Looks like STP took the opportunity of the JV acquisition to...

Looks like STP took the opportunity of the JV acquisition to tell us that it is expanding its business beyond medical waste collection & disposal to encompass the broader area of infection control. Maybe it’s the effect of their new PR firm (Monsoon)?

On the acquisition, it looks expensive, but after having analysed it a bit more closely (no thanks to the lack of baseline numbers in the announcement) it looks quite attractive. Some of the key points are: a) no integration risk; b) EBIT margin of JV acquired almost 90%; and c) even allowing for interest of as high as 10%, EPS +ve.

Impact on STP, is that it increases its enterprise value (EV) from about $40m to about $75m. The presentation accompanying the announcement says EBITDA in FY0708 will increase >20%. It was ~$3.4m in FY0607, so expect >$4m. The acquisition will make it >$8.5m on an annualised basis. Net profit is to increase by 50% in FY0708 (from $1.2m (?) to $1.8m – excluding arbitration costs and writedowns).

My expectation for FY0809 is for an annualised EBITDA of probably $1.5m higher and interest costs about $0.5m lower, with a net profit of $5m, after allowing for DA of $2m with EPS of 1.25cents (dividend?). Choose a PE and estimate the price. Maybe even factor in a net +ve settlement on the court case and more infection control and … Any other thoughts?