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YPB Group — Update 11 November 2015

YPB Group — Update 11 November 2015

YPB Group

Analyst avatar placeholder

Written by

YPB Group

Connecting to protect and detect

Acquisition update

Tech equipment & hardware

12 November 2015

Price

A$0.36

Market cap

A$50m

Net cash (A$m) at 30 September 2015

2.4

Shares in issue

137.6m

Free float

27%

Code

YPB

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

50.0

66.7

21.9

Rel (local)

54.4

77.9

30.0

52-week high/low

A$0.40

A$0.18

Business description

YPB Group has developed a three-pronged strategy designed to detect and protect brands from counterfeiters. The company owns four Chinese patents over invisible tracers and has secured several contracts for its technology.

Next event

FY15 results

February 2016

Analysts

Finola Burke

+61 (2) 9258 1161

Moira Daw

+61 (2) 9258 1161

YPB Group is a research client of Edison Investment Research Limited

YPB Group has completed the acquisition of privately-held proximity marketing company nTouch for A$4.5m in shares at 35c/share. The acquisition extends its anti-counterfeiting expertise in B2C and positions it as one of the only companies globally to offer end-to-end counterfeit protection solutions. We have incorporated nTouch into our forecasts and included some recent contract wins. This has resulted in both an upgrade to our CY15e and CY16e forecasts and an increase in our DCF valuation to A$0.50/share from A$0.37/share previously.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

0.1

(2.3)

(2.2)

0.0

N/A

N/A

12/15e

3.3

(3.3)

(3.2)

0.0

N/A

N/A

12/16e

8.5

(1.1)

(1.7)

0.0

N/A

N/A

12/17e

22.2

4.8

2.4

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.

nTouch acquisition

YPB has now completed its acquisition of proximity marketing company nTouch, which closes the circle on the company’s ambitions to provide an end-to-end counterfeit protection solution. nTouch delivers smartphone software that uses proximity marketing to gather and develop big data, having developed a platform that can be used with most proximity marketing technologies. The acquisition extends YPB’s reach into the B2C market and complements its Brand Reporter platform. We have incorporated nTouch into our forecasts, which show it contributing ~30% to the group’s gross profit by CY17e. It has lifted our DCF valuation by A$0.10/share.

Additional contracts and proposed capital raise

Since our July 2015 initiation report, the company has secured several additional contracts for its tracers and scanners, including contracts from two national Chinese banks and a Chinese salt packaging company. As a consequence, we have incorporated these contracts into our forecasts, which have lifted our valuation by A$0.03/share. YPB has announced it will hold a general meeting of shareholders on 10 December to ratify the share issues it has made in acquiring nTouch and Continuous Forms Control, and in employing its new COO and CMO. YPB will also seek approval to issue up to 10m new shares to raise new capital.

Valuation: Upgraded to A$0.50/share

Our DCF valuation has been upgraded to A$0.50/share from A$0.37/share previously after incorporating the nTouch acquisition, making some minor adjustments following the company’s interim results and incorporating two additional ink contracts into our forecasts. The nTouch acquisition has had the greatest impact on the valuation uplift. While we continue to see CY15e and CY16e as company-building years, we anticipate that the net losses will be smaller than previously forecast.

Acquisition update

nTouch delivers proximity marketing

YPB has acquired privately-held proximity marketing company nTouch for A$4.5m in an all-scrip purchase priced at $0.35/share; the transaction completed on 30 October. nTouch unifies multiple proximity marketing technologies including Beacons, QR codes, NFC (near field communication) and image recognition into a single platform from which its clients create and deploy proximity marketing campaigns to smartphone devices.

YPB plans to integrate its existing B2C platform, Brand Reporter, with nTouch to provide improved consumer engagement, protection and data analytics for Brand companies. There are also immediate potential applications in products using nTouch’s proximity marketing technology for YPB’s patented anti-counterfeit tracer and scanner.

nTouch generates its revenues from hardware integration, content creation and management and analytics. Over time, most of its revenues will be derived from subscription revenues as it sells access to its data analytics to customers. It also derives revenue from hardware sales, such as beacons and apps, and from sales of both digital and offset printing services and its design services.

Given the early-stage of the business, we have chosen to apply a ~50% discount to nTouch’s revenue and earnings forecasts. While the company has strong sales backing from key shareholders, printing group Selby and former Australian cricket captain Steve Waugh (now YPB shareholders), its business model is still in trial mode and has not been fully tested.

Even so, as Exhibit 1 highlights, the revenue growth across all divisions is expected to be strong over the next five years with print jobs and subscriptions the key drivers.

Exhibit 1: nTouch revenue forecasts

Source: Edison Investment Research

Similarly, gross profit is forecast to increase markedly from CY17e, with print and subscriptions the key drivers, as Exhibit 2 demonstrates.

Exhibit 2: nTouch gross profit forecasts by division

Source: Edison Investment Research

We are forecasting nTouch to generate gross profit margins of 60% by FY19e (compared with company’s forecasts for ~75%). As Exhibit 3 shows, gross profit margin is forecast to rise from 45% in CY15e to 60% in CY19e.

Exhibit 3: nTouch forecasts (included in our model)

(A$m)

2015e

2016e

2017e

2018e

2019e

Revenue

0.07

2.76

7.39

9.97

11.88

COGS

0.04

1.53

3.72

4.17

4.71

Gross profit

0.03

1.24

3.67

5.80

7.17

Gross profit margin (%)

45

45

50

58

60

Source: Edison Investment Research

Capital raising

YPB has announced it will seek shareholder approval at a general meeting on 10 December to issue an additional 10m shares to raise capital. Shareholders will also be asked to ratify the shares issued by the company to acquire nTouch (12.857m shares) and Continuous Forms Control (1.095m shares), and shares issued to two new executives, COO Jens Michel (0.4m) and CMO Richard Raju (0.4m) as part of their employment package.

We have not factored the capital raise into our forecasts but note that it is likely to support additional acquisitions and help manage the company’s capital requirements until it becomes cash generative in CY17e.

H115 results

YPB delivered better than forecast interim results in late August. We had forecast an operating loss of A$2.51m but the company delivered an operating loss of A$2.37m. This better than anticipated result has flowed through to our FY15e upgrade.

Exhibit 4: YPB H115 vs Edison forecasts

(A$m)

H115e

H115

Revenue

0.09

0.78

EBITDA

(1.95)

(1.84)

PBT

(2.51)

(2.37)

NPAT

(2.51)

(2.37)

EPS

(0.02)

(0.02)

Source: Company data, Edison Investment Research

Earnings adjustments

We have updated our forecasts for the nTouch acquisition, the recent interim results and two additional printing contracts in China. As a consequence, we are now forecasting reduced losses in CY15e and CY16e, as Exhibit 5 demonstrates.

Exhibit 5: Earnings adjustments

EPS (c)

PBT (A$m)

EBITDA (A$m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2015e

(3.4)

(3.2)

6.3

(2.8)

(3.3)

(15.2)

(2.8)

(2.7)

3.6

2016e

(2.0)

(1.7)

15.0

(1.3)

(1.1)

14.0

(1.3)

(1.1

14.1

Source: Edison Investment Research

Valuation: Increased to A$0.50/share

We use the DCF methodology to value YPB Group and incorporate a WACC of 13% and terminal growth rate of 2%. Our DCF valuation has increased to A$0.50 per share from A$0.37 previously after incorporating nTouch and the additional Chinese contracts into our forecasts. Following the nTouch acquisition, fully funded by scrip, YPB’s shares in issue increased by 12.9m to 137.6m. Our forecasts include an assumption that 40.1m options will be exercised at A$0.20 per option on the expiry date of 31 October 2017, raising A$8m and increasing shares in issue to 177.6m.

Exhibit 6: Valuation summary

Valuation

WACC

13%

Beta

1.5

Terminal Growth Rate

2%

Terminal Value Capitalisation Rate

31.0

Present value of cash flows

68.1

Net cash at 31 December 2015

0.5

Net value for shareholders

68.6

Number of shares on issue

137.6

Net Value Per Share

$0.50

Valuation

WACC

Beta

Terminal Growth Rate

Terminal Value Capitalisation Rate

Present value of cash flows

Net cash at 31 December 2015

Net value for shareholders

Number of shares on issue

Net Value Per Share

13%

1.5

2%

31.0

68.1

0.5

68.6

137.6

$0.50

Source: Edison Investment Research

Exhibit 7: Financial summary

A$000s

2014

2015e

2016e

2017e

2018e

31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

85

3,335

8,464

22,207

31,889

Cost of Sales

0

(1,204)

(3,775)

(9,997)

(12,504)

Gross Profit

85

2,131

4,689

12,209

19,385

EBITDA

 

 

(1,889)

(2,728)

(1,091)

4,882

10,920

Operating Profit (before amort. and except.)

(2,204)

(3,156)

(1,118)

4,820

10,826

Intangible Amortisation

0

(688)

(1,255)

(1,109)

(980)

Exceptionals

(2,206)

0

0

0

0

Other

0

0

0

0

0

Operating Profit

(4,410)

(3,844)

(2,373)

3,711

9,846

Net Interest

(68)

(98)

0

0

0

Profit Before Tax (norm)

 

 

(2,272)

(3,254)

(1,118)

4,820

10,826

Profit Before Tax (FRS 3)

 

 

(4,478)

(3,942)

(2,373)

3,711

9,846

Tax

0

0

0

0

0

Profit After Tax (norm)

(2,272)

(3,942)

(2,373)

3,711

9,846

Profit After Tax (FRS 3)

(4,478)

(3,942)

(2,373)

3,711

9,846

Average Number of Shares Outstanding (m)

103.9

129.1

137.6

177.7

177.7

EPS - normalised (c)

 

 

(2.2)

(3.2)

(1.7)

2.4

5.5

EPS - normalised and fully diluted (c)

 

(2.2)

(3.2)

(1.7)

2.4

5.5

EPS - (IFRS) (c)

 

 

(4.3)

(3.1)

(1.7)

2.1

5.5

Dividend per share (c )

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

63.9

55.4

55.0

60.8

EBITDA Margin (%)

-2222.4

-81.8

-12.9

22.0

34.2

Operating Margin (before GW and except.) (%)

-2592.9

-94.6

-13.2

21.7

33.9

BALANCE SHEET

Fixed Assets

 

 

11,122

16,323

15,745

15,305

15,008

Intangible Assets

11,096

15,934

14,678

13,569

12,589

Tangible Assets

26

390

1,066

1,736

2,418

Investments

0

0

0

0

0

Current Assets

 

 

2,715

4,166

3,406

18,342

30,437

Stocks

136

173

273

525

636

Debtors

174

560

1,422

3,732

5,359

Cash

2,405

3,433

1,711

14,085

24,442

Other

0

0

0

0

0

Current Liabilities

 

 

(364)

(673)

(1,707)

(4,478)

(6,431)

Creditors

(364)

(673)

(1,707)

(4,478)

(6,431)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(2,748)

(2,918)

(2,918)

(2,918)

(2,918)

Long term borrowings

(2,748)

(2,918)

(2,918)

(2,918)

(2,918)

Other long term liabilities

0

0

0

0

0

Net Assets

 

 

10,725

16,899

14,526

26,251

36,096

CASH FLOW

Operating Cash Flow

 

 

(2,075)

(2,962)

(1,018)

5,092

11,134

Net Interest

10

18

0

0

0

Tax

0

0

0

0

0

Capex

(161)

(372)

(704)

(731)

(777)

Acquisitions/disposals

0

(4,735)

0

0

0

Financing

4,900

9,184

0

8,014

0

Dividends

0

0

0

0

0

Net Cash Flow

2,674

1,134

(1,722)

12,375

10,357

Opening net debt/(cash)

 

 

3,017

343

(515)

1,207

(11,167)

HP finance leases initiated

0

0

0

0

0

Other

0

(276)

0

0

0

Closing net debt/(cash)

 

 

343

(515)

1,207

(11,167)

(21,524)

Source: Company data, Edison Investment Research

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Intelligent Energy Holdings — Update 11 November 2015

Intelligent Energy Holdings

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