CCG went into a trading halt this morning

https://amadeusvalue.substack.com/p/comms-group-ccg-ax

• onPlatinum
• Roughly ~500 customers
• IT Managed Services ( 54% of revenue i.e ~$8.64m)
• Cloud Services (25% of revenue ~$4m)
• Data Services ( 11% of revenue ~$1.76m)
• Voice services (10% of revenue ~$1.6m)
• Acquisition terms ( up to 18m)
• Initial Payment
• $8m cash
• $2m of CCG shares ( @10.5c per share)
• Deferred payment ( 1st July 2022)
• $1m cash
• $1m of CCG shares ( lower of 30-day VWAP or closing price on 1st July 22)
• Outperformance ( Maximum 6m)
• (24 x 2Q FY23 EBITDA ) - 12m
• 750k EBITDA for 2Q FY23 will make it a maximum 6m ear-out
• Acquisition funding
• CBA term loan on favorable conditions for $10m
• This will cover Initial and Deferred payments + transaction costs
• Strategic Rationale
• Establishes QLD presence with significant resources and capabilities
• Extension of service offerings
• Broadens into IT services market
• Adds 16m of revenue
• Minimum customers overlap
• Post-acquisition, annualized revenue ~50m and annualized underlying EBITDA $7m

Main Key points

1. Singapore expansion - carrier license obtained and a new office opened
2. Three acquisitions integrations progressing well

1. Revenue = $11.4m and EBITDA = $1.2m for 4 months ( ending Oct 2021)
2. Strong Q1 sales with $134K MRR ( i.e 1.6m ARR)
3. FY22 Revenue guidance confirm ( Revenue = $36-$38m and EBITDA = $4.5m-$5m)
4. Key international accounts like Vodafone Fiji

Comms group announces partnership with Vodafone Fiji.

Vodafone Fiji is the leading telecoms provider in Fiji and planning to use Comms group to migrate existing customers from their legacy PABX to Microsoft Teams Direct Routing solution 

For example, Customer A has NEC/Samsung/CISCO on-premises PABX which provides all extensions and telecom services by Vodafone Fiji. 

If Customer A is using Microsoft Teams for their normal meeting/IM etc.. they can migrate to Microsoft Teams for PSTN calling using Vodafone through Comms Group.

Further to this: Vodafone Fiji is planning to leverage Comms group to its regional affiliates in Kiribati, Vanuatu, Samoa, American Samoa and Papua New Guinea.

Market Annoncement

Shares on issues : 340.4m

Insider ownership : 78.6m (23%)

Market cap  = 30.6m  ( $0.09 each Share)

EV = 25.13m

Revenue = 25.2m

Underlying EBITDA= 3.2m

NPAT = 0.6m

Cash = 5.4m

• Comms Group will operate under two brands going forward:
  • Comms Group (Global, Enterprise & Wholesale Brand - for customer with >1000 users )
  • Next Telecom (SME Brands - for customer with <1000 users)
    • Consolidation acquired businesses - Next Telecom, Binary network, next telecom and commschoice (orginial business)

• Some of the customers
  • Toll
  • Daikin uni
  • Rhipe
  • IGA
  • Fleetcare

• Acquisitions
  • Next Telecom - 29 January 2021
    • 8.82m purchase price
      • Upfront cash 1.67m
      • CCG Shares to owner ( 6.67m worth of shares @$0.0942 Price)
      • Deferred consideration 0.49m
  • Binary Networks - 1st April 2021
    • 1.8m purchase price
      • Upfront cash 1.44m
      • CCG Shares to owner (0.36m worth of shares @$0.09)
  • Switched On -  10th August 2021
    • 4.3m purchase price
      • Upfront cash 3.65m
      • Deferred consideration of upto 0.65m
• FY22 based on current Run Rate
  • Revenue 36m -38m
  • Underlying EBITDA ~$5m

Total number of shares on the issue: 340,329,715

Insider holding ( as of 30th June 2021)

1. John Angus Mackay : 1,656,250
2. Peter McGrath : 14,024,813
3. Benjamen Jennigs : 15,525,089
4. Claire Bibby : 270,334
5. Ryan O'Hare: 45,227,300
6. Matthew Beale : 1,985,790

Total Insider holding: 78,689,576 (23.12 %)

CCG (Comms Group Ltd) provides cloud communications for businesses.

Their main product is a Global business phone platform integrated with Microsoft Teams. i.e Any SME or mid-tire corporate business within Australia and Asia have Office 365 subscription and they want to add phone system functionality to Microsoft Teams client, they can provide it per user per month bases)

There obviously is a tailwind for the business at the back of COVID-19 and WFH as well as an uptick in Microsoft Teams adoption.

CCG has acquired few businesses recently (Next Telecom, Binary Networks and  Switched-On telecom - today 10th August 2021) and confirmed unaudited FY21 revenue $25.2m ( up 30% from FY20) 

Also advised that Run-rate for annualized EBITDA expected to $5m

$24m Market Cap with $5m EBITDA and growing revenue is attractive.

I will keep adding my commentary here about management and why I am bullish on this business 

Change in Management (Turnaround story)

Grant Ellison who founded CommsChoice and let the business until it got acquired by CCG in Dec 2017. Grant departed from business in November 2019

Peter McGrath was interim CEO and appointed as permanent CEO and Managing Director in May 2020

Peter has a strong history of leading and growing telecom companies ( Uecomm, AAPT, NExtGen etc). He restructured the business while he was interim CEO and there was an improvement in results from 2019 to 2020.

In Feb 2020, Adrian Luciano joined the company ( Adrian was also part of all Peter's past companies and they built the team around them to grow the company - same thing is happening at CCG currently)

Peter and Adrian are in process of growing the company through organic and acquired growth. Last year, they acquired 3 telecom businesses. All acquisitions looks complimentary 

If you look at news flow, there is significant insider buying recently.