I have received quite a few inbounds after my post of 6th October 2020 entitled GrowthOps – FY20 in Review asking for a more specific analysis of the Company’s cash position and different possible valuation outcomes. I’m going to spend a bit of time in this post on valuation considerations and come back to cash position in a week or so.
Disclaimer: I am the founder and a large shareholder of GrowthOps. Please read my disclaimer carefully here.
The following analysis is conducted in AUD (A$) with publicly available information obtained from the ASX, specifically:
- Full Year Statutory Accounts from 28 August 2020
- Appendix 4C – Quarterly from 31 July 2020
Key cash indicators:
| Market Capitalisation: (at $0.06 per share) | $8.96M |
| Cash and cash equivalents | $6.11M |
| Net Assets | $14.285M |
| Debt | $12.718M |
| Enterprise Value^ | $15.568M |
If you purchased all of the stock in TGO today at its current price, you’d receive:
- $14.285M of Net Assets (including $6.11M of cash) at last audited value
- a business with $84+ million revenue with positive operating cash flow
… for $8.96M.
Putting it another way, if you net-out the cash acquired from the purchase of GrowthOps with the cash used for the purchase, you can buy an $84+ million revenue stream and $8.175M of Net Assets for $2.85M.
$84.4 million of GrowthOps’ maintainable consulting revenue from tier one clients, applying a long-run (normalised) cost structure, would be expected to generate a sustainable EBITDA of 10% or more once GrowthOps completes its foundational integration years and comes out of COVID-19. This is supported by a large amount of historic GrowthOps component company data (disclosed in the Prospectus and summarised below) as well as publicly available data from many competitors / comparables on many stock exchanges including the ASX.
At a 10% EBITDA margin, $84.4 million of revenue generates $8.4 million of EBITDA p.a. In FY20, despite being nascent and COVID-19 impacts, GrowthOps delivered underlying EBITDA of circa $3.1 million.
From the GrowthOps Prospectus, EBITDA % margin for the combined businesses FY18F back to FY15 were:
| Financial Year | EBITDA % Margin |
| FY15 | 15.9% |
| FY16 | 18.2% |
| FY17 | 22.8% |
| FY18F | 23.3% |
| Average | 20.0% |
I expect that once GrowthOps completes its foundational integration phase and gets past COVID-19, it will be back to these EBITDA % margin levels.
Valuation Inputs:
| Maintainable Revenue | $84.4M |
| FY20 Underlying EBITDA | $3.1M |
| Normalised EBITDA (Conservative) | $8.4M |
Valuation Methodologies
By any conventional valuation methodology used by corporate M&A teams at acquisitive advertising or consulting groups for an “at-scale” consulting company, TGO is meaningfully undervalued at its current share price. Acquirers would be expected to pay a minimum of 0.5x forward revenue for a business like GrowthOps, probably closer to 1.0x due to its unique attributes such as scale, service-mix, quality record, awards and regional footprint into Asian growth markets that are very hard to access authentically for large multinationals.
Comparable ASX Public Companies
| Revenue Multiple | EBITDA Multiple | |
| SLATER & GORDON LIMITED (ASX: SGH) | 0.84x | 5.32x |
| PS&C LIMITED (ASX: PSZ) | 0.41x | 8.64x |
| ENERO GROUP LIMITED (ASX: EGG) | 0.52x | 5.68x |
| TRIMANTIUM GROWTHOPS LIMITED (ASX: TGO) | 0.11x | 2.89x |
If you value GrowthOps by these ASX comparable revenue multiples for consulting companies of comparable scale, here is how much money is left on the table at the current share price of TGO:
It is well known by the market that the TGO share price around $0.06 is a long way away from intrinsic value, but it is going to take some time for the mainstream fund manager community to support the stock because of a complex web of broker / investment bank self-interest and endemic distribution conflicts that plague the stock resulting from GrowthOps’ non-conventional IPO pathway. The US is much more alive to these systemic conflict issues which is why you are seeing a rise in direct listings (Asana, Palantir, Spotify, Slack, etc.) and Special Purpose Acquisition Companies (SPACs) which bypass them altogether. Australia will slowly follow suit, but for now, is a decade or so behind in shining the necessary light of transparency where it is not wanted.
Over time, institutions will look past their biases and buy into the stock which will correct the price and liquidity in line with ASX comparables and M&A prospectivity. Or they won’t.
Disclaimer: I am the founder and a large shareholder of GrowthOps. Please read my disclaimer carefully here.