Pinned straw:
Pretty happy with today's update.
APSW Acquisition
- Another Equity stake in a AR firm, this time under the Paragem license (MWM under GPS Wealth), which consists of solely AR's.
- Steve Atkinson is quite old having worked in the industry for 45 years, dating him in atleast his mid 60s. David Saynor has worked there for 20 years is a GM of the business, and has held equity since 2017. Outside of this their website says they have a paraplanner and a client admin assistant. LinkedIn data appears to also show that a new paraplanner came on in Feb 2023.
- As part of the transaction, it appears that this allows an exit for Steve and a further increase in equity for David.
- 100% basis Purchase consideration is $3.2m upfront and 8mth withheld $0.8m for stable results. Also, a minor $0.3m growth bonus on offer. EBITA expected in first full year of ownership of $0.6m.
- DVR is buying 55% so 2.37m all up including deferred components for 0.33m of EBITA. multiple of 7.2x
M&A Program
- They also allude to progress in the M&A Program, having acquired 1.5m in EBITA in FY23 (per the acquisition announcements). I also estimate that including deferred components they have spent ~$9.1m, a multiple of 6x EV/EBITA, which is reasonable.
- In today's announcement they seem to show $1.3m of acquired so there is a variance to figures announced. This could result in less cost due to non-performance for deferred consideration, but we will find out in the future.
- Using 28% EBITA margins and 15.7m of M&A spend from the open house presentation last year, is it reasonable to assume they need to drive ~$4.4m of EBITA from these deals over 2022-2025. Having spent some 60% of the 15.7m already but only 30% of the EBITA target, they need material synergies from the acquired businesses to reach that level of EBITA, alluded to by a M&A target of $1.5-2.1m of acquired EBITA target. So, acquire and double profit organically? seems very hard.
FY23 And FY24 Outlook.
- Quite satisfied with the comment of a "materially improved 2H FY23 EBITA", they need +62% larger EBITA than the 1st half to return to flat YoY full year EBITA.
- FY24 outlook is for 'solid' earnings growth. That's all we got... But I can work with materially improved FY23 and reasonable valuations on these acquired deals.
At $0.83 Diverger is quite appealing with >$0.12 in NPATA/Share likely if results are flat YoY. This would pay a fully franked dividend of 8.5-12.5%. If they get strong earnings growth on top then needless to say it should trade higher.
Hey Greenblatt, good extraction of the performance of acquisitions to date. But one needs to consider the 3/7 update in terms of the actual v acquired EBITA multiples. 5.95x was their acquired multiple but actual is coming in at 7x - 15% diff to the negative. So either they aren’t consolidating as they expected or there was some rubbish in the initial acquisition.
Have they been too eager in their acquisition program and as you point out, they are overly relying on organic growth to hit their future targets. Surely there has to be some clawback for over representation by the sellers. Alternatively we aren’t doing well enough to stem the client leakage. 15% difference is material.
Further, whilst they say the 2H results will be materially better, the definition of ‘material’ is greater than 10%. Call me cynical and steal my lunch, but I think FY23 will come up short. I will wait to see the results before buying here.
final comment: always appreciate your analysis.