to acquire spectrum communications group, page-2

BlueFreeway Ltd (ASX Code - BLU) - Rating : Buy 2/Current Price : $2.27/Price Target : $2.50



BlueFreeway (ASX code: BLU) has announced it will acquire 51% of Spectrum Communications Group, which provides public relations and communications with a focus on the IT sector. No details on EBIT contribution have been provided other than to state that they are expected to be revenue and earnings accretive in FY08. Given the acquisitions parameters of 4-6x EBIT, and cross referencing this with an assumed EBIT margin of 15%, we have forecast incremental EBIT of $0.4m in FY08. While the share price has stabilised above $2.00 on the back of the earnings upgrade and a string of accretive acquisitions, we expect the next key announcement for BLU will be the FY07 accounts (expected in the third week of August). While the share price performance has been very strong over the past two months, we see favourable sentiment towards the digital media segment continuing, and have set our 12 month price target at $2.50, a 10% premium above our DCF valuation. We retain our Buy 2 recommendation, noting that our 70% EPS growth forecast in 2008 has been boosted by the seven accretive acquisitions made since listing on the ASX in December 2006.