Speedcast International Ltd (ASX: SDA) is a satellite network services provider and as such is a beneficiary of the world's increasing dependence on high-speed networks. The company installs and maintains satellite-based communication networks on behalf of its customers and holds a leading position in Asia Pacific. It serves more than 2,200 customers across 4,000 remote sites and approximately 5,000 offshore rigs and vessels.
Speedcast has grown quickly over recent years thanks to a flurry of acquisitions and new contract wins since it listed in 2014. Underlying net profit after tax excluding amortisation of acquired intangibles (NPATA) rose by 33% to $14.8 million in 2015. Significantly, the second half of the year was strong making a contribution of $8 million versus $6.8 million in the first.
Based on the 2015 second half result and adding an estimated $3 million NPATA contribution from two acquisitions completed this year, I estimate that the company's NPATA annual run-rate is in excess of $20 million. However, with net debt likely to be over $100 million once these acquisitions are paid for and a market capitalisation of $445 million, Speedcast's valuation is a little rich for my liking.
CBL CORP FPO NZ (ASX: CBL) is an international insurance business specialising in financial risk. The New Zealand-based firm has eight offices in four continents and underwrites insurance risk in 25 countries. The company has done well by focusing on niche, non-traditional insurance lines and believes it has proprietary knowledge of these specialist products.
Both the growth profile and profit margins of CBL are impressive. Operating profit has risen from NZ$5 million in 2010 to NZ$60 million in 2015, whilst the group's combined ratio was an exceptional 79.7% in 2015, falling from 86.2% in the prior year. Combined ratio is total claims expenses, customer acquisition costs, and administrative costs as a percentage of gross written premiums and so the lower the ratio, the more profitable the operation.
The company has recently announced its intention to buy Securities and Financial Solutions Europe SA (SFS) for €94 million. SFS has an impressive financial history with revenue rising from €28.5 million to €41 million and earnings before interest, tax, depreciation and amortisation (EBITDA) increasing from €3 million to €8.7 million between 2013 and 2015.
CBL had NZ$168.2 million in unencumbered net cash as at the end of 2015, prior to the SFS acquisition. Assuming a similar result to last year plus a contribution from SFS and a 28% tax rate, I estimate that the stock is currently trading on a forward price-to-earnings ratio (PER) of around 12.
Citadel Group Ltd (ASX: CGL) provides technology and education services primarily to government departments. The education division has suffered from recent adverse publicity affecting all private sector vocational education providers, but represented just 11% of group revenue for the first half of 2016.
This percentage has fallen further after the company completed the acquisition of content management company Kapish earlier this month. The acquisition price is very reasonable at five times sustainable EBITDA, especially when you consider that depreciation is likely to be minimal due to the nature of the business. Kapish specialises in implementations of HP TRIM which is one of the three main enterprise document and records management systems (EDRMS) not currently offered by the existing Citadel business.
This is the second significant acquisition that Citadel has made in its short life as a listed entity. The first was PJA Solutions (PJAS), a leading provider of technology solutions to the Australian health sector which was purchased on similarly attractive multiples. Traditionally strong in the government sector, this acquisition launched Citadel's expansion into health where it sees huge potential.
IT services appears to be following in the footsteps of the software industry with one-off contracts giving way to long-term management agreements with recurring annual charges. This bodes well for the likes of Citadel which delivered EBITDA of $12.6 million for the first half of the year representing an impressive 26.9% of revenues. I estimate that including the Kapish acquisition, the current underlying annualised NPATA of the company is about $20 million and so it trades on a PER of around 12.
