Forum Topics SGI SGI FY24 PE – Force Acquisition

Pinned straw:

Added 2 months ago

Just looking at what the announcement says about the likely FY24 PE outcomes on both a pre acquisition and post acquisition proforma basis at the current 25c share price.

Note “transaction costs” are excluded – so this is based on the dreaded NORMALISED results

Vanila SGI (Pre-acquisition)

Sales of $159m less $44m expected for Force gives $115m (I was expecting $122m so a little off)

EBITDA of $8.5m less $2.64 (6% EBITDA) for Force gives $5.86m (I expected $5.94 so close)

Less Depreciation $3.2m and Tax $0.75m (my estimates)

NPAT = $1.91m (I had estimated $1.98m so confirmation bias is locked in Eddy)

PE = 12.5 (before dilution), 14.6 (post dilution)

Full Year Proforma (fully of both)

Assuming the same NPAT to EBITDA ratio as SGI has above: NPAT is 1/3 of EBITDA

Full year proforma EBITDA = $8.5m

NPAT = $2.83m (proforma full year estimate)

PE = 10.2 (post dilution)

The acquisition was a surprise at first – mobile accessories was the last thing on the mind, BUT – Stealth is a wholesale and logistics business for retail… so could make sense – will wait for tomorrows presentation to come to any real conclusions beyond the numbers look good and value is added on a proforma accounting basis.

Disc: I own RL+SM (largest positions for both…)

2 months ago

Adding a few further comments regarding the presentation.

The intended 1 pm kickoff started 10 minutes later, which might also dovetail into some of the errors/typos in the presentation. Felt a little rushed.

I did add a couple of questions at 1:50pm which wasn’t answered . I will forward them to Mike to respond .

  1. Flat H2 revenue of 58.5m and an update on the 60m supplier revenue in H2 ( briefly mentioned and looking to FY25 )
  2. and any system integration costs that may be significantly incurred in the acquisition.

A few other observations:

  • Force has just under 5% of wholesale market in Australia which is 1billion and aim in 2yrs is to reach 10%.

  • Management structure going forward will remain but two owners will likely depart following the 2026 FY.


  • Stealth will have 6 distribution centres in the company after the acquisition.

  • Mike indicated the 200m by FY 2025 was base case and conservative as was the 300m in 2028.

  • Expanding GP margin accompanies these revenue increases from 30% to 34%.

  • Cross sell opportunity was a regular reference both ways.

  • Inaugural dividend at full year 2024 is on track .

  • Mike outlined the stock is very cheap on a forward looking basis .

Overall positive and will await the results to come through

Disc Held


2 months ago

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...

2 months ago

A few additional comments to add as the acquisition has been well summarised.

Overall Positive but the announcement raised questions which will look to clarify tomorrow in the call .

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 .

Additionally, Mike was quite bullish on the opportunity to extract the supplier revenue of 60m through stealth which was previously being missed. Would be keen to understand on how this has progressed in the second half and now looks to be aimed to be delivered in FY25

Will be keen to also understand the loan terms of force with the Commonwealth Bank.

On a positive Force technology are a W.A. based organisation and have a long history as a distributor which i see as an advantage for Stealth. I suspect Mike and the board have good understanding of the people behind Force but worth exploring more tomorrow . Force also have some major partners as resellers such as Officeworks JB hi-fi Telstra and Optus.

I would also add that the type of product that is being handled and distributed ie mobile accessories is more efficient products in terms of storage, handling and transportation. I would consider a comparison to be Lovisa in terms of the benefits that could flow.

The outlook for 2025 looks promising and given the track record of Mike at driving efficiencies and extracting the value will keen to listen in on the call tomorrow

Disc Held on SM and RL


2 months ago

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. dfb301770ced326e2c5ad795c188c0b0272da3.png

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.

2 months ago

@Tom73 I agree the acquisition looks a bit out of left field. I suppose the idea is that fundamentally both businesses are distributors and if you can run one you could run any, but they serve very different end customers so other than generic corporate/admin costs it's hard to see too many synergies.

Perhaps scarier is ASX micro cap veterans may have experience with mobile phone accessory distributors given Cellnet (CLT) was listed for a while before long suffering shareholders were put out of their misery when the the large strategic investor finally took them out. Consumer electronics distributing is a hard game, all of the brands you service move quickly with product iterations generally yearly so inventory management needs to be very tight given old accessories may not be fit for purpose for new models.

That said, the price paid looks reasonable and management of the vendors will be incentivised through SGI shares to continue to grow their segment. Also you've done well to tease out the core business and it is holding up well, this doesn't look to be a case of an acquisition to paper over some cracks.


2 months ago

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

Popcorn at the ready.


2 months ago

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?


2 months ago

@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.


2 months ago

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


2 months ago

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.

. 804f9d49ada787cdc262d64892eecc3c8afa9f.png


2 months ago

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!


2 months ago

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?


2 months ago

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 odd33622240e024b8568f22e0f8f87917b9c48276.png

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?


2 months ago

2 months ago

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.