Over The Wire
About the author:
- Author name:
- By Nick Harris
- Job title:
- Senior Analyst
- Date posted:
- 24 October 2017, 12:16 PM
- Sectors Covered:
- Telecommunications, Technology and Financial Services
Acquires VPN Solutions – a NSW-based managed network provider
Over The Wire (OTW) has announced the acquisition of VPN Solutions, a NSW-based managed network provider that provides business-grade telecommunications solutions to the Australian SME and Corporate markets. VPN has approximately 150 business customers and, like OTW, has experienced high levels of customer retention. The acquisition accelerates OTW's expansion into the NSW and South Australian markets.
Additionally, Data Networks represents over 90% of VPN's revenue and provides OTW with cross sell and interstate expansion opportunities.
Financials and forecast changes
The upfront consideration of cA$15.6m comprises:
- cA$14.8m cash (via cash and a new debt facility); and
- approximately A$0.8m in OTW scrip.
The upfront consideration represents an acquisition multiple of 5x EBITDA, which we consider reasonably priced and value enhancing. Synergies are expected to be achieved in FY18, with further cost savings to be delivered in FY19. After including the acquisition in our forecasts for 8 months in FY18 and expensing deal costs, our FY18 Cash EPS (which excludes non-cash amortisation) increases by 19%. VPN Solutions will contribute more meaningfully in FY19 as it will be owned by OTW for the full 12 months. In addition to expected synergies resulting from removing duplicate network and back-office costs. This results in an upgrade to our FY19F EBITDA by 28%, reported EPS by 18% and cash EPS by 29%.
Over The Wire (OTW) continues its strategy of making well-priced acquisitions that complement its existing product offering and geographical diversification. Following the VPN Networks acquisition, OTW's earnings increase approximately 29% and its trading multiple falls back to 7.6x FY19F EV/EBITDA (versus peers on 8.5x). In addition to approximately 20% organic growth, we believe OTW is well placed to continue to make well-priced acquisitions to accelerate growth and create shareholder value. Key upside and downside risks for the share price relate to OTW's potential to surprise positively or negatively with respect to organic growth and acquisitions.
We retain our Add recommendation.
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Disclaimer(s): Analyst owns shares.
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