TechnologyOne halfway numbers off the pace
MAY 25, 2016 Tim Boreham
Banking reporter
Melbourne
TechnologyOne (TNE)$5.23
The Brizzie-based IT house has perpetuated its unblemished record of always paying a dividend over the past two decades.
The bad stuff is its half-year numbers — released after market on Monday — looked more off the pace than any nag your columnist has ever backed.
TechnologyOne is the biggest supplier of enterprise systems to corporate and government clients and — surprise, surprise — has been migrating customers to the cloud faster than you can say software as a service.
TechnologyOne reported a 17 per cent interim earnings decline, to $7.3 million. Bell Potter had pencilled in $11.6m, with EBITDA of $16m compared with the actual $11.3m.
Management sticks with its full-year guidance of a 10-15 per cent increase over last year’s $35.8m, which implies a second-half performance of more heroic proportions than the charge at Beersheba.
Investors were unperturbed yesterday, pushing the stock up 5 per cent. Fair enough, but the halfway numbers look like a miss to us and, with the stock trading at close to 40 times earnings, we’ll ascribe asellcall.
Emerchants (EML)$1.44
Emerchants chief Tom Cregan agrees that many Australian acquirers in the US are left wearing little more than their Y-fronts.
In the case of the prepaid card specialist’s $US35m ($48.8m) purchase of Store Financial Services, it was a case of “seller beware”: he knows the Kansas-based vendors better than even Dorothy does.
“We have bought from people we know and trust, so we know we won’t be stiffed by a skeleton in the closet,’’ Cregan says.
Store Financial exposes Emerchants to the $US400 billion US gift card market, with Store Financial itself running 300 programs across 5.5 million cards.
Requiring $38m of cash for the deal, Emerchants planned to raise $50m in a placement. But interest from instos and high-worth individuals saw the deal expanded to $68m.
“We thought if there was money going around, we would take it,’’ Cregan says.
Four years ago, Emerchants turned over $3m and posted a $5m EBIT loss. This year, the company should do $60m-$65m of revenue and should be solidly profitable next year.
With a market cap of $330m post-raising, Emerchants has also joined the ASX 300 index.
Prepaid cards are used as an alternative to corporate credit cards to control spending. They are also employed in marketing promotions while payday lenders (insert sign of the Devil here) use them to disburse funds.
Emerchants hit the jackpot with an entree into the wagering sector, providing white label cards that enable winning punters to recoup their funds immediately.
Emerchants can also claim to replace cash-based betting via physical agents with traceable account-based wagering.
Yep, the smug double-chinned bloke on the Sportsbet ads might be annoying, but at least he’s not funding terrorism.
It’s food for thought for Tabcorp Holdings, which is facing an action from federal anti-money laundering agency Austrac.Buy.
The next takeover targets
Broker Credit Suisse reckons that, despite $450bn of activity in the current M&A cycle since 2013, there’s a lot more to come and China will be leading the way. So let’s talk turkey.
How about toll road monopolistTransurban (TCL),with a market cap of $24bn, which would be of interest to a legion of global pension funds?
The same could be said for car park operator and occasional aviation conduitSydney Airport (SYD, $16bn).
Speaking of steady income, gas carrierAPA Group (APA)could be in the takeover pipeline for the same reason.
Queensland rail operator and coal carterAurizon (AZJ, $4.40)is another tempting play, but the 15 per cent shareholder cap would need to be lifted.
Another isTreasury Wine Estates (TWE), possibly of interest to Chinese wine distributor Cofco.
Despite its earlier proposed union with the Singapore stock exchange being scuppered by Canberra, theASX (ASX)remains a target of interest.
Toilet paper and tampon makerAsaleo (AHY)could be cleaned up by Sweden’s SCA, which already owns 30 per cent.
And does Chinese group Jangho’s interest inPrimary Healthcare (PRY, $3.66)go beyond its current 14 per cent stake?
In terms of likely acquirers,Cromwell Property (CMW)owns 10 per cent ofInvesta Office Fund (IOF)and went to the trouble of scupperingDexus’s (DXS)takeover bid for Investa.
Seven West Media (SWM)is a potential acquirer if the media rules change, while Beirut child liberator/abductorNine Entertainment (NEC)already owns 10 per cent of regional associateSouthern Cross Media SXL). Or how about a merger of property trustsStockland (SGP)andMirvac (MGR), which have similar assets?
As always, investors should be cognisant that most of these scenarios won’t eventuate but the list is great M&A porn.
If Criterion were forced to pick from the list, we would go for Primary Healthcare on valuation and Aurizon on a cyclical coal upturn. Transurban is always appealing to yield-seeking retirees, but the heady valuation could take its, er, toll.
The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not own any of the stocks mentioned.
http://www.theaustralian.com.au/business/opinion/tim-boreham-criterion/technologyone-halfway-numbers-off-the-pace/news-story/2de1fe1e8e7892ae90d9672feed5d8c8