FY19 FCF is not going to be material in the context of ISD’s deleveraging process. But, subject to the Company’s ability to stabilise Revenue around current levels, a substantial FCF increase should materialise in FY20, thanks to:
1) The disappearance of contingent payments for previous acquisitions and restructuring costs.
2) The realisation of cost savings.
3) A possible reduction in copyright costs.
So, while FY19 FCF is unlikely to exceed 6-7m$ (according to current EBITDA guidance), I do expect the cumulative FCF between now and the end of FY20 to be in the range of 18m$-25m$.
This is without assuming any revenue growth, therefore even the high end of the range looks like a definite possibility to me, which is clearly not what the market is pricing in at the moment.
And, if ISD do roughly halve their Net Debt accordingly by FY20, and resume generating Free Cash Flow in that sort of range, I struggle to see how their Market Cap won’t be a multiple of what it currently is, even if the business is ex-growth.
Just my two cents.
ISD Price at posting:
23.5¢ Sentiment: Buy Disclosure: Held
