Mike is presenting at the ShareCafe 12:30pm (10:30am WA): Webinar Registration - Zoom

Also recording is available from yesterday: Investor Webinar_SGI Acquisition of Force Technology 06.06.24 on Vimeo

Looks like an improved handling of market sensitive information than previous issues...

H2 revenue at 58.5 m is softer than expected considering second half sales tended to be much stronger than the first half. H1 was 56.5m .

@wtsimis That phenomenon has been closing since 2019.

It's an interesting acquisition. I look forward to the call tomorrow to better understand how it fits in to the business. At first glance it seems to change things a bit, but this has always been a distribution business so feeding more product into the veins of it isn't necessarily a bad thing. The cost synergies alone, $1.2m potentially to be realised, justify the purchase.

There's a certain clumsiness to these guys which irritates me. The weird outperformance incentive calculation is today's highlight.

1pm (11am WA) presentation registration link: Presentation Briefing on the Force Acquisition - Stealth Group Holdings (stealthgi.com)

Popcorn at the ready.

ugh, got caught up in other stuff today so I missed the Stealth Group investor briefing.. Hopefully a recording will be uploaded to their site later, but keen for any insights from those that may have attended.

Scanning through the presentation deck (see here 2731803.pdf), some of the key points seem to include:

• Stealth will introduce its own products into Force's network of ~3,310 retail reseller outlets, significantly broadening it's retail footprint.
• Likewise, Force will be able to leverage Stealth's ~8,000 accounts in the Business and Trade channels to increase its market share in those segments.
• The combined company plans to expand exclusive brand distribution partnerships and introduce Force's own-label products into Stealth's network. Also, they aim to expand private-label product offerings across retail, business and trade channels for both companies.
• As expected, the combined operations is expected to boost supply chain efficiencies, cost savings and faster product availability.
• The above, as well as a joint sales and marketing team should lift margins. In fact, it is projecting significant gross margin expansion in the coming years, with a target of reaching over 40% gross margins by FY28.
• Stealth is projecting pro forma revenue to reach $200M+ by FY25 and approach $300M by FY28.
• There's an anticipated inaugural dividend for FY24, as previously flagged.

Anything else?

@Strawman He said Stealth first had discussions with Force 5 years ago, so this was not a punt and they got it at a good price. Force has been around for 30 years under the founders so they understand their business cycles. And key Stealth executives have a background in electronics distribution (Retrovision WA) so everyone involved understands the business.

As you noted, Stealth can expand their offering to their existing customers on the business side. Businesses want to protect and connect their mobile electronics more than anyone else does.

In regards to the media article about the loss of a contract with Optus, I didn’t quite catch all of the reply but he implied that it’s too simplistic to describe it as a loss, alternate contracts will more than make up for it, and he described a similar situation Force had been in with Telstra when they rearranged their store structures to the ultimate benefit of Force as a supplier.

In regards to the question of inventory management, he said you don’t get stuck with old model accessories because kids for example don’t get the latest model, so there are natural outlets for superseded products.

Thanks @lastever -- definitely encouraging to know that there's a long familiarity with the business and industry.

When I first saw this announced I thought they had gone bonkers and were just buying revenue to hit there longer term targets. I was read to sell out, but wanted to see how Mike would present it and why it was sensible to do what they are doing. I walked away from the presentation seeing why it makes sense and how it compliments the existing business, only time will tell but for now I am willing to see how they execute. @lastever Mike went out of his way to reassure people that this wasn't a hasty purchase.

It is a good point that Mike made about how it is complimentary to the existing industrial businesses, just looking around our workplace their are waterproof cases and cords everywhere and I can see the benefits of making these phone accessory type products easy to include in an existing order through their current distribution channels.

One thing that isn't clear to me is what the earn out will be - can someone understand how this formulae works --> multiplying by 4 and then multiply by 25% just cancels each other out to end up back at whatever the EBIDTA is above $2.5m. Is this a typo or am i missing something obvious? Seems a wierd way to say anything above $2.5m the vendors keep. If they are doing $2.5m EBIDTA in FY24 you would expect this will be a bit bigger in 2 years time so potentially is a significant one off payment that pushs out the payback period a bit. But i might be interpriting this wrong.

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I was with you @Slideup , I didn't understand the earnout calc. I think the last line should be to add 25%, which is a bit random but whatever. The effect of the first three lines is to say we'll give you acquisition multiple on anything you can grow the business by (at an EBITDA level)...with the fourth lining adding a pin-the-tail-on-the-donkey 25% kicker. So it should either say add 25% or multiply by 125% (1.25). I could be wrong though!

Also, what's with this graph?

I get they're small and don't employ an army of copy checkers, but seriously? It's an ASX disclosure - am I being unreasonable to expect they might give it a casual once over?

I agree @Slideup and @Noddy74 yeah, weird.

What not just write: 5x [EBITDA(FY26) - $2.5m]?

5 = 4 x 1.25, because x4 and x25% is nonsensenical, as you both point out.

In other words, we are incentivising growth at a higher EBITDA multiple of 5.

I'm looking forward to listening to the recording, although in the past that has taken them a few days to put out.

My simplisitic undertanding is that they have different customer footprints and complementary ranges, and so can cross-sell the range additions into each customer base without changing expenses - and eventually there will be expense synergies.

I also found this graphic odd

First, revenues are pretty flat. And Pro Forma combined EBITDA is totally flat for both entities, yet the bars in FY24 look bigger to me, which indicates more typos to me.

Has this whoe thing been put together in a hurry and not checked?

I've been busy on other things today, so haven't looked at this properly, and will wait until the recording comes out.

I am a bit surprised to not be seeing more of the incremental $60m revenue opportunity within the existing customer and supply base that been talked about before showing through. Did any other StrawPeople expect to see more evidence of that?

@Noddy74 Snap!

Regarding the column graph: Since synergies were identified as $1.2 million perhaps we can assume that there was intended to be a red bit for 1.2 on the FY24 column to the right which would fit.