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Stargroup Ltd Looks To Continue Revenue Growth In FY2017

Stargroup Ltd (ASX:STL) has significant revenue growth planned for FY2017 and beyond, with a number of catalysts expected over the next 6-12 months.

Stargroup recently acquired CashmyATM, boosting its automatic teller machine (ATM) network by 97 machines to a total of 365 machines.

The share price valuation calculated using net assets post acquisition is estimated to be $0.057, some 60% higher than the current share price.

The company is looking to become an independent service operator (ISO) in the Australian market.

Stargroup is currently outperforming the largest ISO in Australia, Directcash Payments Inc (TSE:DCI) by 22% with regard to transactions per ATM machine, per month.

During the past 12 months, three value accretive acquisitions were made.

Background

Stargroup is a technology company that owns an ATM network in Australia and provides EFTPOS and payWave technologies.

Stargroup has a 11% interest in NeoICP Korea Inc, the manufacturer of cashPod ATMs, back office and casino settlement solutions.

Stargroup offers two key products - ATMs and EFTPOS terminals.

ATMs

Stargroup recently increased their ATM network by 97 machines to a total of 365 machines through the acquisition of CashmyATM.

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 is currently raising 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.

EFTPOS terminals

Stargroup is diversifying its business by leveraging itself to the rapidly growing EFTPOS terminal market in Australia.

The company made its first EFTPOS terminal sale and installation last year.

During November, a collaborative project and development agreement was signed with Anthem Software Pty Ltd and Claim Co Pty Ltd to jointly develop intellectual property on the EFTPOS terminal for one of their major customers, a 16,500 automotive industry member group.

Development is expected to finish in Q3 2016 with a proposed rollout in Q4 2016.

Valuation

Stargroup shares have been ascribed an estimated post-acquisition and rights issue valuation of $0.057 per share based on the following:

Cash and cash equivalents: $1 million
Tax assets: $7.8 million
Value of future earnings using 5x FY17 EBITDA multiple: $21.5 million
Value of ATM inventory: $0.6 million
NeoICP investment value: $3 million
Debt: nil

This equals total net assets of $33.9 million which produces a share valuation based on net assets of $0.057 assuming there will be 591 million shares on issue post the CashMyATM acquisition completion.

Future plan

Stargroup growth will be driven by:

- Further organic growth in quality ATM sites through disciplined site selection;
- Further penetration of the EFTPOS ISO market by leveraging wholesale rates;
- Rolling out new technology products such as our Recycler ATM that allows users to both withdraw and deposit money;
- Rolling out the Stargroup debit and credit card; and
- Further sales of NeoICP ATMs and software in Australia.

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