Broker Report

Thursday, 18 February 2016

Stock

Threat Protect (TPS)

Recommendation

SPEC BUY

Current Price

$0.034

Valuation

$0.038


Cross country

Analyst | Ian Christie


Quick Read

TPS has announced two well-priced acquisitions for a combined $0.75m, providing a significant boost to revenue and a footprint on the east coast.  A $3.0m placement covers cash acquisition costs, provides additional working capital, and leaves TPS with a $1.5m war-chest to fund potential future acquisitions.  The impact of these transactions boosts our blended valuation to $0.038 (prior $0.033), with the potential uplift from further organic and acquisitive growth providing upside.  Speculative buy maintained.


View | Positive

Acquisitions provide east coast footprint:  TPS is to acquire Sydney-based Integral Risk Group (IRG) and Perth-based Australian Event Protection (AEP).  These two businesses currently have combined $4.7m annual contracted revenue and a blue-chip client base of corporate and government organisations.  Consideration of $0.75m comprises cash of $0.25m and scrip of $0.50m (at $0.030 per share).  A performance fee may be payable as a percent of revenue generated above that already contracted.


Manpower services and risk consultancy:  AEP offers event security management, business security assessments, workplace training and red-team testing, while IRG’s services include VIP security, rescue, surveillance, consultancy on high tech security solutions, and the design and delivery of security management solutions.  Further, TPS will have the opportunity to offer acquired clients security monitoring services which are currently conducted by external parties.


Funding and war-chest:  A $3.0m placement (100m shares at $0.030) will cover the cash acquisition costs, provide additional working capital and leave TPS with a $1.5m war-chest to fund potential future acquisitions.


Integrated security services:  TPS’s control centre services ~20,000 customers.  This is 20% of capacity and, as costs are largely fixed, there is significant opportunity to extract economies of scale by adding to the monitored client base.  Acquisitions aside, growth opportunities include monitoring people (the Safe Haven app) as well as premises, white labelling monitoring services to smaller security firms, forming alliances for bundled product with ISP’s, and partnering with alarm installation providers.  With IRG, TPS now has the ability to provide this fully integrated service across Australia.


Recommendation

Our forecasts capture the potential impact of these acquisitions (see page 4 in attachment) and our blended valuation improves from $0.033 to $0.038 (see page 2 in attachment).  The acquisitions are strongly earnings accretive on our numbers, demonstrating the value in the roll-up model if executed well.  With upside potential from further acquisitions not factored into our forecasts or valuation, our speculative buy call is maintained.


Important Disclosures

Argonaut acted as the Lead Manager to the Public Offer to raise $5.5M in July 2015 and received fees commensurate with this service.  Argonaut acted as the Joint Lead Manager to the Public Offer to raise $3.0 in February 2016 and will receive fees commensurate with this service.  Argonaut acts as Corporate Adviser to TPS and receives fees commensurate with this service.  Argonaut currently owns and/or controls 20M TPS options exercisable at $0.025 on or before 1 September 2018.