Thank you for writing this up. Very interesting. I need to dig deeper....
Some observations& questions:
-The PEG-like valuation ratio assumes 20% growth of OCF. Looking at the numbers, the 2023 revenue, and EBIT are similar to pre-pandemic. OCF was notably higher this year due to WC and due to higher net income. Not sure WC can be relied on, net income should be higher than 2019 because they are now debt free, but this shouldn't grow unless revenue / EBIT grows going forward. In short: I am unsure if 20% growth going forward can be assumed. Do you have some insights on what drives the assumed growth?
-~160 of the 200m PLN of equity are from goodwill (I understand the grow via M&A, just an observation)
-CAPEX is quite low, so should be good for ROIC (if this doesn't hit competitiveness at one point)
-margins seem to be stable enough for me.
Thanks again for the write-up, and also in advance for any comments you might share :)
So, 20% growth assumption is aggressive, and it's predicated on a few strategic levers that Sygnity is expected to pull . The acceleration of M&A activities is a significant driver, which has been planned since 2019. The ability to increase leverage to finance these acquisitions could play a key role in realizing this growth target.
On the operational front, Sygnity's shift to pass on inflation-driven cost increases to customers is a move likely to contribute substantially to growth. This is evidenced by their recent government contract renewals, where they've secured price increases of 73%, 52%, and 21% respectively. This itself was almost a $4 million usd increase.
Goodwill does warrant close monitoring. As for the ROIC, this is low capex so roic should be high as you said.
Thank you for writing this up. Very interesting. I need to dig deeper....
Some observations& questions:
-The PEG-like valuation ratio assumes 20% growth of OCF. Looking at the numbers, the 2023 revenue, and EBIT are similar to pre-pandemic. OCF was notably higher this year due to WC and due to higher net income. Not sure WC can be relied on, net income should be higher than 2019 because they are now debt free, but this shouldn't grow unless revenue / EBIT grows going forward. In short: I am unsure if 20% growth going forward can be assumed. Do you have some insights on what drives the assumed growth?
-~160 of the 200m PLN of equity are from goodwill (I understand the grow via M&A, just an observation)
-CAPEX is quite low, so should be good for ROIC (if this doesn't hit competitiveness at one point)
-margins seem to be stable enough for me.
Thanks again for the write-up, and also in advance for any comments you might share :)
Hey!
Thank you for the comment,
So, 20% growth assumption is aggressive, and it's predicated on a few strategic levers that Sygnity is expected to pull . The acceleration of M&A activities is a significant driver, which has been planned since 2019. The ability to increase leverage to finance these acquisitions could play a key role in realizing this growth target.
On the operational front, Sygnity's shift to pass on inflation-driven cost increases to customers is a move likely to contribute substantially to growth. This is evidenced by their recent government contract renewals, where they've secured price increases of 73%, 52%, and 21% respectively. This itself was almost a $4 million usd increase.
Goodwill does warrant close monitoring. As for the ROIC, this is low capex so roic should be high as you said.
Thank you for getting back. Yes OK, I see where you are coming from. I will need to dig more into the growth drivers you mention.
Happy Sunday