eServGlobal has reported H116 results in line with its recent trading update and confirmed that it continues to expect to report a small positive EBITDA for FY16. Once approved, the proposed fund-raising and debt restructure should strengthen the company’s balance sheet and provide funds to support the growth of the core business.
eServGlobal has reported H116 results in line with guidance given in its recent trading update: revenues A$8.4m, adjusted EBITDA loss A$6.6m, reported EBITDA loss A$8.8m and net debt A$19.8m. Management has reiterated its outlook for FY16, expecting a small positive EBITDA for the year, and confirmed that the recovery in order flow has continued into the first two months of H216. Other than factoring in the recently issued shares, our forecasts are substantially unchanged.
The company is partway through a fund-raising. It has already issued 31.9m shares at 4p per share under existing authorities (gross proceeds £1.3m/A$2.4m) and is seeking shareholder approval to issue a further 342.5m shares at 4p per share. Combined with a proposed debt refinancing, this should put the company on surer footing and provide the funds to grow the core business. An EGM is scheduled for 22 July to approve both the fund-raising and debt restructure.
Based on eServGlobal’s current market cap of £13m and adjusting for the thirdparty valuation of its stake in HomeSend, the implied value of the core business is £6.7m, equivalent to an EV/sales multiple of 0.4x for FY16e and FY17e. Recent contract wins are building confidence in the company’s ability to reach break-even, with further announcements crucial to confirm that break-even revenues can be achieved in FY16. Shareholder approval of the fund-raising and debt restructure should provide further confidence in the business and, once consistent order flow is established and profitability resumed, the valuation should trend upwards. With the payment institution licence in place and the new data centre in use, HomeSend is now positioned to grow transaction volumes and revenues, which should provide additional support to the share price.