Stargroup MOU paves the way for sharp uptick in revenue
Stargroup (ASX:STL) announced on Thursday morning that it had signed an exclusive Memorandum of Understanding (MOU) with Indue Limited to purchase various assets relating to a national ATM switching, settlement, processing, telecommunications and ATM reseller business.
The MOUs will enable Stargroup and Indue to undertake due diligence and negotiate to enter into binding asset sale agreements and other contractual documentation in relation to the transaction.
This is an important development for STL, Australia’s only listed ATM company, having a direct ownership interest in the manufacture of its ATM technologies, namely NeolCP, a South Korean private company. STL is also the only ASX listed company deploying ATM machines in Australia.
Highlighting the diversified income streams that the company generates, via its wholly-owned subsidiaries, StarPOS and StarApps, STL is also an EFTPOS and payWave technologies provider and developer of the source code in its terminals via its five-year distribution agreement with West International AB, a Swedish NASDAQ listed company, to distribute next generation EFTPOS payment terminals and solutions in Australia and New Zealand.
Having this infrastructure in place and established relationships across the industry, the MOU carries significant upside. Upon completion of the MOU, Stargroup will provide ATM switching services for 70 ATM deployers, 1700 ATMs and 1350 modems, processing approximately 12 million transactions per annum.
The consideration of $6.5 million will be paid in cash and the acquisition will be fully funded by debt. The latter is important for the company as it will not result in earnings per share dilution.
Management is forecasting that this transaction will generate annualised revenues of $4.1 million and EBITDA of $1.7 million.
It should be noted that earnings projections may not be met. Consequently, professional financial advice should be sought if considering an investment in this stock.
To put this in perspective, it represents an immediate increase of more than 50% at the revenue line with management expecting organic growth to result in income increasing from $11.6 million in fiscal $2016 to $15 million in fiscal 2017.