Updated research report from Hartleys
http://www.swiftnetworks.com.au/wp-content/uploads/2017/08/170809-Hartleys-Research-Paper.pdf
Highlights :
Share price
Revised price target from 36 cents to 42 cents
FY17 results
Revenue of $17 mil in Line with calculation of $17.03 and cash flow positive over the quarter.
Company has reached our
expected long run Gross Margin level one year ahead of schedule. The positive surprise was that EBITDA is expected to $1.0m, ahead of our forecast of $650,000.
The Company has highlighted that a resolute focus on renegotiation of content costs and leveraging overheads, coupled with the significant increase in revenue generation, has driven a substantial uplift in SW1’s gross margin, increasing by 222% year on year
while this has not directly resulted in a material increase to our FY18-19 EBITDA forecasts it does offer potential
that our current margin assumptions may be conservative.( I agree)
VOD acquisition
The $6m acquisition will increase site numbers by 67% (from 152 to 254) and room numbers by 20,000. The deal will also provide SW1 with an increased presence on the East Coast of Australia and for the first time an overseas presence (12 sites).
The VOD deal also for the first time provides SW1 with an overseas presence and we view growth in the HEAT sectors (Healthcare, Education, Age Care and Tourism) in the Pacific region of equal or greater opportunity to Australia for SW1.
Acquisition to be fully integrated by 31 Oct.
VOD’s revenue per room lags SW1,
the increased footprint once again does allow SW1 to upsell its product suite to this acquired customer base.
In addition to the revenue synergy potential the increased scale will likely lead to cost savings to both overhead and operational expenditures. The Company expects the acquisition to allow “Swift to move up the content value chain with a notable reduction in content costs which are a material component of Swift’s overall cost base”.
Revenue and cost savings have resulted inHartleys revising revenue upwards by $5 and $7 million over next 2 FY
Assumption of $3m of debt (instead of alternatively issuing a further 12m shares at $0.25) we also believe is supportable given the EBITDA likely to be generated
We also view SW1 as
an attractive takeover target for a larger Group focusing on similar sectors and clients
Overall, the report IMHO is conservative - for eg: 83 sites in aged sector under negotiation probably not factored. Potential for additional contracts in resource and retirement living sectors.
Cross selling swift services to VOD clients such as Intercontinental Group and Accor.
Overseas expansion.
Who knows maybe even another acquisition. Content and overhead costs will be lower. Platform development costs pretty much over. Potential for the target market to be close to million rooms across aged care, resource sector, retirement living and hospitality sector in Australia alone by 2020 and report assumes 80,000 rooms/ screens by 2020.
Another side of business not factored is the IT managed services side of the business - additional consulting and implementation projects not just for DES but other IT services is possible
So much potential for growth!!! Looking forward to sitting back and enjoying the ride !!
(20min delay)
