Straker Translations Limited

FY19 Revenue above Prospectus Guidance: Straker Translations Limited (ASX: STG) is engaged in the provision of translation services. On 19 June 2019, the company made an announcement regarding the issuance of 318,830 fully paid ordinary shares at an issue price of A$1.54 per share. The shares were issued to the founders of On-Global Language Marketing S.L as a part of the consideration for the acquisition of the entity.

Acquisition Update:The company completed the acquisition of On-Global Language Marketing S.L., a Spanish translation company for the consideration, partly in cash and shares. The company paid NZ$2.25 million as a consideration for the acquisition which comprised of payment of NZ$1.73 million in cash and NZ$520,000 in Straker shares, to be escrowed for 12 months. The company required no capital raising to support the transaction and funded it through its cash reserves.

Straker is currently focusing on its acquisition strategy in its present markets for the integration of acquired production systems onto its RAY platform for margin gains and other consolidation benefits.

Advantages for Straker: The acquisition will help Straker extend its presence in the multi-billion-dollar European translation market with the Spanish translation market estimated at NZ$500 million. It will lead to an addition to the new strategic customers onto the company’s high margin RAY technology platform and provide further operational synergies across its European operations. The acquisition also provides an advantage in the form of upselling opportunities across On-Global’s existing enterprise customer base.

Financial Highlights for 12 months ended 31 March 2019: During the period, the company reported revenue at NZ$ 24.6 million, up 44% on the prior corresponding period. The reported revenue was above the Prospectus FY19 forecasts, reflecting partial year earnings from the acquisitions completed in FY19 and growth from enterprise customers in EMEA and APAC. Gross margin also exceeded the Prospectus FY19 forecast. The gross margin for FY19 stood at NZ$13.4 million, up 44% year-on-year basis. The company reported a loss from trading operations before amortisation of acquired intangibles, acquisition of subsidiaries costs and IPO related costs amounting to NZ$0.8 million, down 60% on FY18. The accompany reported an Adjusted EBITDA loss of NZ$0.16 million, down 89% on FY18. The operating cash outflow during the period was ahead of the Prospectus forecast at NZ$1.07 million. As at 31 March 2019, the company had NZ$17.7 million cash at bank.


FY19 Income Statement (Source: Company Reports)

Outlook for FY20: The company delivered a decent growth in the financial year of 2019 and exceeded the forecasts set in the IPO prospectus. As per the management, Straker is anticipated to continue its growth trajectory with full year revenue and earnings from recent acquisitions of MSS, Eule and COM translations, additional M&A opportunities, other attractive growth opportunities, and a strong balance sheet.

Stock Recommendation: The stock of the company yielded returns of 16.54% and 24.69% over a period of 1 month and 3 months, respectively. Currently, the stock is trading slightly above the average of 52 week high and low prices of around $1.54. The company was listed on ASX in October 2018. Hence, the availability of data is limited which in turn, limits us to comment on the historical track record. However, with the given/available data, the company has not generated profits over the last few years. Given the backdrop of the acquisition of On-Global Language Marketing S.L. for organic growth of the company,  stock performance since its IPO, FY19 financial performance, beating the Prospectus guidance, we put our wait and watch stance on the stock at the current market price of $1.555 per share (up 2.64% on 25 June 2019).

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