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Broker research tips Stargroup to double

Research house and corporate advisory firm Pac Partners have tipped Stargroup shares to reach 8.1c in the next 12 months, more than double their current price of 3.8c per share.

Pac Partners have undertaken an analysis of the company’s predicted forward earnings after tax and discounted them back to get a net present value of $33.4m worth of free cash likely to be generated by Stargroup.

They have used an ultra-conservative and very hefty discount rate or weighted average cost of capital of 14.79% to do the net present value calculation and admit that just a 1% reduction in the discount rate down to 13.79% would see the price target set at 9.4c instead of 8.1c.

Pac Partners valuation is based on the forward free cash net present value figure of $33.4m being added to the current cash at bank figure of $510k to get a total present value of $33.9m.

When the $33.9m is dispersed across a share capital of 415.68m shares, Pac say the company is more realistically valued at 8.1c per share instead of the current 3.8c a share that it is trading at now.

Pac are predicting an EBITDA for the company of $3.08m for the 2017 financial year with exceptional growth year on year to $18.09m worth of EBITDA for the financial year 2023.

The 7 year forward prediction by Pac for Stargroup’s free cash flow after tax, interest and $25m worth of capital spending is nearly $36m over the period before accounting for the time value of money.

Stargroup has enjoyed 9 record revenue quarters in a row and has been on an aggressive value accretive acquisition trail for the last 12 months that will see them become cash flow positive for the first time next financial year.

Pac believe the “blue sky” opportunity for Stargroup is both their unique recycler ATM machine and the wholesale deal they have done to enable them to resell EFTPOS at a competitive rate.

More than 70% of debit card transactions in Australia are now done through Eftpos with Star predicting that they can add anywhere from $300 to $10 000 a year to their revenue per EFTPOS terminal depending on the size of the customer.

The number of EFTPOS terminals in Australia increased by 13.34% in 2015 to 956, 167 units.

Stargroup’s unique “recycler” ATM machine creates almost a perfect fee generating money loop with some customers withdrawing money from it and others banking money into it.

Recycler ATM’s according to the white paper released by Wincor Nixdorf in 2015 can reduce the operating costs of an ATM machine by up to 17%.

Pac say that Stargroup’s market cap of around $16.6m should be twice as much based on an evaluation of their forward cash flow predictions which would take them to around $33m.

Interestingly Stargroup CEO and Executive Chairman Todd Zani’s previous ATM play, EzyATM reached a market cap of $34m under his stewardship so this isn’t his first rodeo.

Pac are basing their analysis on Stargroup rolling out 313 ATM machines by the end of FY16, an increase of around 63 machines from their reported 3rd quarter numbers.

Pac Partners say that on the available evidence, Stargroup will be able to achieve their stated goals of 1000 ATM machines and 3000 EFTPOS terminals on the street by FY19. 

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Stargroup (STL)

Share Price

Closing price for the last 90 trading days
Source: Morningstar

Total Shareholder Return as at 29/06/18

1 year TSR5 year TSR
4thAdvance NanoTek1986%102%
302ndGoldfields Money27%5%
496thWestStar Industrial-4%-54%
505thStargroup-6%-11%
767thCarnegie Clean Energy-61%-6%
722 WA (and selected non WA) listed companies ranked by 1 year TSR relative to other companies with similar revenue
Source: Morningstar

Share Transactions

09/08/17
$12k Bought
27/06/17
$0 Other
27/06/17
$35k Bought
Total value as at the date of the transaction
Source: Morningstar

Revenue

87th↑Stargroup$563k
96th↑Carnegie Clean Energy$5.3m
97th↓Advance NanoTek$5.1m
100th↑WestStar Industrial$4.6m
101st↓Goldfields Money$4.2m
239 listed industrial companies ranked by revenue.
Source: Morningstar

Remuneration from Stargroup

1366thJay Kim$29k
Ranked by total remuneration from all listed WA companies

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