Why are you projecting 35% revenue growth for this year? The Cipal acquisition is expected to contribute around 10% revenue growth. Additionally, you’re guiding for 5–6% organic growth. That still leaves roughly 20% of the growth unaccounted for — which would imply €200–300 million in M&A activity is needed to reach the 35% target. Could you clarify how you plan to bridge that gap? My projection was 25-30% for this year.
They've had a revenue CAGR of 22% from FY14-FY24, so in a year where you're going to have record numbers when it comes to capital deployed we don't think 35% is absurd. Refer to the 2021 MD&A where revenue growth was 50% and compare that to the capital deployed in relation to revenue.
Our model assumes a 100% re-investment rate at 25% ROIC and implied P/S multiples paid of 1 for 2025/2026. The revenue growth is basically in line with them deploying all their cash at price to sales multiples of 1 and this kicks up to 1.5 beginning in 2027.
Thanks for the detailed write up. It seems to achieve your projections they will have to keep making larger purchases which they don't have a history of and potentially the recent ones might be more like outliers than the norm. Do you have concerns that cash deployment and acquisition will revert to the norm?
Love the write-up. Could you provide more colour on how Asseco will be consolidated in the forward years. Since they have a 35% ownership control, i assume they won't be consolidated and reflected in revenue or FCFA2S. How should we incorporate this stake in the valuation?
Hi Robin, thanks for your question and glad you enjoyed the memo. From our understanding, you are correct, without over 50% ownership they will not consolidate and this will be treated using the equity method of accounting whereby they will record the initial cost on the balance sheet (~€425MM book value), then they will adjust the book value according to their share of the investee's reported profits or losses and report their proportional share of the net income in the income statement and other comprehensive income.
For now, I added back their equity investments to the enterprise value to get an equity value per share after deducting off the net debt for my analysis. I think for now it makes a lot of sense to ignore it though, and then readjust our models after seeing how the presentation looks in the financials.
Hi Salt - thanks for reading the memo and your question. In the near to medium term, I actually don’t think they need larger acquisitions. They of course need to deploy most of their FCF, but if you refer back to the Tegus transcript screenshot in the memo, you’ll see TSS was actually deploying capital at the fastest rate within the entire company. I think it’s important to understand that M&A can be lumpy, and the recent large amount of capital deployed seems to be normalizing the last few years when it’s been low. Overall, I’m not concerned
but with all serial acquirers it’s a metric to keep tabs on of course.
Why are you projecting 35% revenue growth for this year? The Cipal acquisition is expected to contribute around 10% revenue growth. Additionally, you’re guiding for 5–6% organic growth. That still leaves roughly 20% of the growth unaccounted for — which would imply €200–300 million in M&A activity is needed to reach the 35% target. Could you clarify how you plan to bridge that gap? My projection was 25-30% for this year.
They've had a revenue CAGR of 22% from FY14-FY24, so in a year where you're going to have record numbers when it comes to capital deployed we don't think 35% is absurd. Refer to the 2021 MD&A where revenue growth was 50% and compare that to the capital deployed in relation to revenue.
Our model assumes a 100% re-investment rate at 25% ROIC and implied P/S multiples paid of 1 for 2025/2026. The revenue growth is basically in line with them deploying all their cash at price to sales multiples of 1 and this kicks up to 1.5 beginning in 2027.
It's def possible. But the 400m to Asseco is already a lot of capital that is deployed which is not consolidated in the financials.
The 50% revenue growth in 2021 was due to the acquisition of the Topicus operating group
Thanks for the detailed write up. It seems to achieve your projections they will have to keep making larger purchases which they don't have a history of and potentially the recent ones might be more like outliers than the norm. Do you have concerns that cash deployment and acquisition will revert to the norm?
Love the write-up. Could you provide more colour on how Asseco will be consolidated in the forward years. Since they have a 35% ownership control, i assume they won't be consolidated and reflected in revenue or FCFA2S. How should we incorporate this stake in the valuation?
Hi Robin, thanks for your question and glad you enjoyed the memo. From our understanding, you are correct, without over 50% ownership they will not consolidate and this will be treated using the equity method of accounting whereby they will record the initial cost on the balance sheet (~€425MM book value), then they will adjust the book value according to their share of the investee's reported profits or losses and report their proportional share of the net income in the income statement and other comprehensive income.
For now, I added back their equity investments to the enterprise value to get an equity value per share after deducting off the net debt for my analysis. I think for now it makes a lot of sense to ignore it though, and then readjust our models after seeing how the presentation looks in the financials.
Let’s see in 2 weeks how they will report this exactly! I sumbit a question for the AGM on how we should look at and value this big investment
Hi Salt - thanks for reading the memo and your question. In the near to medium term, I actually don’t think they need larger acquisitions. They of course need to deploy most of their FCF, but if you refer back to the Tegus transcript screenshot in the memo, you’ll see TSS was actually deploying capital at the fastest rate within the entire company. I think it’s important to understand that M&A can be lumpy, and the recent large amount of capital deployed seems to be normalizing the last few years when it’s been low. Overall, I’m not concerned
but with all serial acquirers it’s a metric to keep tabs on of course.