Wellcom Group Limited
WLL Details
Highest Net Segment Revenue from Australasia:Wellcom Group Limited (ASX: WLL) is engaged in the provision of advertising and marketing content production and content management services.
Recent Updates:
Shareholding update: The company recently released an announcement stating that Innocean Worldwide Inc became a substantial shareholder with 15.17% of voting power in the company.
Scheme Implementation Deed: The company has recently entered into a Scheme Implementation Deed for the acquisition of its issued share capital for $6.70 in cash per share by Innocean Worldwide Inc. The acquisition will exclude 15% of Wellcom’s shares held by an entity related to Wayne Sidwell, Wellcom’s Chairman. The consideration of the scheme is valued at $265.8 million on a fully diluted equity basis. The company expects to pay Special Dividend of up to 10 cents per share and final dividend of up to 11 cents per share, on or before the implementation of the Scheme.
1HFY19 Highlights: During the six months ended 31 December 2018, the company generated net revenue amounting to $58.88 million, up 13% on prior corresponding period. EBITDA for the period stood at $11.45 million, up 10.4% on pcp. During the period, the company generated net profit amounting to $6.60 million, up 10.7% on prior corresponding period. Earnings per share for the period witnessed an increase of 10.7% at 16.84 cents.
1HFY19 Key Financials (Source: Company Reports)
Segment Performance: During 1HFY19, the company witnessed an increase of 11.4% in net segment revenue from Australasia. Net segment revenue for Australasia was reported at $31.08 million. Net segment revenues from the United Kingdom were reported at $10.73 million, up 32% on prior corresponding period. The period was characterised by new business wins into the segment including those of Mother, Expedia, and The Body Shop. Net segment revenue from the United States was reported at $17.07 million, up 6.2% on prior corresponding period value of $16.07 million.
Australasia Segment Results (Source: Company Reports)
UK Segment Results (Source: Company Reports)
US Segment Results (Source: Company Reports)
FY19 Guidance: The company expects FY19 EPS growth to be in the range of 30% to 35%, as compared to the previous year. The updated guidance is driven by the following factors. (a) A buyout agreement with the landlord of the company’s existing US commercial property lease, which is expected to generate net benefit before tax of around $6.7 million. (b) The company also entered into a long-term commercial property lease in Brooklyn, New York. (c) The gain from property lease buyout will be partially offset by a number of non-recurring costs, including dilapidation costs, acquisition costs, and relocation costs.
Stock Recommendation: The stock of the company generated returns of -2.05% and 1.94% over a period of 1 month and 3 months, respectively. Currently, the stock is priced close to its 52-week high level of $6.820. The company has performed remarkably in the first half with growth across all the key metrics, including revenue, EBITDA, and net profit. Under the recent Scheme Implementation Deed with Innocean Worldwide, 85% of the total issued share capital in the company will be owned by Innocean. This will provide the company with new opportunities in complementary business channels and a larger global footprint. Taking cues from the news, the stock price, as on 01 August 2019, zoomed 29.333%. Excluding this hefty movement in the share price, the stock has already gained ~19% in the last 1-year.
On the valuation front, the stock has an EV/EBITDA multiple of 8.9x, which is higher than the industry median of 5.7x. Price/Earnings multiple for the company is 16.64x, higher than the industry median of 7.2x.
Considering the significant movement in stock price on the newsflow along with the stretched valuations, we presume that the majority of the positive factors have been discounted at the current level. Hence,we suggest the investors to book profit at the current level and recommend a “Sell” rating on the stock at the current market price of $6.790, up 29.333% on 01 August 2019.
WLL Daily Technical Chart (Source: Thomson Reuters)
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