Valuation of $1.59 is detail in the attached, notes included and expanded on below. Valuation has general company info and points of interest.
Key Assumption Notes:
· Revenue excludes MTI and payment systems opportunity (see below). I expect it to recover to FY19 pre Covid (Excluding 23m in Licence brokerage revenue) by FY23 then grow at just 3% going forward. Small acquisitions would be accretive but competition and industry maturity limits growth to system at best.
· GM% 82% average going forward, up from 73% in 2020 with the removal of low margin licence broking income, (note 83% for FY21 includes government grants from Covid).
· EBITDA% I expect to get to a run rate of 12.4% by FY23 and hold as cost grow at the same rate as revenue (3%). This is an undemanding EBITDA% based on history (FY19 was 16.3%)
· Capital spend (PPE & IP) I have at 8m +5% going forward. This links to the low growth assumptions and I would expect it to be double this if higher growth was achievable, but I would expect value added to equal or exceed additional spend.
· Share count: A seeming rarity how days – share count is flat for the last 10 years and they returned capital in 2017. Hence, I don’t expect increases going forward.
· Opportunity: Software was only 6m of revenue in FY20 and payment systems opportunities in retail are just starting, so I can’t guess what the revenue may look like going forward. However, I am willing to allow a 25% premium to the price for this opportunity, which if it goes well could dwarf the existing taxi and network revenues. IV = $1.28 without this.
Business Attributes of note:
· Operating leverage with GM% over 80%, but growth to take advantage of this is absent.
· Capital light, as a franchise operator, rental fleet is small and the vast majority of revenue is not leveraged to capital spend. Lowers risk and helped in Covid.
· Skin in the game: CEO owns 0.7% of the company and has been in place since 2014. According to YahooFinance there is 24% insider ownership. Not sure where this comes from but history shows that shareholder interests are front of mind in managing capital.
· Ability to adapt to change, has adapted to Uber and handled Covid well, is a fast follower rather than ground breaking innovator (survivor).
· Industry Risk: have applied a 10% discount to value for this, I expect challenges which would require a higher discount but lower because management has responded well so far.
· The board has current and former directors of Thorn Group, Technology One, Afterpay and Nearmap providing credibility to the innovative tech and payments systems path it is on
I own A2B, both for the value the core business offers (even with structural challenges) and the opportunity that business has with payment and network systems. The core business valuation is undemanding, providing a margin of safety giving effectively a free option for what the new business could be