^TM and DroneSentry^TM for the use by Central American government agency. The focus of the company to the counter-drone industry has been brought by the Events at Gatwick Airport.

DRO’s Financial Highlights for 1H 2018 (Source: Company Reports)
 
The Company recognized revenue of $236,758 for the half-year, an increase of 5% relative to the prior half year. This was on account of the marketing efforts taken by the company which started delivering results during the 1H 2018. The Company achieved cash inflows from customers of $467,389 for the half-year, an increase of 79% relative to the prior half-year. This was on account of the cash receipts (Deposits) for orders received during the period, but not yet fulfilled. These have been recognized in the balance sheet under the other liabilities section as revenue received in advance. Going forth, the need for DroneShield products and customer awareness of that need continue to grow quickly, with almost daily drone incidents globally across all verticals. DroneShield continues to take place in marquee defence events globally through Team Defence Australia, and support from Austrade offices around the world. The Australian Government’s Defence Export Strategy has brought significant benefit to the Company, with assistance continued to be provided through Government to Government channels. The company has no debt, and the balance sheet looks pretty healthy as on date.
Meanwhile, the stock price has fallen by 31.71% in the past six months as on 11 January 2019. Thus, considering the emerging opportunities in the unmanned defence equipment space and continued focus upon Australian Government’s Defence Export Strategy, we maintain our “Hold” recommendation on the stock at the current market price of $0.140.

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