Small Caps | Sep 01 2011
– BigAir result showed strong growth
– Microequities expects further gains from acquisitions and margin improvement
– Reiterates Strong Buy rating, lifts price target
By Chris Shaw
Having guided to full year EBITDA (earnings before interest, tax, depreciation and amortisation) of $5.2 million, the $5.4 million result achieved by junior IT play BigAir Group ((BGL)) was very well regarded by asset manager Microequities.
The result was an increase of 69% relative to FY10 EBITDA and was achieved on a 105% increase in revenue to $15.5 million. In the view of Microequities the increase was driven by recent acquisitions and solid organic revenue growth.
This trend is expected to continue, as Microequities is forecasting revenue growth in FY12 of 55% to $24.1 million and a further 94% jump in EBITDA to $10.5 million. This should translate to a 233% increase in net profit to $5.1 million. The increase will be helped by a full year contribution from the recent acquisitions of Clever and Access Plus.
What will also help earnings growth is additional operating cost savings, Microequities noting of $2.1 million in total annual operating cost savings, only $1.1 million has to date been extracted.
Factoring in lower costs should assist growth in margins for BigAir, Microequities taking the view guidance of 40% EBITDA margin for FY12 is conservative and could well come in as high as 44%. The long-term target of management is for an EBITDA margin of 50%.
Factoring all this in, Microequities has lifted net profit forecasts for BigAir to $5.1 million in FY12 from $4.97 million previously. Net profit is forecast to grow to $6.94 million in FY13, which supports an increase in price target by Microequities to $0.44 from $0.30 previously.
Given its revised price target stands at a premium of around 70% to the last sale price of BigAir, Microequities retains a Strong Buy rating on the stock. Valuation supports the call, as Microequities notes at current levels BigAir is trading on a FY12 EV (enterprise value)/EBITDA multiple of just 3.4 times.
This is seen as very low given the earnings growth outlook and reinforces the view of Microequities the market is currently underpricing BigAir.
Given a market capitalisation of less than $40 million there is little other coverage of BigAir on the market. The FNArena database shows none of the eight brokers in the database provide research on the company.
Shares in BigAir today are little changed, trading down 0.5c at $0.275 as at 1.00pm. Over the past year the trading range has been $0.16 to $0.345.
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