Spirit Technology Solutions Ltd.
I did not know too much about this company but it came up for me to look into. So here is my 2 cents on the company so far.
Sector : Telecommunications (telecommunications, Cloud, Managed IT and Cyber Security services)
Shares Issued 652,292,046
Market Capitalisation $208,733,455
I note: Share Price up 11% in 1 week from latest results.
52 Week High : $0.450
52 Week Low $0.250
Market Update 20th July 2021
Company Guidance for the Financial Year 2022 is impressive (But can it acheive this)
Revenue & Other Income
FY22 $150-$155m FY21 $104.5m Change 44%-48%
Underlying Ebitda if hits $155m Revenue
FY22 $19.4-$20.2m FY21 $11.5m Change 68%-75%
They also completed the acquisition of Nexgen and is tipped to bring in $36m via onboarding of 5000 clients hence 2022 guidance.
They will also bring in 100 sales people to sell spirits and Nexgen products.
02/06/21 Gregory Ridder Buy +50,000 $0.28 $14,000
02/06/21 James Joughin Buy +71,431 $0.28 $20,000
23/04/21 Sol Lukatsky Buy +82,500 $0.36 $29,700
01/04/21 James Joughin Buy +55,500 $0.36 $19,980
31/03/21 Gregory Ridder Buy +100,000 $0.41 $40,993
Personally I think the numbers look good and I will put on my watchlist.
I will watch the business with interest and see what happens to the share price after a reasonably good increase in the price this week. I
Risks : Can they acheive guidance numbers?
This sector is very competitive
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.
FY21 Revenue at $104.5 million up 200% YonY
H2 21 revenue grew 37% from $44 mil H1 Fy21 to $60.5 Mil H2 FY21
Recurring Revenue up 33% to $27.2 Mil
Strong balance sheet with $24.2 mil of cash available with further cash expected following the sale of consumer infrastracture assets. Net debt at $1.5 Mil
pleasingly provided FY22 Guidance of $150-155 mil up 44-48% on FY21 with underlying EBITDA forecast at $19.4-$20.2 mil up 68-75% from FY21.
The guidance reflects some nice organic demand occuring from recent acquisitions that were undertaken throughout FY21. We should now see some nice numbers coming from the business as integration of these businesses are achieved.
I firmly believe ST1 will be a takeover target from one of the bigger boys in town. I believe a lot of M&A will occur in this sector. A bit like BNPL this area is crowded and I think some consolidation will occur. With the above numbers $ST1 looks very attractive at this price.
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 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%
$35.0M $30.0M $25.0M $20.0M
$15.0M $10.0M $5.0M $0.0M
$14.0M $12.0M $10.0M
$8.0M $6.0M $4.0M $2.0M $0.0M
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
Thorney becomes a substantial holder in ST1. Picked up 4.55m shares at $0.33 on 8 Apr 21 which was below the trading range of the day ($0.355-$0.38) so it must have been a crossed order.
10 Apr 21: TOP 6.60% Initial
Spirit Completes Acquisition of Nexgen Group
Spirit Technology Solutions (ASX.ST1) is pleased to announce that it has completed the acquisition of the Nexgen Group (comprising the Nexgen and Business Telecom businesses). The Nexgen acquisition brings over five thousand new clients, and one hundred new sales people to Spirit to drive organic growth, complementary products, scale and is expected to generate $36.0M in combined revenue with 80% of this as recurring revenue.
Disc: I hold
Spirit announces intention to divest consumer infrastructure assets
Spirit’s consumer division provides high-speed internet to thousands of residential customers, primarily in large apartment buildings across Melbourne, Brisbane and Gold Coast.
The consumer network and infrastructure assets are in 97 buildings, with access to over ~18,300 possible connections. Spirit has built a dedicated switched ethernet network in these buildings to deliver end-user speeds of up to 1 gigabit, providing a robust connection that any mixed copper model is unable to compete with - at highly competitive pricing. High profile buildings include Eureka Tower, Freshwater Place, Yarra’s Edge complex, Central Equities cluster – Southbank Melbourne and Queensland’s largest residential building Southport Central.
The divestment is in line with Spirit’s shift to focus on the business market, from SME to large enterprise. The Consumer assets now account for a small amount of Spirit’s revenue compared to its B2B portfolio of assets.
“As Spirit has evolved to a large integrated IT and telecommunications provider, it is in line with our strategy to divest the consumer assets, which are no longer core to our strategy. Proceeds from the divestment will be used to continue to acquire high growth assets across cyber security, cloud and IT services, which are in high demand within our B2B customer base,”
“These assets are unique, given the limited competitors servicing these types of residential buildings nationally. We see this divestment returning a material sum of capital to our balance sheet. Additionally, we’ve already had strong interest with several parties enquiring about acquiring these infrastructure and customer assets.” said Sol Lukatsky, Managing Director.
The Company has appointed Tony Schiavello, Partner from BDO Melbourne’s M&A team to conduct a formal sale process.
The divestment will have no impact on existing customers and will see a seamless transfer to the new acquirers. The divestment process will run through Q3-Q4 FY21.
- ENDS –
DISC: I hold
This might have been foreshadowed in the ASX notice on 23/3/21 when they said
"Revenue mix continues to reflect shift towards medium & corporate market with higher value contracts."
Spirit Delivers Profitable H1 21 & Record Revenue Strong performance across all key financial metrics (reviewed):
DISC: I hold
Spirit achieves record growth in H1 21 & Q2 21 across all financial and customer KPI’s
Record growth in Q2 21 & H1 21 across all key financial indicators (unaudited):
• Total revenue for the half was $42.7M, up 243% year on year (YoY).
• Total revenue for the quarter was $27.1M, up 338% year on year (YoY) and 73% on Q1 21.
• Q2 21 recurring revenue up 116% YoY to $11.5M and S&P** revenue up 1,768% YoY to $15.6M.
• H1 21 Underlying EBITDA* in the range of $4.1M - $4.4M (H1 20 was $1.6M).
• Positive Operating Cashflow for H1 21 of $4.3M.
• Significant demand with Total Contract Value (TCV) sales up 303% YoY to $14.1M, with pending installations at $15.1M and IT Services & Technology Sales at $6.6M as of 31 December 2020.
• Organic sales growth continues with several large contract wins across Corporate, Education and Health verticals.
• Healthy balance sheet with $23.3M of cash and available debt as of 31 December 2020.
• Acquisition integrations ahead of schedule.
Disc: I hold
Rating: BUY (unchanged), Price Target: A$0.35 (unchanged).