Shares in Low-cost mobile and broadband internet retailer Amaysim Australia Ltd (ASX: AYS) rose 4% to $1.92 this morning, after the company announced the $120 million acquisition of online energy retailer Click Energy Group.
The transaction is expected to complete by June 2017 and deliver a 20% increase in 2018 Earnings Per Share for Amaysim.
Here's what you need to know:
- Will cost $120 million with $80 million in cash from a bank debt facility, and $40 million in Amaysim shares at $1.79 apiece
- Priced at ~10x Click's underlying Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)
- Improves ability to cross-sell utility services (energy, broadband, mobile) to customers
- Amaysim still expects to pay dividends this year
- Amaysim net debt expected to be equivalent to 1.3x EBITDA after acquisition
- 22 million shares to be issued which will dilute existing holders by around 11%
So What?
As the electricity energy goes digital, the ability for companies to compete and cross-sell is only increasing. Amaysim appears to be hoping that it can convince customers to switch to its mobile, broadband, and now electricity offerings, with the hopes of being a one-stop shop for customers.
Amaysim hopes to use the societal switch to the NBN as a catalyst to (hopefully) encourage customers to also switch their electricity and power bills to Amaysim. In that sense today's acquisition makes sense, and online retailer Click does appear a natural fit to Amaysim.
Now What?
The risks revolve around the maintenance of profit margins. Amaysim and Click's business models generate a lot of revenue, but profit margins are necessarily thin and vulnerable to negotiations with suppliers (energy and phone companies) as well as other disruptions. Due to the low cost of providing services digitally, profits should be fairly scalable if Amaysim can keep growing customer numbers profitably. There is also a risk in the size of the acquisition, which is about 1/3rd of Amaysim's market capitalisation. Should Click underperform, due to the new shares on issue it will likely have a woeful result for Amaysim earnings per share.
While today's purchase makes sense, I recommend would-be buyers investigate Amaysim's sources of revenue growth and the sustainability of its profit margins, both of which are key to the business' future.
