Written by Chris Bainbridge, Senior Investment Analyst and Portfolio Manager
The Australasian Funds performed strongly during the month withDividend up 2.9%, Growth 2 up 2.4%, Emerging up 1.6% and Growth up 1.8%.
Some positive contributors during the month were Rhipe Limited (ASX:RHP) after it announced that it had been appointed a globally managed licensing partner by Microsoft, and Trilogy International Limited (ASX:TIL / NZX:TIL) after it announced its decision to acquire 80% of Lancocorp New Zealand Limited, a developer and manufacturer of New Zealand made skincare products. Some detractors for the month were EML Payments Limited (ASX:EML), no news released, and ICS Global Limited (ASX:ICS) after it downgraded guidance on the back of devaluation of the GBP and a delay in clinics coming on to its platform.
Easton Investments Ltd
The Emerging Companies Fund holds a position in Easton Investments Limited (ASX.EAS), a diversified financial services company spread across accounting, wealth management and distribution services in Australia.
The opportunity
On 26 June 2017, EAS announced a transformational acquisition, reaching conditional agreement to acquire a majority interest in GPS IP Group Limited (GPS) and make a bid for the minorities.
GPS Wealth is a specialist financial services dealer group which has been growing strongly over the last five years with revenue in 2016-17 expected to exceed $33 million. GPS’s strong upward trajectory has been driven by growth in the number of advisers and funds under advice on its platform.
EAS has paid 8x normalised FY18 EBITA and 6.6x normalised FY18 EBITA (post cost synergies), on the basis that GPS will contribute $2.5 million EBITDA pre and
$3 million post. The $3 million run rate should be hit by the beginning of FY19.
Consideration will be 50 per cent cash (EAS has a debt facility of $10 million, so we would expect the greater portion to be debt) and 50 per cent EAS script issued at a floor price of $1.55 (and a ceiling of $1.80). Given that EAS was trading at $1.10 when the deal was announced, we believe that this is a strong pointer towards short term intrinsic value and reflects confidence in the future prospects of EAS.
EAS have forecast GPS to provide a significant uplift in earnings contributing to a normalised and EBITDA per share increase of approximately 50% EPS have themselves stated that “the outlook for sustained growth over coming years, both organic and by acquisition, is considered by the Directors to be significant” and we have high hopes for its future.
This article is for information purposes only. It is not intended to be financial advice and has been prepared without taking into account any particular persons financial situation or investment objectives. Past performance is not a guarantee of future returns. Material or views expressed on specific companies are not recommendations to buy, sell or hold financial products.