At last Friday’s investor briefing CEO Tim Levy clearly said profitability was not a priority for them at this point in time. The priority was growth… He tempered this with comments about ensuring the balance sheet and cash was such they would not need to go to the market for cash in the event of an unforeseen market crash (GFC style event). Within this constraint however … the mantra was grow faster, and hence future capital raises remain on the table if & when they felt compelling opportunities arose. The current UK acquisition is earnings accretive and the acquired business was EBITA positive but this shouldn’t be read yet as signalling that FZO’s red ink days were in the past.
The positive market reaction is unsurprising. FZO with market cap $260m was trading at about 18 times revenue pre acquisition and bought an unlisted company for 4.7times revenue in a deal costing $145m. While the combined revenue won’t trade at an 18 times revenue multiple (because the UK entity revenue growth is much lower than FZO’s - there would likely be an uplift… which is what we are now seeing.
The combination is likely to benefit both entities future sales opportunities… and additionally FZO may now much sooner reach a MktCap where it will enter the ASX300 making it increasingly attractive to insto’s. (likely to happen in the March ASX300 rebalance as Sep rebalance is too close).
Overall - likely more good news in months ahead.
My only concern is quite a few product reviews I see on line are not positive . Does any one have comment on these or personal experience
FZO Price at posting:
69.0¢ Sentiment: Hold Disclosure: Held
