Ann: Completion of Placement, page-6

In April 2017, Freestyle was reported to have raised $50m in venture capital. At the time they also reported a 5 year $5.8m contract in South Korea to cover 24,000 households. In May 2018, Freestyle claimed to connect more than 30,000 gas and water customers across Australia, Japan, Taiwan and Korea. So it appears they have secured one excellent contract (i.e. South Korea) and a few other good deals to pocket another 6,000 monitoring points. Good work... but it's been a long road for them.

There's no doubt Freestyle shareholders will want to see a long-term valuation above the $50m. And the reverse takeover of CT1 presents an opportunity for them to achieve this.

I've put a scenario together (below) which values Freestyle at $30m. I don't think they have enough presence/visibility in the market to justify any more. Freestyle is reported to have 30,000 monitoring points, so equating company value to a customer acquisition cost of $1,000 per monitoring point... $30m is probably in the ball park. Even then, I think it's probably high. A fair value would probably be more like $25m but without financials it's a guessing game. If we had revenue, I'd say a 4 times multiple would be fair.

I've factored in a $5m raise because the merged business will need to significantly ramp-up sales and marketing if its got any hope of lifting its value. From what I can see, Freestyle has failed to generate any market 'hype'. Going into a public company environment, Freestyle needs to do way more on marketing to generate sales. The last news item for Freestyle was December 2018 (contract with Jemena for 1,000 monitoring points in Sydney).

DYOR as the following scenario is all guess work which shouldn't be relied upon:




My assessment is that a 5 to 1 dilution is on the cards. There's a lot of variables and assumptions in my model. However, if both parties get the terms right, the post transaction landscape could be a win-win. One thing's for certain: if we are going to end up with a $60m business, we'll need a regular flow of sales announcements and around $1.5m in receipts every quarter.

I just hope Freestyle realise the benefit of keeping existing CT1 shareholders motivated to support the deal. Time will tell.

Yak.