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Why all investors’ eyes are on iSentia Group Ltd

iSentia Group Ltd (ASX: ISD) on Friday last week announced that it had completed its acquisition of Social Net Creator Ltd, a media intelligence company based in South Korea. Alongside this was a ‘bolt-on’ acquisition in Thailand, and the imminent completion of a further two acquisitions in Vietnam and Hong Kong respectively.

iSentia Group is a media intelligence company that operates across Australia, New Zealand and Asia. Its principal types of revenue include Software-as-a-Service (‘SaaS’) platforms (its Mediaportal), Value Added Services (social media insights and monitoring), and Content Marketing, where the group develops comprehensive marketing strategies that empower brands to communicate more effectively with target audiences.

These purchases are completely consistent with the company’s previously announced strategy of undertaking strategic acquisitions and alliances to enter new Asian markets, so shareholders have nothing to fear in that regard, especially given the acquisitions are immediately earnings-per-share accretive.

The announcement was brief, but it did signify to the market that the South Korean acquisition brought with it a strong client base and an experienced management team, and that the four additional businesses are expected to contribute a 15% increase to iSentia’s annual Asian revenue.

This implies that Asian revenue will now comprise almost 22% of total group revenue and its clear that management sees a lot of opportunity in the ‘dynamic and high-growth’ markets of SE Asia.

In the company’s 2015-16 first-half profit announcement on 23 February 2016, its Asian investments have provided 22% year-on-year revenue growth and an uptick in EBITDA margins from 21% to 23%. Any enhancements to the existing Asian portfolio should therefore support continued growth and margin expansion.

It’s clear though that the market was not exactly pleased with only a slight increase in SaaS revenue of 4% (2% in Australia/New Zealand) and net profit growth of 5%. iSentia’s stock price was steadily falling prior to February’s profit announcement after it had peaked at $4.95 in December last year, but since the profit announcement in February the stock has been hammered falling from about $4.40 to a low of $3.29 in early April.

At a Friday closing price of $3.88, is iSentia’s stock a buy today?

It will be interesting to see if SaaS revenue can accelerate, but the recent acquisitions give me great comfort as an existing shareholder. With earnings and dividends forecast to be 35% and 16% higher respectively to the end of the 2016-17 financial year, the stock still appears to be reasonable value in the short-term.

In the longer-term – five years plus – this is a high-quality business that should provide satisfactory returns to the patient shareholder as the company’s Asian strategy unfolds.

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Motley Fool contributor Edward Vesely owns shares in iSentia Group Ltd.

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