In the matter of a week the share price has fallen 38% following their Q1 update. IMB only makes up a small portion of my portfolio, which i had planned to increase over time as the business executes. It seems everyone knows and loves the story and with management displaying the underlying metrics it had prompted a large discount between the sentiment and the statutory numbers. 

After reviewing my notes this arvo I picked up 2 key comments from the Strawman Interview with Dennison Hambling:

 'Underestimated the capital costs of moving existing customers across for ADT, when they can increase prices they will, 66% of sales and services have been focused on the transition'

'The 3g tail will go on for a bit and will hinder FCF for the next couple halves, H1 25 will struggle for cash flow, (they no longer are actively selling 3g), FY25 needs to be year of growth, the underlying business has strong FCF generation and little capex, cash flow will pick up and normalise over time'

They speak for themselves but the 2 points for me are:

1. There are substantial capEx requirements. They Got ADT for a bargain on the statutory numbers, but this was a forgotten business which previous management underinvested into with IMB now having to pick up the slack. The use of EBITDA as a metric has and will create disconnections between the FCF in light of the increasing investments needed. The comment that 66% of their sales and service's team have been forced to work on transition to 4G highlights from an operating perspective the issues of previous underinvestment and the drag it will have on growth in the short term. 

2. This poor FCF was expected. There is no new news at least for insiders. FY25 will have bad FCF, and it won't be until FY26 where this is a real normalisation. Its hard to invest with clarity in light of this and why I don't believe management is misleading with the underlying metrics, I certainly won't invest blindly on them and want to see better statutory numbers. 

Long story short the statutory numbers haven't improved but its not to be expected until FY26. The transition won't be linear and it seems expectations were for it to be. I will be having another closer look at IMB. 

This was an interesting chat. Frankly, it doesn't seem like that sexy a business, but I get the sense that Dennison gets the key strengths of the business and is playing to that.

Specifically, forget the tech -- yeah it's cool and getting better and cheaper, but they are (mostly) resellers. IMB is a SERVICE business -- they provide the "do it for me" solution.

Despite the initial expectations of a straightforward exit, the reality was a need for a hands-on approach to fix integration issues and drive growth.

There's a tailwind with increased adoption of these systems (lower prices, better tech and a huge under-penetration in Aus/NZ), and people value trust and reputation more than anything (according to Dennison). Scale matters a lot for this kind of business, and they are now the largest of its kind in Australia and have done a lot of work improving operational effectiveness, righting the offering and improving the fundamentals.

Also, this is NOT a roll-up (although clearly was previously and acquisitions have, to date, been a big part of the growth story.)

Dennison reckons he can double the revenues in the coming years, and get around 25% EBITDA margins

Corporates are now the focus, but also do personal homes and DIY security solutions.

Leveraging the trusted ADT brand to enhance market presence. This business had been unloved as part of a larger global entity, but it's proven to be a good addition in terms of brand recognition.

The focus appears to be on sustainable and profitable growth rather than aggressive expansion.

His focus is culture, customer focus, and strategic planning.

Was quite frank about past mistakes: he underestimated the capital cost of upgrading their fleet from 3G to 4G, which has significantly pulled resources and focus away from organic growth to retaining existing customers.

The company has been double-costed during the transition from JCI, as they have been building their internal staff while still paying JCI for services. This additional cost is expected to end by July.

Based on the forward guidance for FY24, they look to be on a EV/EBITDA multiple of ~6. Not too demanding *IF* the growth aspirations are realistic, even roughly.

IMB is a security services business that under new management and ownership has transformed through a number of acquisitions. IMB helps households and business install and integrate security systems, which leads to strong recurring revenues through their monitoring division which generates $6.5m in MRR (50% of revenue)

As it stands the business has a market cap of $97m, however the recent capital raising will push the market cap to ~$130m which helps relieve the debt burden and will allow them to refinance at better rates

The recent acquisitions have pushed the business on a Proforma basis to $155m in rev and $11.7 in NPAT from continued operations, and on an underlying basis $19.1m in profit excluding discontinued operations and abnormal items.

The changes in the business have been on the back of Peter Kennan the chairman who runs an Activist/ Deep Value fund which owns 59% of the business (pre capital raise) and has been continuing to buy since joining the company in 2020. The MD who has also been buying on market has an investing background on the ASX and in private equity. Going forward I expect the the business to be a very investor friendly with the MD and chairman/ largest shareholders investors and well aligned in generating returns not just empire building. This is reflected in their acquisitions as they are very value focused, having never paid more than 3.5x EBITDA which is something they expect not to change going forward.

The acquisitions have propelled IMB to becoming one of the largest security monitoring companies in the country with national scale and over 200k customers. The industry is very fragmented which makes acquisitions a prudent strategy with the ability to drive synergies, increase scale and their competitive advantage all while purchases company very cheaply.

Australia's penetration of home security surveillance is quite low compared to most westerns nations sitting at about 5% compared to the US and the MD has mentioned their is plenty of demand and room for growth. They are in the middle of integrating the new businesses and plan to grow organically and acquisitively when it makes sense and going forward they see a large opportunity given their scale and network to grow especially with the newly acquired ADT business within the commercial space. They acquired the ADT business from Johnson control's a US $50B company which intentionally decreased installations to decrease risk for their core business. IMB plan to ramp operations back up and for reference monthly installation peaked at $80m in 2020 and as of Dec 2022 was only $60k.

Recently the business upgraded 2024 guidance to $32m-$32.5m from $29.8m in EBITDA, and plan to start returning capital to shareholders in H2 25 via buybacks and/ or dividends

Its a very cheap business with lots of optionality for growth, underpinned by strong earnings visibility, 25% EBITDA margins and very well aligned management both as operators and investors.

Good interview with the MD: https://www.youtube.com/watch?v=sGz7odVA3aQ

Good write up on the business: https://tridentopportunities.substack.com/p/intelligent-monitoring-group-limited

@Strawman could be a good option for an interview if other's are interested

Hi all,

I'm going to look into this one, and report back, but wondered if anyone had looked at it before. I was involved with an alarm monitoring business a few years ago, and really like the business model. Once it's built the incremental revenue can be (potentially), very high margin. Might be too late given the jump this morning on the news of the acquisition.

Will report back,

Rich

PS - don't hold here or IRL.