Surfstitch Group Ltd
SRF Details
FY 16E guidance reaffirmed: Surfstitch Group Ltd (ASX: SRF) surged 102.08% this year to date (as at December 07, 2015) and has agreed to acquire 100% of the shares of SHI Holdings Pty Ltd at an enterprise value of $ 23.7 million and the total consideration for the acquisition will be paid 100% in cash. The acquisition multiple is a compelling 7.5x FY 16E EBITDA with earnings accretion of more than 10% in FY 16E on a full-year pro forma basis. SHI is a global designer, marketer and distributor of innovative and high performance water board sports products and accessories, and houses four highly recognised water sports brands in FCS, Gorilla, Hydro and Softech. FCS, SHI’s flagship performance brand, is globally renowned for the invention of the highly regarded detachable surfboard fin systems. Gorilla is the lifestyle oriented surf brand developing functional traction pads, gripes, leashes and other accessory products. Hydro is the swim fin and body board brand developing functional fins and body boards catering to a wide audience of ocean enthusiasts. Softech is the softboard brand developing premium quality softboards for the surf speciality market.
FY16E Revenue (Source: Company Reports)
The brands are extremely popular in the global Surf industry and the broader water sports market such as SUP and kite surfing and have a great deal of appeal for the core demographic of the company. The acquisition is in line with the group strategic objective of creating a destination capable of capturing and influencing customers at every point of the surf and action sport life cycle. The group had also announced a fully underwritten institutional placement to raise approximately $ 50 million and the same has been successfully completed now. The proceeds from the placement will be used to fund repayment of certain debts of SHI as part of the acquisition and transaction costs as well as to provide the group with the flexibility to pursue other strategic growth opportunities including complementary acquisitions. Proceeds will also be used for working capital and general corporate purposes. The group has reaffirmed FY 16E guidance of $ 15 million-$18 million in EBITDA for the business excluding SHI and provides FY 16E guidance of $ 18 million-$ 22 million EBITDA including the contribution of SHI on a full year pro forma basis. The acquisition will further strengthen the growth prospects of the group and put them in a better competitive situation and, in our opinion, the stock is worth acquiring. Accordingly, our rating is a
Buy for the stock at the current price of $1.92
SRF Daily Chart (Source: Thomson Reuters)
Freelancer Ltd
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FLN Details
Completion of the acquisition of Escrow.com: Freelancer Ltd (ASX: FLN) rose about 183.08% this year to date (as at December 07, 2015). The company has completed the acquisition of Escrow.com which is the world’s number-one company for secure online payments with more than $ 2.7 billion in secured transactions. FLN itself is regarded as the number one Online Services Marketplace with over $ 2.9 billion in projects posted. The opportunity in global non-cash payments is large with an indication of 7.6% growth in transactions in 2013 to $ 357.9 billion. The FY 2014 gross payment volume was USD 320 million with net revenue of USD 5 million and EBITDA of USD 1.2 million for Escrow.com. Further and as of 18 November 2015, the off-balance-sheet trust accounts had balance in excess of USD 30 million. The company was founded in 1999 by Fidelity National Financial, a Fortune 500 company, and received in 1999 and 2000 more than USD 40 million in investments from large reputable companies. The operating strategy for Escrow.com will continue to remain as a stand-alone business aggressively reinvesting for growth but with large synergies from Freelancer’s core offerings. Typically, Escrow.com is easy to use and handles transactions from $ 10,000 to more than $ 10 million each in USD and Euros. It makes imports and exports simple with no more expensive or complicated letters of credit. Industrial and heavy equipment can be bought through the site and it also protects the sale of jewellery and fine art. It can also facilitate service contracts such as holiday rentals or roof repairs.
Total Projects and contests posted (Source: Company Reports)
Like many early-stage companies, Freelancer posted a higher loss for HY 2015 despite a 40.8% increase in revenues but it should be borne in mind that this is a start-up Internet company in the growth phase. As per FLN’s 3Q15 quarterly updates, cash receipts surged to $9.7 million as opposed to $8.8 million of 2Q15 and $6.8 million of 3Q14. We believe that the company has a promising future and rate the stock as a
Buy at the current price of $1.73
FLN Daily Chart (Source: Thomson Reuters)
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