Here are some snippets taken from my equity research paper posted on ***.
Growth DriversUnder normalised conditions I expect to see significant organic growth in EBITDA & free cash flow’s
moving forwards. For starters, the hospitality venues, pubs, clubs and stadiums that MSL services
have all been massively impacted through covid and most likely completely shut for some period of
time. Given the vaccine mandates soon to be precedented on western society, it is inevitable that
economies will begin to open if they haven’t already.
Pat referenced the UK as a particular vehicle of growth when it comes to FY22. Currently it
represents 20% of the business that MSL does but this is “expected to widen as we enter FY22”. The
deal with City Football Group (CFG) was only signed back in July and has not contributed to any
public results yet. The CFG is important not just in the current sense, but the group controls
stadiums across the globe (Aus, US etc) and gives big up-selling potential.
ValuationMSL are guiding for EBITDA of $3.5m in FY21 implying a ~19x EV to EBITDA multiple which again is
cognisant of a maturing company.
We need to consider that using trailing EV/EBITDA measures for
companies in undergoing significant growth is not going to paint an accurate picture of valuation.
FY22 will see a full twelve-month contribution of SwiftPOS, which management have also claimed
have seen a 20% rise in revenues.
Stripping out the government contributions & normalising for a
full year SwiftPOS accretion to EBITDA leaves the company running at a rate closer of $3.5m under
sub-normal conditions (COVID). Again, linking this back to a market valuation of some ~18x
EV/EBITDA multiple implies that growth will stagnate as the company approaches its mature stage.
This implies that the various new contracts – ASM Global, Doshii Partnership, RAC Arena and City
Football Group will result in immaterial EBITDA growth in FY22 and onwards. Highly unlikely.
I believe that an initial forecast of some $5m in EBITDA is fair given the above placing the stock on a
undemanding 13.2x before adjusting for the new cash.
Also not yet mentioned is the monetisation of the $5bn worth of transaction that MSL facilities. The
growth avenues seem endless.
MSL is a company that I believe has a higher than likely chance of reaching
$10m in FCF some time in
the next 2-4 years. (This implies some $12m in operating cash flow and allowing for $2m in investing
cash outflows).
I believe a 20x Free cash flow multiple is a reasonable price the market would pay for a business
with a long runway for growth and attractive economics. Applying this to FY23 results of “10m in
FCF” implies a ~140m market cap and a share price of $0.61 cents. If we discount this back 2 years at
a 10% discount rate and then allow for a further 15% margin of safety we end up at a fair value of
$0.44 cents.
I also post fairly often on my twitter. (
https://twitter.com/Noicewon11)
