Consensus community valuation
$9.23
Average Intrinsic Value
2,926.6%
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#Bull Case
Added 5 days ago

Spirit Technology Solutions Ltd.

ASX:ST1

www.spirit.com.au

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

 

  • Year on Year revenue1 grew by 200% to $104.5M.
  • Spirit grew revenues1 by 37% from $44.0M H1 FY21 to $60.5M H2 FY21.
  • The company has continued to grow profits in H2 FY21 with unaudited FY21 Underlying EBITDA2 of $11.5M up 208% from FY20 (FY21 audited financial results will be released to market in August 2021).
  • Recurring revenue1 base continues to strengthen - up 33% to $27.2M on H1 FY21.
  • Sales Total Contract Value for Q4 FY21 was a record $31.8M demonstrating organic growth and demand for
    the Spirit products (TCV combines recurring & non-recurring contracted sales).
  • Strong balance sheet with $24.2M of cash and available debt as at 30 June 2021 (net debt at only $1.5M).

 

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.

 

Director Transactions

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

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#Bull Case
Added a week ago

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

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#ASX Announcements
Added a week ago

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.

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#Financials
Added a week ago

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

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#Business Model/Strategy
Added a week ago

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

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#Management
Added 2 months ago
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#Initial Substantial Holding
Added 4 months ago

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

View Attachment

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#Acquisition Complete 8/4/21
Added 4 months ago

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.

Highlights:

  •  Over 5,500 Data & Voice business customers with 4,000 being contracted or recurring (80%)
  •  Average contract term is 4.5 years with no customer concentration.
  •  +100 sales team members instantly join Spirit to sell the existing Nexgen products and cross sell Spirit’s Internet, Cloud, Voice, Mobiles and Cyber Security.
  •  Nexgen is tracking to a forecast FY21 EBITDA in the range of $7.2M - $7.6M, the implied multiple is 6.5x with the completion payment (including a deferred component of $10M) capped at $50M excluding any agreed Milestone Incentives available based on performance target for FY22 and FY23

Disc: I hold

View Attachment

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#Sale of Assets 18/3/21
Added 4 months ago

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."

View Attachment

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#H1FY21 Results 23/2/21
Added 5 months ago

Spirit Delivers Profitable H1 21 & Record Revenue Strong performance across all key financial metrics (reviewed):

  •  Record H1 21 with Revenue and Other Income of $44.0M, up 253% on H1 20.
  •  NPAT up 169% year on year to $508K, compared to loss of $740K in H1 20.
  •  H1 21 Underlying EBITDA* $4.4M, upper end of guided range (H1 20 was $1.6M).
  •  Positive Operating Cashflow for H1 21 of $4.3M.
  •  Healthy balance sheet with $23.3M of cash and available debt as of 31 December 2020.
  •  Average deal size increasing with major contract wins across corporate; education and health illustrating the strength of the Spirit offering and leverage of cross-sell opportunities

DISC: I hold

View Attachment

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#H12021 Update 22/1/21
stale
Added 6 months ago

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

 

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#Broker/Analyst Views
Added one year ago

30-June-2020:  Canaccord Genuity: Spirit Telecom (ST1): Building a modern telco

Rating: BUY (unchanged), Price Target: A$0.35 (unchanged).

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