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Added 12 months ago

Value on ISP Tek Service acquisition (43-56c): Some ways to look at the post-acquisition value based on the company presentation of the deal and expected outcome.

·        Firstly share count changes: 44.6m shares for part of the consideration, capital raise 1 for 80m shares at $0.33 and capital raise 2 for 56.4m shares at $0.33 (total A$45m raised from sophisticated & professional investors…hmmm). Plus in 2026 a possible US$15m of shares at $0.74 from convertible notes, which doesn’t impact the current capital structure (just a note).

·        So the transaction will result in shares have gone from 335m to 516m, adding A$37m net debt (per proforma balance sheet), hence EV at $0.35 per share will be A$218m (M cap 181m+net debt 37m), if they are able to achieve the post-acquisition NPAT of A$23.8m then it’s trading just under a P/EV of 9 and a PE of 7.6. 

·        It is also expected to be 100% accretive on an EPS basis, which for H1FY23 was 1.2c for the half year, so full year doubled is 4.8c which at the current price of $0.35 per share gets us back to the PE of 7.3. I think a PE of 10 or more is a reasonable expectation, which if it gets to that in a year is $0.48 and discounted at 10% is worth $0.43 today.

·        In total US$15m of 3 year convertible notes are being issued at a 4% interest rate and convertible at $0.74. That’s not a great rate of interest for the bearers unless they think they have a good chance of upside on the conversion, but the conversion is at over double the current share price. If we take $0.74 as a reasonable value in 3 years, discounted at 10% it is worth $0.56 today.

·        So a value range of 43-56c could be justified out of the deal, it also justifies “sophisticated and professional investors” being interest to buy at 33c. This just a perspective on value from the deal and ignores both the opportunities and risks for the business going forward that come from the deal.


Announcement (17/3/23): Close the Loop Group to acquire 100% of American refurbished Electronics business ISP Tek Services registered in Southlake, TX, USA. Anticipated completion date of 28/4/23


Disc: I own in RL

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