I’ve partially ignored the blue sky opportunity of rolling out...

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Just_a_guy

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19/01/20

18:35

Post #: 42460423
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Originally posted by Just_a_guy: ↑

I don’t disagree with anything you’ve said. Feels a bit like an rto.

one way of looking at the situation is from Macquarie’s perspective. They shelled out almost 80 mil for a 50% stake in EMS 2 years ago (valuing the business at 160mil). Subsequent to that they’ve turned it from loss making, to profitable and grown revenues by about 15% so one could assume the business is now at a higher valuation.

But they’ve decided to sell out for about 35mil and take an ~8-14% stake in Evs (20-30mil). So either their valuation initially was way off or they see the value of their equity increasing substantially in the new listed form.

enviro tech is about the best sector one could imagine at the moment and with a sales/ev of less than 3, Evs has massive upside.

having said that, execution risk trying to join these two companies with different management and different software is not insignificant. While I have high respect for peter white, this is a new challenge.

if we try to probability weight the outcome in 3 years:

hit the target - 100mil rev; ebitda of 17.5mil growing at 15-20% pa.
valuation would probably be 800mil I reckon, but having joined the all ords, asx300 asx tech index etc, I think it could easily be higher. (Chance 30%; share price 80c)

reach half expectations - rev 80mil, growing at 5-10%pa. valuation would certainly be higher than 150mil ev maybe 300mil. (chance 30%: share price 40c)

flat line due to issues with integrations rev 55mil no growth, which might result in reduced spending (10% chance share price 20cps)

struggle with integration, increase spending, 50% dilution, growth at ~5%pa (30% chance share price 10cps).

so probability weighted back of envelope gets a probability weighted valuation of 41cps.

obviously those variables/chances can be easily amended but that’s my thoughts.

I think this transaction has significantly derisked Evs despite the execution risk. This is a real business now, not some hypothetical concept.

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I’ve partially ignored the blue sky opportunity of rolling out Evs to waste water and air measurements in China and ems to Chinese airports etc. clearly this will be required to reach 100mil in 3 years, but there’s plenty more upside than an extra 40-45mil over in China...

EVS Price at posting: 22.0¢ Sentiment: Buy Disclosure: Held
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