Fund managers, page-1424

A difficult case to study : Intelligent Monitoring Group (ASX code : IMB).

First when I looked at this company, I thought that it was a rather easy case : IMB had just bought the business of ADT in Australia (security company) at a rather low price. The risk was that IMB financed it via a large financial debt. But it was OK for me as it looked a very stable business, mainly depending on recurring revenue (subscriptions from individuals).

The reality is more complicated for at least 2 reasons :
- the financial debt* bears a high interest rate (15 %),
- the company is reaching its target in term of EBITDA, but struggles with 2 main elements : EBITDA conversion into cash flow from operation (H1 24 : EBITDA of 14.2 m$ turned into only 1.4 m$ of cash flow from operation**) and higher Capex than expected.

I still think that it may be an interesting stock at today's valuation (EV/EBITDA around 4.6 x), but I will probably wait to have more evidence about their ability to generate more cash flow and control Capex.

* short maturity : 82.7 m$ for their main debt to mature on 31/7/26.
** larger than expected working capital effect.