Ann: EagleView further strengthens partnership with Spookfish, page-2

Wow, what a fantastic announcement imo!

I like the comment: "This additional financial assistance and long term operational commitment further strengths Spookfish and EagleView’s deep partnership and reinforces our shared goal to be the industry’s leading provider of cost effective, high resolution imagery and data analytics,” added Mr Marinko.

This just confirms my own view that Eagleview will ultimately find SFI too important to its business and will take it out at some time soon!

Considering a possible take out by Eagleview, thanks to Deako we've received the research recently initiated by Moelis, that suggests a 12 month target price of 18 cents based on detailed DCF analysis. While the actual inputs to that analysis might be subject to some variation, that forecast and accompanying research confirms the likely future commercial success and profits for SFI.

I want to put forward a slightly different proposition, that looks at a broader aspect of SFI value, and taken from the perspective of Eagleview, and its plans to use Spookfish technology in its future US imagery offerings. I'm sure I will come under fire for taking a very broad view, particularly the basis of P/E valuation, but at least it opens up a consideration of SFI value from an Eagleview perspective.
Firstly we know that the agreement between SFI and Eagleview provides for Eagleview to get up to 19.9% equity in SFI via the convertible note issue plus the options issues, which cannot be diluted by SFI.

We also know that Eagleview not only has provided the upfront $6million funding plus additional payments for enhancements to the US technology offering, and this according to the latest update has been very productive and extends to future R & D. We can therefore assume that the developing relationship of SFI and Eagleview remains strong and that Eagleview clearly sees SFI technology as being an integral part of its business plan going forward. We also know that already Eagleview is a leader (if not the leader) of the imagery business in the USA, and probably revenue runs to hundreds of millions. Thus the SFI technology value to Eagleview going forward is considerable, and is vital for Eagleview success.

Clearly this sets out a case for Eagleview to takeover SFI, and with the SFI share price likely to be rerated as commerciality looms closer, it is certainly in Eagleview's best interest to take out SFI as soon as possible, otherwise the cost to acquire SFI will become far more expensive.

If we consider a rerated price of 18 cents over 12 months as forecast by Moelis, clearly Eagleview will find it difficult to offer anything lower than that amount within that timeframe. But lets look beyond 12 months, when not only will SFI earn US royalties through Eagleview, but also its rollout of it imagery offering in Australia will be underway. Although it will have stiff opposition from the already entrenched NEA, there is likely to be successful take up based on competitive pricing (possible due to lower operating costs of SFI technology). Therefore SFI revenue streams from both USA and Australian operations will provide compelling evidence for future value adding.

Thus SFI will be a growth stock with increasingly growing income streams, and thus will be priced attractively, probably in the first couple years in the 15 - 25 times P/E range.
Therefore from an Eagleview perspective SFI, with likely annual revenues starting around $8 million in 2018 according to Moelis, could jump appreciably in 2019. Thus if we extend out beyond 2018, and say ballpark earnings around $15 million, and a P/E of 20, then a market cap around $300 million (and growing annually).. Based on current share capital structure (and its complicated with various option issues and other milestone share/option issues), the share price could be valued around 4 times current price, ie around 36 cents!

Thus it is in Eagleview's best interest to lock in a takeover well before full rerating of the share price is achieved. My view would be as soon as the camera technology proving itself in the USA, probably no later than June 2017. And my view, unless the share price kicks higher sooner, would be for around 20 cents per share for those shares it doesn't already hold.