Diverger this morning has come out with their annual report and...

Diverger this morning has come out with their annual report and some favourable developments have occured around capital allocation.

Strategy to balance growth and shareholder returns:

• Investments into operations funded from free cashflow and debt at accretive ROIC (Return on Invested Capital) i.e. ahead of the Company’s weighted average cost of capital (WACC), over three years
• Dividend payout ratio to be 40% - 60% of NPAT, adjusted for non-cash impairment and fair value adjustments, with available franking credits distributed where available
• Conservative capital structure: target range of 1.0 – 1.5x Net debt / EBITDA leverage
• Board to retain flexibility outside of these guidelines based on value accretion opportunities

In addition to this they gave us a new updated FY2025 target plan as below:

1. Net Revenue to 40-45m (10-14% CAGR)
2. EBITA Margin of 28% (Note this includes corporate costs)
3. EPS of 14-18cps
4. FCF of 18-22cps
5. ROE of 12-14%

This is a very favourable outcome for me and has led me to raise my valuation quite significantly in line with reduced concern around shareholder value. In line with this they have increased the 2.5c dividend to 3.5c as well, putting the stock on a dividend yield of ~5% Fully franked.

On another note, Centrepoint alliance (CAF) released their annual results today as well with no mention of the Diverger Bid in the entire report, leading me to believe a close is very unlikely which given the cost of equity of Diverger scrip, is a very good thing.