Small Caps | Dec 02 2013
-Acquisition immediately accretive
-Plenty of upside seen
By Eva Brocklehurst
UXC ((UXC)) has been hot on the acquisition trail again. The company has acquired Keystone Management Solutions, Australia's largest re-seller and service provider for ServiceNow, an IT cloud business formed in 2003 and based in the US. UXC is positioning for immediate scale in this business segment and management expects the acquisition to be accretive to earnings from the outset. The acquisition comes with access to more than 120 customers in the corporate and government sectors. ServiceNow has a growth rate of 70% per annum, one of the fastest for cloud-based organisations globally.
Credit Suisse and Moelis both like the acquisition and UXC's active pursuit of enhanced product offering as well as strengthening relationships with major software vendors. Credit Suisse expects the acquisition will enable UXC to benefit from a structural shift that will underpin cloud-based software and strengthen the quality of the earnings stream through annuity-style income This is before any cyclical recovery in the IT market. UXC is considered on top of its game and this adds up to an Outperform rating for Credit Suisse and a $1.20 price target.
Moelis considers UXC to be a superior business in the IT segment. The acquisition price of $24-28m, depending on earn-outs up to the end of FY15, is to be paid by a 80:20 mix of cash and scrip. There are minimal integration costs and the business generates higher margins than UXC's existing operations. Admittedly, UXC is cycling a large one-off contract payment of $40m from the Gold Coast University project in FY13, but FY14 is expected to reveal more contract success. Moelis also notes that business sentiment is improving, with more confidence about the growth rate in the second half when "pent up demand" is expected to generate increased sales. Moelis has a $1.25 target price and a Buy rating.
UXC is the largest, Australian-owned ICT company, partnering with Alcatel-Lucent, Microsoft, Oracle, Cisco and SAP, to name a few. It was formed via a merger in 2002 and is engaged in the provision of business and IT services, voice and data services and applications, infrastructure support and utility asset and data management.
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