Ebix Inc. (NASDAQ:EBIX) has recently sold off and now presents an interesting opportunity for a value investor. The firm has a P/E of 10.56 and Forward P/E of 8.55. The market seems to be overlooking the positive trajectory of the company. Revenue has grown from $124.6 million last year in Q2 to $144.3 million this year. There are also a number of catalysts that we believe will lead to the share price moving up 40% in the next year. These catalysts include growth in the emerging Indian market, a range of organic growth opportunities and strategic acquisitions that will grow revenue.
EBIX has seen explosive growth in the last 12 months in India. This is a huge opportunity for EBIX as India is one of the fastest growing emerging economies in the world. EBIX has set its intentions on investing in the area for the next 3 years. This is a positive for earnings moving forward and should help lead the share price higher. Indian-led ventures grew 43% year on year, with most of this growth happening in the fast-growing EbixCash financial exchange business. EBIX grew EbixCash by 58% over the last year, which is very impressive growth. EbixCash is also planning to IPO soon. This is a positive catalyst for EBIX's share price, as the company will be more fairly valued.
There is an opportunity in the insurance sector, with India recently approving 100% foreign investment in the distribution sector in India. EBIX also signed the first bus exchange in the State of Rajasthan, which brings a recurring revenue source across 5800 buses in the state. Every bus ticket that is sold in any of these buses brings EBIX transaction fee revenue. This project generated $1.5 million in Q2 2019 alone. It is opportunities like this that highlight the impressive opportunity that India presents.
EBIX has a number of growth opportunities moving forward. The firm has an evolved logistics plan that it believes once fully executed will bring in $0.4-$0.75 of EPS accretion to non-GAAP EPS. This is positive for earnings moving forward.
There is another earnings opportunity being presented with the signing of the Dubai Airport contract with EbixCash. This is not generating revenue at the moment though as UAE has strict regulations. There is a requirement for foreign companies to seek Central Bank approval. Once this approval is given though, EbixCash will go live, adding an important new revenue line to the foreign exchange business.
There has been impressive growth in other international markets outside of India. There was 30% growth in the Brazilian market, while there has been growth of 20% in Singapore.
The trucking logistics division, Routier, is an area of focus moving forward in the aim for revenue growth. The division generated no revenue in Q2 2018, but is projected to bring in $2.5 million in revenue in Q2 2019. In the year-end 2019, there is a target of $5 million in quarterly revenue, which would add $20 million yearly to revenue.
A recent announcement was made with the travel exchange deal made with the airline segment over a 5-year period. EbixCash received $25 million in advance from international travel exchanges, with an aim to generate $15–20 million yearly in revenue from the agreement. This is another important revenue generator that is a positive catalyst for earnings and the share price moving forward.
The Financial technologies division, technologies for travel, insurance, finance and other technologies grew 118% year on year. The travel division also grew 125%, with the trucking logistics area growing organically from 0 to $3.5 million in a year. We can expect earnings growth in the next few quarters also from new large insurance-related contracts in the US and EbixCash contracts in international markets. This is another catalyst for the share price.
EBIX has a pipeline of organic growth that it feels it can achieve in other areas. This is an extract from the recent earnings transcript:
‘’We are currently deep into negotiating contracts in all phases of our business in the area Forex, payments, travel, bus exchange, lending and wealth management technologies, travel technologies, trucking logistics area and of course many deals in the bus exchange arena. All of these are organic areas of growth for us and we feel that we have well situated with momentum on our site.’’
EBIX continues to grow by making strategic acquisitions. These are a positive for earnings growth and will lead to a higher share price moving forward. Zillious was acquired in the travel technologies segment, with a run rate of around $1.7 million a year. Mercury and Leisure travel, in the travel sector, with $6 million a year in revenue. This has been a successful acquisition now bringing in $9 million in just the last 6 months alone.
In the future, there are two potential acquisitions – Yatra and Trimix. The Yatra acquisition has a lot of potential synergies and has the potential to turn EbixCash into the most profitable travel services company in India, alongside foreign exchange. It goes without saying this would generate a lot of growth for EBIX and will be a catalyst for the share price moving forward. Trimix is a leading bus exchange company, with an impressive 35% margins, generating revenue of $25-$30 million a year. This is another positive for EBIX moving forward. There are other potential deals in the US and other global regions. As they are announced, the share price should more accurately reflect its fair value.
EBIX is currently trading at a very low P/E ratio, that makes it a good stock for a value investor. The low P/E has presented itself, as the company has sold off from a high in 2019 of around $64 to $41.65. The EPS estimate for the year-end 2019 is 3.94, which leads to a P/E of 10.56. This falls down to an 8.55 P/E when you look at the EPS for 2020 of 4.87. In contrast, EBIX has on average traded at a P/E of around 14. If we assign a conservative estimate of 12 P/E to the forward multiple, we get an upside of 40% from the current price level. This would see the company trading near its high for 2019 at $58.3, which we feel more accurately values the company fairly.
We believe the market has an overly bearish outlook on EBIX. We are very bullish at current levels and have a strong buy rating, as we see a 40% upside in the next 12 months. We believe that the company will trade where it was earlier in 2019 at $58. India presents a great opportunity for the firm moving forward, with EBIX making the 3-year commitment to invest there. There are a number of positive developments that will lead to growth. The opportunity for new acquisitions also has the potential to lead to higher revenues and earnings. It’s hard to find a company trading at a P/E multiple like EBIX at the moment and we therefore see it as a company you should look at.
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