Lol, might be worth thinking about who paid for that aquisition, and how much. Here's a clue: https://www.eroadglobal.com/global/n...&cat=Investors
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Lol, might be worth thinking about who paid for that aquisition, and how much. Here's a clue: https://www.eroadglobal.com/global/n...&cat=Investors
Correct haewai. The number of shares on issue is 112.628m which multiplied by $1.30 is about $146.5m being the value proposed in the non-binding offer. The acquisition of Coretex alone in 2021 was $150m plus the performance earnout which was ultimately settled for around 60% of the agreed sum. The saving grace, which has kept ERD afloat since, was that $96m of the consideration plus a similar proportion of the earnout was settled by issue of additional share capital at $6 per share. The vendors of Coretex will have literally been wincing when the share price retreated recently to around 60c or just 10% of that issue price. And even at $1.30 now suggested those holders who haven't exited subsequently have horrendous notional losses.
So I expect the ERD Board to be very proactive in seeking some enhancement. And I note one of the preconditions to be satisfied for the offer to proceed is unanimous support of the Directors.
Will be interesting how this plays out.
Well if we're valuing them since their IPO or their peak then yes they have been a massive destruction in shareholder value. The past was a company that was put under pressure to grow faster (they mentioned it when they first listed) and thats basically been their undoing by committing to many resources and building a massive cost structure and signing low margin contracts in order to pursue growth, which their growth did help fuel a high valuation 2 years ago when their share price traded well above $6.
Now they realize in this climate that they need to build towards being cashflow positive and have slowed growth completely in order to lower expenses to the size that matches their revenue and stabilize the business, which would usually be alright, but the problem is being a public company you don't get the luxury to slow down or your share price takes a massive hit.
With their current technology they have signed up some of the world's largest players with a high retention rate, so technology is not their problem. Can they be profitable?
Yes they could be a profitable business quite easily if they sacrificed growth. 23% of their revenue in the last financial year was spent on research and development thats lowered from 28% a year prior. Next financial year they will be cutting to 17%. Also nearly 25% of their recent financials were non-cash expenses. Given their loss in recent financials was $3m on $174.9m revenues, you could say they have a lot of working room if they slow down in growth, which they are doing so in their present financial year.
They have ebitda of $45.2m, the average saas company with margins around 30% on public markets trades at 6.7 times their multiple for enterprise value. ERD would be $302million – debt $83m = $219m, which is $1.94 per share. $1.30 would be cheap in comparison.
Fine. Interesting to note that since inception of this company (and many others) investors made similar calculations which (in the case of ERD) always turned out to be wrong. The problem is, while numbers don't lie ... the assumptions you have to make to calculate future value are always random and rarely right.
So - given ERD's amazingly consistent capabilities to destroy shareholder value, no matter how often you multiply their EBITDA with a random number - what do you think is different this time?
Don't forget - neither EBITDA nor your random number mean anything. The only thing which does matter is future NPAT.
BusinessDesk -
Toronto-listed Constellation Software’s bid for ERoad is a “knock-out offer” that is likely to succeed, Australian broking house Bell Potter reckons.
In a note to clients this morning, analyst Chris Savage said that, at $1.30 a share, the takeover bid is “opportunistic” but gets the “knock-out” rating because it came in at a 69% premium to the 64 cents closing price that applied before the bid was lodged on Thursday.
“We do think the offer is opportunistic given the depressed share price and the relatively low multiples the stock was trading on (e.g. FY24 EV/EBITDA around 3x at previous close) but the c.18% stake secured will likely deter another party from making a counter offer,” Savage said.
Clare Capital track revenue multiples
March chart below
Cloud companies with relatively low gross margins (like ERD) generally in bottom quartile
Posted for info ….saying ERD worth 5 or more times revenues is a bit wishful thinking
Interesting, thanks Winner. That insight is dated 31 March 2023, SaaS companies have had a good recovery since then off a low bottom.
Regardless ERD valuation shouldn't be 5x for a couple of reasons, relatively capital intensive as they own many of the units which take a few years to pay off and slower rate of recent growth. On the plus side they have a high retention rate and a diversified customer list so not as risky either.
Taking the bottom quartile multiple of 3.4x for US companies is probably fair as that is where ERD's future growth is coming from. This multiplier would be higher at today's valuations anyway. Revenue forecast is ~$162m x 3.4x = $550m or $4.87 a share. Even using the bottom quartile for ANZ companies of 1.1x gives a valuation of $178m or $1.58 a share.
IMO opinion Eroad is a better business than Azuga which got bought out for $NZ624m as Eroad have more customers and revenue. Knock a bit off for 2021 exuberance and a takeover price of $4-$5 seems about right.