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Just mulling timings over - Do you think the timetable for bids / an announcement is alongside the results next week? The Sky report made it sound like discussions had been ongoing for a good few weeks - Marlowe would probably want to tie things in with results announcement, especially now that a leak has occurred?
Seems to be only you and me fighting the corner here! True - I think there is definitely a scenario here where the whole group is in play.
I still think they will look to build GRC for 2-3 more years but I’m sure a price at the top end of that range would work for most shareholders.
Price has settled at £635m market cap or c.£800m EV - so 8x the 24 run rate ebitda. Given tic bolt ons cost 7x,platforms e.g Hydro-X cost 10x, then would expect a deal for a £300m revenue division would go for at least 14x ebitda. So, the market is currently pricing in a low chance of a deal. Alternatively, if a deal gets away at 14x, then Marlowe would unlock 5x worth of tic’s £45m run rate ebitda I.e £225m, thereby raising the EV by c25% to £1bn.
I think a deal will be done - the CEO has a career history of M&A and will have a deep pipeline of GRC deals / look to reposition the business away from TIC.
On this basis, there is significant upside awaiting in the short term and a few days before results is a great time for a new / top up investment.
Does anyone have a different view (or want to challenge my bull case?)
Jp Morgan’s short position (c. 1m shares) is now closed. I’m not 100% clear on the mechanics of closing out a short position but the overall volume on Friday was 1.3m, so my assumption is that their closure was a significant feature of the rise last Friday, as volume yesterday was fairly normal. c2m shares remain on loan
Yes, I agree it is a shame but this potential deal does unlock some value quickly. I have held the shares for years and will wait until 2026 / end date of the new strat targets. Once directors and senior management have been paid out, for me, will be the time to sell. Until that point, I think this should continue to roll well and like you mention re Ideagen, there will always be the possibility of a PE bid in the background….
Interesting news on Friday - a sale would provide the financing to pivot more quickly to the advisory and digital spaces via M&A, avoiding the need for a placing. I sense that this strat review is part of the wider strategy that will form the basis for the next medium term plan, through to when the executive LTIP matures in 2026. Expecting most of the existing targets to have been met when results announced before end of June.
Clearly, if a deal is done for TIC (note the £650m quoted figure includes debt and is based off a multiple that is slightly out of date given the current climate), then the remaining business will be much lower revenue, higher margin, higher growth and should also benefit from a higher multiple. A significant rerate from here would therefore be possible.
All the other points remain: no evidence that shorts have reduced yet (so potential upside if they start to close) and upcoming results should be good (TIC will be shown as a mature division, generating high ROIC - so ideal time to sell).
Pretty high volume today on a flat price - interesting to see tomorrow when the interest is updated if this is shorts closing?
Yes, true. The scenario analysis ran through the upside from cross sell, for example, and just reiterated that absent a one off event, this business should just keep compounding its growth year after year and generate 10% fcf margin and 15% roic (18 months out). The multiple will ebb and flow with the market but if they keep growing organically the share price will gain momentum.
Question for me, and you regularly note this, is that the CEO is clearly a buy and build person and that if the public market doesn’t return to a level where he can execute on this strategy in a material way (I.e. not just bolt ons) then does he look for a sale / PE involvement etc and some point in the medium term? Note that the LTIP pays out in 2026 and c£11 is needed to maximise.
Investec split the business into TIC, Advisory and Software with respective values of £350m, £417m and £171m (total £938m) less net debt £170m and other £25m = £743m (£7.75/share). Multiples are respectively 14x ebit for Tic, 15x advisory and 4x £43m ARR for software. Wacc 10% growth 2.5% in the model - so conservative.
It’s a 44 page detailed note but the theme re the forecasts is very prudent / probably more realistic short term than the house brokers e.g berenberg, where £10+ target has been maintained. Investec are also very clear that the rating is undemanding given the contracted revenues and demonstration of margin progression from integration etc.
Let’s wait for the results but from the time of the last CMD I am looking for a slight beat of the consensus for fy23 and an outlook that run rate org growth is around the 10% mark i.e accelerating further
Yes, the Investec note was an initiation on 8th June. Berenberg issued a reiteration of buy and £11.6 target on 31st May. Apologies i am unable to provide a link to these.
I don’t expect a raise to clear debt at this juncture, as they seem comfortable operating at 2x leverage. Tic bolt ons make sense at 7x multiples but grc / software private valuations are still too high to make sense. Would therefore expect them to keep small tic acquisitions on the table for the near term unless interest rates go materially higher.
Had problems with my login, and just realised i posted as Everestingly, which was some historic name. Should be Geologika but now looks like I have a pseudonym so will revert back on next post!
Hi,
My thoughts are along 3 lines:
The volume has been normal / relatively low and there is no evidence yet of shorts reducing. Would shorts have topped up if they were confident of the share price dropping? I view this as positive - there are c3m shares shorted which could create a nice squeeze if some or all of these are bought back following the hopefully positive results ( due last week of June).
The Investec note was very positive (£7.7 sotp valuation). I liked the scenario were they conservatively see ebitda doubling in 5 years based on the current platforms, and using growth rates lower than current trading. Clearly, if equity is raised at any point in this timeframe then this would be accelerated further.
The divi / share buyback piece. I don’t see them using this but provides an option for the future.
Therefore, the rise is probably a blend of a few things but should put a nice floor under the price before the results.