Empired (ASX: EPD) has 200 employees, does around $30 million revenues, and looks to be on-course for somewhere between $500K and $1 million EBITDA in 2010, with zero net debt (enterprise value $3.6 million). EPD will earn miserable EBITDA margins of between 1.7 and 3.4 percent in 2010. EPD is trading on an revenue to enterprise value ("EV") ratio of over 8 times, which suggests deep value territory. At 7.7 cents share price EPD is trading on an EV/EBITDA of between 3.5 and 7 times, which on the face of it is ok.
EPD in the managed services space, doing some applications work, as well as IT consulting. The company has been building its managed services business, where contracts are in the range of 3 to 5 years. The company has been winning some credible Western Australian, and Victorian managed services contracts.
One quality ASX listed player in the managed service space is ASG (ASX: ASZ). Its won a swag of managed services contracts in 2010, as well undertaking some acquisitions in the space.
In the first half of 2010, ASZ did $58 million revenues, with EBITDA of $10.4 million, which equates to 17.9% margins. As at 31 Dec 2009, ASZ had $3 million net debt, and with its share price at the time (31/12/2009) indicating an enterprise value ("EV") of circa $160 million, and an EV/EBITDA of 7.7 times. ASZ was trading on a revenue to EV of 1.4 times.
Bottom line, EPD is subscale in terms of margins. Its on a reasonable EV/EBITDA multiple, but EBITDA has the potential to expand aggressively, if management can execute. If one applies the same margins to EPD, as per what ASZ generates (17.9%), then EPD can earn $5.4 million EBITDA, which is not bad for a $3.6 million capitalized company.
EPD looks very cheap, with good potential for patient investors.
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