The acquisitions are on a forward multiple. I think AFJ is trying to be conservative whereas I don't think too many people actually believe GEM is really buying on 4x.
There is little doubt that GEM is a superior company, but AFJ is significantly cheaper.
AFJ is priced for significant disappointment whereas GEM is priced for continued strong execution and 50+ acquisitions pa (BTW - GEM is targeting 80-100 acquisitions pa and at 17x forward PE is hardly expensive given its growth profile, so there is a good chance GEM continues to appreciate).
So if AFJ doesn't completely stuff up then there is likely significant upside - 100%+.
I think the other key issue with AFJ is that they made such a large acquisition shortly after listing and funded it via a large rights issue (sucking out a lot of future stock demand). It is taking time to integrate this acquisition along with the initial roll up.
AFJ would have been much better to do several smaller acquisitions funded via debt and equity. This would have made it easier to integrate the acquisitions, they would have been more EPS accretive and provided more consistent newsflow.
AFJ likely has significantly more upside than GEM if it can execute, but it is likely higher risk and a lower quality business.
Hopefully the market will get more clarity at the result announcement towards the end of August.
AFJ Price at posting:
$1.21 Sentiment: Buy Disclosure: Held
