Novatti - The $1 party, page-3217

Following on from the news of Reckon (ASX: RKN) selling one of their subsidiary businesses for $100m, we view this as a big win for Novatti (ASX: NOV) who is their major shareholder and stands to benefit substantially from the deal which is not necessarily reflected in their share price. At present, Novatti is trading with a market cap of $73 million. With their 19.9% equity stake in Reckon we estimate that Novatti will be distributed somewhere between $10-14 million once Reckon pay down their borrowings and preserve some cash for their own operations, which delivered $7.9m net profit in 2021. Accounting for tax, this should see about $7-10m cash hit Novatti’s bank account when the special sale proceed dividend is distributed. This will be added to the $8.3m cash they had in the bank as of 31 March 2022.RKN shares are trading at $1.25 which is already a 25% premium from the $1 Novatti paid per share, 10 months ago, valuing their stake at $28m but this also includes the $7-10m dividend they stand to be paid. The market therefore essentially values the entire Novatti digital payments ecosystem at $35m which would be undervalued for a growth company that is on track to deliver more than $55m in revenue for FY22. It’s no secret that Novatti’s share price is being weighed down by the global tech selloff but there have also been expectations that Novatti will need to raise capital which is preventing some investors from buying into the stock.With the RKN dividend coming their way, it alleviates that concern and should see the Company well into 2024 by which point Novatti would be generating upwards of $100m in annual revenue based on their 50% YoY trajectory.