Stargroup Ltd's Acquisition To Drive Revenue Growth In FY17

Jun. 04, 2016 12:39 AM ET
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Stargroup Ltd (ASX:STL) will acquire CashmyATM, which will boost their automatic teller machine (ATM) network by 97 machines to a total of 365 machines.

Annualised revenue for the expanded ATM network is projected to increase to $11.4 million in FY17 from $9.3 million.

Stargroup will pay $4.54 million in consideration, which comprises cash and shares. The shares are priced at a 25% premium to the current share price, and are escrowed.

Stargroup has completed a $3 million placement and plans to raise an additional $3 million through a rights issue to fund the acquisition.

The acquisition is anticipated to complete in early July, with economic effect from 1 June, 2016.

CashmyATM

The CashmyATM network has 97 ATM machines has been in operation for seven years.

The ATMs to be acquired are deployed in New South Wales, Queensland, Northern Territory, Tasmania and Victoria and together processes 0.8 million transactions annually.

The acquisition of CashMyATM will take the total number of operational Stargroup ATMs to 365 machines processing 2.9 million transactions annually.

On completion of the acquisition, Jason Warren, CEO of CashmyATM, has agreed to join Stargroup as its national business development manager.

Transaction details

Stargroup has agreed to pay $4.54 million with the consideration being paid as follows:

- $100,000 as a non-refundable deposit which was paid on 30 May 2016;
- $454,000 in STL shares on completion at an issue price of $0.05 and escrowed for a 12 month period; and
- $3,996,000 payable in cash on completion.

Jason Warren will also receive 375,000 performance shares for each of the 2016, 2017 and 2018 years.

To assist with the smooth completion of the transaction, former Stargroup director, Zaffer Soemya has agreed to cancel a corresponding number of his performance shares.

Capital raising

To in part fund the completion cash payment, Stargroup has raised $3 million through a private placement of 83,333,333 shares priced at $0.036.

It will also undertake a rights issue to existing Stargroup shareholders on a 1 for 6 basis at $0.036, to raise a further $3 million. The rights issue closes on 23 June, 2016.

Stargroup has already had firm commitments to take up $1.6 million of the rights issue.

Analysis

This is a quality acquisition and fits within the company's strategy to target smaller unlisted ATM deployers for value accretive transactions.

Stargroup has been able to secure advantageous acquisition terms with 10% of the acquisition value being paid in shares both issued at a premium and held in escrow for 12 months.

Completion of the acquisition will see Jason Warren join Stargroup who is an experienced ATM operator and knows how to target ATM locations with fast payback periods.

The acquisition is projected to increase EBITDA in FY17 by circa $860,000.

The company's share price has been in a steady uptrend year to date, trading up 30% to $0.039.

Stargroup has recently attracted broker research from PAC Partners who have a 12 month price target of $0.081.

The company has had 9 consecutive quarters of revenue growth with the recent March quarter recording a record 51% increase on the prior December quarter.

Stargroup is also benefitting from a 19.25% investment in Korean ATM machine supplier and manufacturer NeolCP.

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China.

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