Tag Archives: metrofile

Metrofile Holdings Ltd – Acquisition of Irontree Internet Services

Share Code: MFL – Market Cap: R1.3bn – PE: 10.0x – DY: 3.8%

News: Acquisition of Irontree Internet Services CC

  • Metrofile has conditionally acquired Irontree Internet Services for a minimum of R80m & a maximum of R140m in cash:
    • 70%-stake for an upfront cash payment of c.R49m & a top-up payment of up to R12.3m if Irontree hits EBITDA of R18.7m for its FY 22E (February) financial year (likely), &
    • 30% to be acquired at a price based on a FY 24E revenue target of R100m (i.e. allowing integration of the business in the Group) but limited to the maximum (total) acquisition price of R140m.
  • Depending on how you view Irontree’s min/max purchase price:
    • It is on an FY 22E EV/EBITDA of c.4.3x ~ 7.5x,
    • An FY 22E Price Earnings of c.6.7x ~ 11.7x, &
    • Appears attractive against our implied DCF of the business.

Our Thoughts: Good Start on Digital Strategy

  • Irontree is highly cash generative with c.15,000 SME customers & earns c.90% of its revenue from digital backup & hosting services (i.e. recurring revenue) with c.10% of its revenue from digital, security & compliance services.
  • The business has grown revenue by c.+15% y/y CAGR over the last 5 years &, assuming this remains unchanged, the Group’s FY 24E revenue could be c.R69m (i.e. missing the R100m). Therefore, the R100m revenue target implies confidence that Irontree’s addition to Metrofile’s group will raise its growth rate (i.e. synergies).
  • This is a good first step in Metrofile’s Digital Strategy with a well-thought-out, reasonably-priced & comfortably-sized acquisition that should fit neatly into the Group and bolster both the Group and the acquired business’s growth rates (assumptions in note body).

Forecast, Valuation and Implied Return: Updated

  • Irontree lifts Metrofile’s FY 22E & FY 23E HEPS to 35.6cps (previously 35.1cps) and 40.2cps (previously 39.5cps) and adds c.+6% to our fair value of 428cps (previously 405cps).
  • Rolling this fair value forward, we lift our 12m TP to 497cps (previously 468cps) implying a 57% return from these levels.