Ron Shamgar provides an update on a number of the companies held in TAMIM's Australian equities portfolios.
This is an excerpt from the latest updates for the Australian equity strategies in the TAMIM Fund, you can access the full reports here:
TAMIM Fund: Australia All Cap
TAMIM Fund: Australia Small Cap Income
EML Payments (EML.ASX)
EML Payments (EML.ASX) provided a nine-month trading update with $43.8m of EBITDA in the nine months to March ‘21. Q4 is seasonally weaker but with $10m of EBITDA delivered in Q1, typically the other seasonally weak quarter, EML was already on track to land at the top end of EBITDA guidance ($50-54m) and most likely beat it (prior to CBI regulatory issue).
We believe a reasonable resolution with the CBI, both in terms of timing and materiality, will be announced in the next few weeks and FY22 remains exposed to several positive trends as well as an encouraging pipeline of new business. We see a recovery in high margin multi-currency card volumes in Europe and gift card mall volumes should underwrite strong FY22 EBITDA growth.
Additionally, the PFS processing synergies should be delivered and the recently announced acquisition of Sentenial (pending final approval) will start contributing to the open banking opportunity. Finally, we have seen Marqeta IPO in the US with a valuation of 49x Gross Profit in 2023, compared to 6x for EML. Our valuation remains in line with previous estimates.
People Infrastructure (PPE.ASX)
People Infrastructure (PPE.ASX) announced two acquisitions, the first a leading staffing business and the second a surveying business in Queensland. EBITDA across both acquisitions is expected at $8.2m and earnings per share accretion of approximately 19%. PPE will pay $31m, funded from cash and debt facility. Management continues to execute well on their strategy and the business is growing both organically and through acquisitions. With a pipeline of possible deals and further $50m in capacity, we see PPE as well positioned.
Empired (EPD.ASX) has secured a digital services contract with the Department of Innovation and Skills (DIS) in South Australia. The contract is for an initial term of two years. Work is scheduled to commence in July 2021 at an estimated value of $9m and a split across FY22 and FY23 of approximately $5.5m and $3.5m respectively. This contract represents a material win for EPD and demonstrates the progress management is making in executing on its Australian East Coast expansion strategy. We are expecting a strong result in August, showing improvement in all metrics and dividends. [Since this piece was originally written EPD has received a take over bid from Capgemini]
Cardno (CDD.ASX) announced a strategic review following the receipt of a number of unsolicited approaches from interested parties looking to acquire the company. The Board has decided to commence this strategic review process with the objective of maximising shareholder value. This process will involve an assessment of Cardno’s strategic options and the alternative strategies available to unlock and enhance value for Cardno shareholders. In other words, the company is in play.
We believe that CDD’s largest private equity owner, Crescent Capital, has decided that it may be time to realise their investment in CDD and Intega (ITG.ASX). We first took our position in CDD at around 30 cents and we forecast cash EPS of 7-8 cents in FY21. Assuming a takeover premium and a conservative multiple of 15x, we expect any takeover offer to be $1.20+. Watch this space!
Intega (ITG.ASX) as per CDD above, they have announced a similar strategic review which is supported by their largest holder Crescent Capital. This is the result of increased activity and interest in the sector. The Board of ITG will be exploring ownership options for the company.
More importantly, management noted that ITG is performing well and is well positioned to benefit from the strong pipeline of infrastructure investment in both the US and Australia. The business has significant organic and inorganic growth potential, particularly in the US markets, as well as adjacencies.
The Board believes that the business is undervalued by the market and we tend to agree. We bought ITG at around 32 cents and we see cash EPS of 4-5 cents in FY22. We see any takeover premium landing around the 60-70 cents range.
Disclaimer: EML, PPE, EPD, CDD and ITG are all currently held in TAMIM portfolios.
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TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.