At 3c TNT’s market capis $14.5M (after 20M shares have been issued to north for this latest acquisition).I’ve now changed my sentiment from Hold to Buy. Here’s why.
- North to deliver $18M rev and $1.7M EBITDA (based on actuals for the 7 months to Feb being $11M rev and $1M EBITDA). The north business alone warrants a market cap greater than $14M in my opinion.
- This means TNTacquired north for 2 x FY20 EBITDA in real terms being total consideration of $3.35M based on $2.75M cash +20M shares ($600k at current share price). A phenomenal result probablyachieved because of PSZ’s unfortunate position during negotiations (you’ll recall PSZ had a massive debt that was being called in by the banks during their negotiations with TNT for both north and Pure).
- Management are bullish and have reiterated $40M rev and cashflow positive/profitable by 30 June – at a time when they could easily have backed away from this. From what I can see the $40M is justified on the following reported numbers (without factoring growth, retraction or synergies); north $18M and profitable, Pure $16M and profitable, Rivium $5M and profitable and the original Tesserent business $5M and loss-making. All up that’s $44M and profitable so a $40M forecast seems achievable; hence the reason they’re so bullish, I would have thought.
- TNT have over $4M in cash reserves post thislatest acquisition, so plenty of working capital for a profitable business.
- As per Geoff Lord’s comments in this announcement, TNT group is “insulated” and well placed to get through the COVID-19 crises with multi-million dollar locked in recurring revenue, long-term (5-year) government contracts and cash in the bank. This is a very strong position. I can’t think of a safer sector than Federal Government that I’d rather have locked in contracts with right now.
- TNT focused onpreserving cash with a view to exploiting future opportunities, so definitelyhave an eye on coming out the other side of this crisi in better shape thanmost.
- The US policy shifttoward tackling COVID-19 (whether you agree with it or not) and subsequentmoves in the market suggests we may not be in for as deep arecession/depression as first though.
- The only real negativeis the $5M debt they are carrying which is costing approximately $33k per monthto service (based on 8%). In real terms, however, this is less than 1% of theirmonthly revenue so very manageable I would have thought.
I’m struggling to seehow this isn’t a good buy at current prices. Probably as safe a bet as youcould hope to find in today’s market (in this category of stock anyway). If youthink I’m missing something, please let me know. I’d love to hear otheropinions on this.
Cheers, Hamish.
Ps. Not interested inhearing from the same old vendetta driven disgruntled ex-executives or ownersof passed up acquisition targets screaming: “incompetent management” and “thecompany is going under”. Just genuine punters with something constructive tosay based on the announced facts and business/market fundamentals presented tous..
