ST1 doing very well today. It has been sold off quite dramatically over the last year as the market seems to have missed that there is some seasonality in their numbers and was probably overly bearish about the effect the lockdown would have on the business. It wasn't a great result but the business showed resistance and the December quarter should be massive being one of due to school renewals and a bounce back in the economy,

Spirit Q1 FY 22 – Resilient Revenues of $30.9M & Balance Sheet Strength

• Q1 FY22 revenues1 of $30.9M up 98% YoY
• Positive Underlying EBITDA2 of $2.0M achieved during lockdowns and seasonally slower quarter.
• In addition to the $2.0M, Spirit received $0.7M in NSW JobSaver payments due to lockdowns,
• which has been excluded from this market update
• As at 20 October 2021, Spirit had cash of $12.3M and $7.0M available in its CBA debt facility ($19.3M
• in available capital to access).
• Additionally, $5.1M of capital is being returned from the consumer asset divestment to be used
• to fund acquisitions, drive organic growth or to meet deferred acquisition payments.
• Structural changes impacting businesses and employee experience accelerating out of COVID
• driving demand for digital workplace solutions: Cloud, MSP, Data and Cyber services.
• In October, Spirit is already seeing the SMB market recover, with pent up sales demand expected
• to come through Q2 and across FY22 H2.

ST1 after a great report continues to get sold down. I have been tryng to work out why this is the case but finding it hard to understand the negative sentiment. The only issues I can think of are as follows - 

- whilst achieving incredible growth and proving that organic growth is kicking in, there are headwinds currently due to lockdowns as ST1 service a lot of businesses, which may be holding off spending. 

- ST1 flagged that there is wage inflation kicking in due to IT personal being in high demand. This could drive up their costs to some extent and they could risk loosing key personal to other companies who make a better offer. 

- They are selling their consumer business and this is taking longer than the market was anticipating. Sol their CEO actually stated that this is playing in their favour as asset prices are actually increasing in the current environment and that they are getting offers for other parts of their business as well. 

All businesses have their challenges and Spirit still have a unique offering in the market and the sudden sell down in my opinion is not justified. Trading now on an 8 times forward EBITDA multiple, it's looking very cheap compared to it's peers. 

Spirit have flagged that they want to be part of the consolidation going on in the industry and therefore the more the share price drops the more attractive they become as a takeover target. 

I am guessing their is one or two large sellers their driving dowth the price and its looking oversold to me. 

I value ST1 on a 15x multiple a share price of $042

Takeover target...

Spirit report out and invetor call at 11am for anyone interested. 

Growth drivers in place and the business continues to perform showing organic growth but the current lockdowns are a challenging environment.

Flagged industry consolidation and Merger/acquision to take place this year. They are definitely a takover target and I wouln't be surprised if they are in talks at the moment. Also the divestment of their consumer business is going well and possibly the sale of other non core assets. Watch this space. 

For those who were impressed with the recent ST1 update, worth listing to this broker view on the business. Still very undervalued in my opinoun and with the M&A activity going on in the industry I wouldn't be surprised to see them get taken over. I don't invest on the hope of takeovers though and feel that there is plenty of upside due to the organic growth taking place. 

Broker insight Spirit $ST1

Market Update 20th July 2021

Very nice update from Spirit this morning showing sustained organic growth. Guidance of $20m EBITDA putting it on a very low multiple of just over 9x. I am guessing management are being conservative and I also think this is a remarkable achievement with all the lockdowns we have had in Melbourne over the last year. 

I'm sticking to my valuation of $0.50

Looking forward to the sale of their consumber business which will raise more capital for acquistions and should be a catalyst for the share price.

Market update ST1 July 2021

Market update May 2021

Good update - 

Recurring and S&P Revenue up 150% Year on Year (YoY)

Very strong growth again in FY21* - achieved off a record Sep-Dec FY21

• Recurring and S&P revenue at $35.7M, up 150% YoY

• Recurring revenue up 94% YoY to $16.6M and Solutions and Projects

  (S&P**) revenue up 224% YoY to $19.1M

• Recurring revenue up 16% to $16.6M (Jan-April / 4 months)

• Strong Jan-April total revenue up 8% coming off a seasonally high Sep-Dec FY21 - into a traditional B2B holiday period (January & Easter holidays)

• Organic growth: 30% of deals exceed $250,000 in Total Contract Value (TCV) with 17% exceeding $500,000 (mid market & bundles)

• TCV on Recurring Sales up 145% YoY to $11.9M

• 10 consecutive quarters of recurring revenue growth (to Mar ‘21)

• In April Spirit generated 1596 inbound sales leads up 75% on March

• Nexgen had a record new sales month in April

• Services Pending Delivery at $10.4M and IT Services & Technology Sales at $6.1M

• Healthy balance sheet with $23M of cash and available debt as of 30 April 2021

Recurring and S&P Revenue +150% YoY

Recurring Revenue +16%

$16.6M

$35.7M

$35.0M $30.0M $25.0M $20.0M

$15.0M $10.0M $5.0M $0.0M

+150%

$18.0M $16.0M

$14.0M $12.0M $10.0M

$8.0M $6.0M $4.0M $2.0M $0.0M

+16%

$14.3M

 I have heard that the share price has sold off as a result of a downgrade from a broker, who was dissapointed in the quarterly growth for March compared to December. You can't compare the two though as revenue is seasonal due to the Trident business, which is affected by school holidays in January. The business looks to be on track and now they just have to prove to the market that they can grow organically. Based on a run rate of $150m in Rev and $20m EBITDA I value the business at $0.50

Spirit is an extremely well run business with excellent management who have plenty of skin in the game. The share price has been sold down recently due to the company investing in its network an new call centre and a direct sales force. They are gearing up to be a much bigger company but this investment has effected thier cash flow. 

They announced today a $1.7m deal with the Victorian Government to provide internet to the town of Horsham. This will be paid to Spirit which will pay for the network which will then be owned by Spirit Telecom. In return the town of Horsham will get super fast internet. From a market point of view this will dramatically improve ST1's cash flow. 

The following statement in todays announcement povides some color on what we are likely to expect from ST1 going forward - 

"This strategic partnership with the Victorian State Government marks the first of many public and private partnerships that will see Spirit expand its powerful wireless network throughout Australia; projecting the company forward as a serious player in the Australian telecommunications landscape."