Comms Group (CCG AX)

An Australian nano-cap lollapalooza offering +170% to +250% returns over the next three years

Disclaimer: This trades at an ~$55k AUD ADTV, so liquidity is relatively low. This is not investment advice.

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Thesis summary:

Current share price (24/02/2022): $0.10

Target share price range (FY25e): $0.27 – $0.35c

Upside: +170% to +250% (IRRs of 30 – 35%)

Investment case horizon: 3 years (end of FY25e)

Thesis outline:

Comms Group (CCG AX), an Australian-based IT Services nano-cap, certainly looks cheap at a share price of $0.10. On my FY23e forecasts (I use FY23 given this is the next full financial year), the current share price presents an opportunity to enter a potential “lollapalooza” investment case at an equity free cashflow yield of 15.5%, PE of 6.5x and EV / EBITDA of 5.2x for a business that I believe can grow EPS at >30% annually over the next three years, with a relatively asymmetric risk profile. My FY25e price target range of $0.27 - $0.34c (+170% to +250% returns over a three-year period, or 30% - 35% IRRs) is supported by assumptions combining:

1) Durable secular industry tailwinds within a large and sustainably growing Total Addressable Market (“TAM”) which will drive annual organic revenue growth of >7% over the next four years. Comms Group generates a high-quality revenue stream, which is >95% recurring with a 36-month average contract duration and experiences less than <5% annual dollar churn, implying an average customer lifetime of ~20 years;

2) A definitively over-qualified & aligned management team, who together own ~30% of the equity and have a superb track record executing on the same 'buy-build-and-sell' strategy that Comms Group is now embarking upon, which they’ve completed numerous times before at a much greater scale;

3) Optionality to be acquired as a player within a rapidly consolidating industry that is averaging two deals of >$20m transaction values per month, and where comparable companies are being taken at headline transaction EBITDA multiples of >10x;

4) Significant operating margin expansion. This is being driven by the high incremental gross margins inherent to any technology re-selling business gaining scale and thus benefitting from increasing rebates by suppliers. Combined with modest operating leverage, this underpins my forecast of +50bps annual EBITDA margin expansion over my investment period - from c14% to >16% by FY25e;

5) A valuation multiple re-rating opportunity due to a rapidly improving business quality (revenue, economics and returns). This is being driven by Comms Group using its enhanced scale to increase its revenue mix towards larger customers, which entails higher customer lifetime values through lower annual dollar churn, higher Annual Revenue Per User (“ARPU”) and longer average contract terms; and

6) A significant margin of safety through the presently clean balance sheet (ND / EBITDA of 0.9x), low starting valuation (~15% eFCF yield) and a high margin, recurring, and defensive revenue base which can be run-off to equal the current market cap.

Why is the stock mispriced, why invest now and is there a precedent?

I believe Comms Group is mispriced, and thus cheap to invest in on an absolute, relative, and precedent transaction multiple basis because:

1) It is a broken IPO, with the major strategic and operational refinements achieved over the past two and a half years being overlooked due to the company’s "tainted past";

2) It is under-the-radar, with a very small market cap, no institutional ownership, and no relevant broker coverage;

3) The underlying attractive economics of the business are being obscured following the completion of two transformational acquisitions over the past year (Next Telecom and OnGroup) due to one-off transaction and integration costs. These acquisitions have each added ~50% to the pre-acquisition revenue base, as well as de-risked customer revenue concentration, enhanced scale and opened up attractive cross-selling opportunities which I do not believe the market is fairly valuing; and

5) A massive, long-standing technical selling overhang of vendors who were issued scrip for their acquired businesses at IPO in 2017, which left them with ~60% of CCG equity post-IPO. This group has been selling down consistently since and have recently exited the share register.

Furthermore, this investment opportunity has become available just as Comms Group itself begins to meaningfully participate in industry consolidation through the acquiring of ICT Services firms at 4-6x post-synergy EBITDA multiples. This is attractive given the demonstrable cost and revenue synergies, and multiple arbitrage benefit.

I think it is important to take an "outside view" on this investment thesis by establishing a relevant precedent. As such, I think it is best to review the journey of fellow small-cap Australian IT Service provider - Over the Wire (OTW AX). OTW floated in December 2015 at a share price of $1.30 ($80m market cap), with a strategy identical to what CCG has initiated on in the past year - a measured roll-up of local Australian IT services businesses. For OTW investors, this has culminated in >370% upside (including dividends) over the past seven years since listing, which now includes the optionality to participate in further upside given this has been recently acquired by Aussie Broadband for a scrip bid valued at $5.70 (~12x NTM EBITDA).

Company description – what does Comms Group do?

Put simply, Comms Group is the middleman between ~7,000 customers, who are technologically unsophisticated local Australian small and mid-sized enterprises (known henceforth as "SMEs") with 50 – 1,000 employees, and >20 large international IT vendors (primarily Microsoft) whose >400 products Comms Group re-sells.

There are many names for this sort of business model, such as Value-Added Reseller ("VAR), Managed Service Provider ("MSP") or simply an IT Services provider. Which label is used primarily depends on what products the business largely focuses on re-selling, i.e., a "VAR" is typically used when the company is primarily re-selling software whereas the "MSP" label is used when the company is mainly re-selling Managed Services (such as digital Business Process Outsourcing).

Regardless of the semantics, Comms Group’s reason to exist is because these SMEs require a local presence to have its IT infrastructure physically installed and maintained, with 24/7 available support, as they do not have the technological or economic resources to handle all of this in-house. The IT vendors (effectively CCG’s suppliers) want this as they do not have the internal capability to provide high-touch installation and support services for the millions of SME's that compose a large portion of their end-markets. Whilst these SME’s do typically have an internal small team of generalist IT staff, they will outsource the more complicated ICT requirements to third parties such as CCG.

Revenue breakdown:

Comms Group's sales mix is currently skewed towards "Voice" products (~60% of sales) which are primarily composed of all services related to “Unified Communications as a Service” (UCaaS). For the un-initiated, the B2B communications world is undergoing a generational replacement cycle from on-premise handset phones (i.e. your Cisco / Avaya / Mitel desk phone) to UCaaS, which is essentially where work calls now can be received through any of your devices via the UCaaS software provider you are using (think Microsoft Teams, RingCentral, 8x8 and Zoom).

To bring this to life through an example, if you used the "Microsoft Teams Calling" which CCG re-sells, and I called your work phone number, it would pop up on your mobile phone that you are receiving a call through Microsoft Teams, but from my phone number, not dissimilar to what it looks like when someone internal within your organisation calls you through Teams (although in that case your colleagues name will pop up as opposed to a phone number).

The secular tailwinds driving this transition to UCaaS includes lower up-front capex (there is no need any longer to spend money on >50 separate handsets at contract inception), flexibility through a remote connection and a seamless maintenance and upgrade experience. A recent Jefferies report estimated the savings of switching to UCaaS as up to 70% off of the monthly bill vs. on-premise legacy B2B communication systems.

Importantly, the difference between receiving an internal call from a colleague through a UCaaS solution, and from an external call, is that for the latter, the IT Service company (i.e. Comms Group) re-selling the product must have themselves established a Point of Presence (“PoP”) with a local carrier to allow the call to be routed through successfully. To enable this, CCG has manually established 16 PoP's covering 100 countries globally, with an over-indexation to APAC (with each relationship taking ~6 months of lead times each to establish). In fact, as of now, Comms Group is the only company in the world to offer “Microsoft Teams Calling” in China, which management constantly re-iterates is a very strategic asset to a potential acquirer.

Whilst the bulk of Comms Group revenue comes from "Voice" products (around ~60% of total revenue), Data Services (mainly fibre re-selling) and Managed Services (mainly traditional digital Business Process Outsourcing) comprise the remaining 22% and 20% of revenue respectively. These latter two services are typically cross-sold into a customer after a land-grab is established through “Voice” products, thus expanding CCG’s share of wallet within a customer and making them stickier in the process (reducing customer churn). Additionally, a more diversified product portfolio offered by Comms Group allows "one-stop shopping" for customers, which allows them to consolidate vendor relationships and streamline invoicing, a significant time and economic value-add.

Furthermore, CCG these products through two core go-to-market channels:

1) ‘SME, Corporate & Enterprise’ (80% of sales)

3) ‘Wholesale’ (20% of sales)

‘SME, Corporate & Enterprise’ consists of direct product sales to SME’s (through either inbound or outbound leads) on contract terms of monthly payments with a 36-month average term. The size of customers here historically comprised of 50 - 500 employees, but as CCG has scaled, it’s increased SG&A resources and positive customer reference book (almost all new customers require >3 references from existing customers when choosing an IT service provider) has meant there is a mix-shift towards larger customers. This dynamic is positive, given these larger customers have higher lifetime values and thus will be key driver of CCG’s upwards inflecting business quality. The average ARPU here currently is ~$5k AUD per month, but as CCG moves to service more >1,000 employee customers, this will continue to increase towards the >$10k mark.

The ‘Wholesale’ segment consists of signing partnerships with large Multi-National Carriers where the carrier will re-sell Comms Group's UCaaS product suite under their own name and pay CCG a commission on every sale (essentially white-labelling). An example of this was the contract signed with Vodafone Fiji in late 2021. The average ARPU here is $10k AUD per month, with 40 existing partnerships signed.

Industry analysis – A growing, fragmented industry that is consolidating rapidly, with CCG a likely future target:

In Australia, the SME-focused ICT provider landscape consists of >400 individual firms, with the vast majority of these being single-city operators with <$20m in annual revenue. Structurally, it is an attractive niche due to high customer captivity and local competitive dynamics which reduces the risk of international "800 pound" gorilla infringement given firstly, there is no significant disintermediation risk as the software suppliers do not have the will or means to maintain millions of high-touch support contracts themselves, and secondly, large IT Service providers like CapGemini and Atos focus entirely on the highly competitive multi-national corporation and government customer portion of the market.

When thinking about the potential "TAM" of this market, I define this as Australian-based SME’s consisting of 100 – 2,500 employees. CCG currently has 6,500 customers out of a total 54,200 implying market share of ~12%, though dollar market share is likely smaller at ~8% given a current customer base skew to sub-500 employee clients. This market share has grown consistently from <3% (3,000 customers) since the 2017 IPO primarily due to M&A.

Moreover, the market is consolidating rapidly due to a host of publicly listed competitors also following a ‘buy-and-build’ strategy. The larger, publicly-listed players within the Australian market that focus on SME's and are pursuing this strategy include Macquarie Telecom (MAQ AX), Spirit Telecom (ST1 AX), Vonex (VN8 AX), WebCentral (WCG AX) and Over The Wire (OTW AX) – which as mentioned has recently been acquired by Aussie Broadband at ~12x NTM EBITDA.

As such, I think CCG will be approached within the next three years as it continues its growth towards a meaningful size. All of these mentioned peers are currently running with comfortable leverage levels (<1.5x ND / EBITDA), with recent notable M&A activity including:

1)     Vonex’s (VN8 AX) acquisition of Voiteck at 9.2x fully-loaded, pre-synergy NTM EBITDA

2)    Spirit Telecom’s (ST1 AX) completion of 13 acquisitions within the last three years

3)    WebCentral (WCG AX) reverse acquisition by 5G Networks (5GN AX) and subsequent bid on Cirrus Networks (CNW AX) at 10x TTM EBITDA

4)    Rumours that Uniti Group (UWL AX) which is the largest and most successful of these IT service providers roll-ups, is about to get taken private by a pension fund at >18x TTM EBITDA.

A brief history of CCG – a completed turn-around:

Comms Group floated in 2017 under the leadership of telco executive Ben Gilbert who used the proceeds to acquire and combine five separate private IT service providers (Telegate, Oracle Telecom, Woffle, Telaustralia and Comms Group) with the objective of consolidating the market himself. 

Within 6 months, group organic growth had slowed, the businesses had not been integrated and Ben was forced to reset IPO guidance (partly as a result of over-paying for these initial businesses). This led to a series of significantly dilutive equity issuances and a badly executed attempt to restructure the company’s cost-base, culminating in Ben Gilbert being replaced by Peter McGrath, previously a Non-Executive Director at the company, in mid-2019.

Peter immediately issued $2m in equity, bought half the shares himself and then proceeded to turn the company around through investing heavily to rebuild its sales channel while downsizing non-core operations (i.e., a call centre in the Philippines) which resulted in annualised cost-savings of $2m and stemming the revenue decline. Positively, that equity raising was the last completed by Comms Group which was not to support an acquisition.

Following these steps, the company has over the past year inflected from being on the "defensive" (reversing strategic missteps and cementing integrations) to the "offensive" (opportunistic M&A combined with focused cross-selling across product segments). Added to this is the clearing of the aforementioned significant technical overhang, and thus CCG represents a very compelling case of the “future not resembling the past”.

Management – astute, aligned, and over-qualified:

A key tenet of this investment case is how over-qualified the current management team is relative to the market cap of CCG. Prior to Peter McGrath being appointed CEO of the business in mid-2019, he took Nextgen Group from a $100m market cap in 2009 to a market cap of $1.1b with its sale to Vocus in 2016. Before that, Peter ran UeComm, where he swung a loss-making business to $30m EBITDA (vs. CCG at a $7m EBITDA run-rate) before selling it Singtel, netting shareholders at +300% TSR in the process.

Since becoming CEO in mid-2019, Peter has made the astute move of building out CCG’s re-selling capacity of Microsoft Teams, which is the fastest growing UCaaS software. He has done so as Teams has grown its user base to 145m DAU’s in April 2021, +93% growth y/y, whilst increasing its market share from 2.5% in 1Q19 to >10% in 1Q21 with share donation coming primarily from RingCentral and Mitel.

Peter has economic exposure to roughly 5% of shares outstanding (half through direct ownership and half through a LTIP which vests equally at a share price of $0.20 and $0.30, obviously far in excess of the current $0.10) and his track record indicates conservatism in guidance, beating both FY19 and FY20 EBITDA guidance handily despite the disruption caused by Covid. Peter bought a further $100k AUD worth of shares on the open market in March 2021.

I think Peter's unique experience of being a NED from IPO and experiencing first-hand the deleterious impact of over-promising and massively under-delivering will likely mean that all forward guidance provided will be overly cautious. This is evidenced by the fact that the current FY23e guidance of a run-rate >$50m revenue and >$7m EBITDA pro-forma for the OnGroup acquisition does not include the benefit of any future M&A (extremely likely), beats on cost synergies (also likely judging by historic experience) or any benefit from revenue synergies from the four acquisitions made over the past year (again, also highly likely).

Overseeing all M&A is Ryan O'Hare, the seller of Next Telecom who is now the largest shareholder with ~13% of the company (45m shares) and sits as a Non-Executive Director. Again, I believe Ryan is massively overqualified given that in his previous life he built two separate Telco businesses from scratch to $150m in revenue before selling to strategic buyers; corpTEL which was sold to AAPT, and People Telecom which was sold to Vocus.

Economics – an excellent quality, sticky revenue stream combines with a capital-light, high-margin business model:

The revenue quality of Comms Group is very high given "mission critical" and "fulcrum" nature of the products. This is because CCG’s products sit in a sweet spot where they comprise 5% - 10% of total customer operating expenditure but are absolutely essential given that a SME cannot survive without a working communication system for extended periods given narrow cashflow cushions. Thus, it is no surprise that CCG consistently collects cash on a 35 DSO average, with virtually zero bad debtors.

Contracts are signed on a 36-month average duration with CPI escalators, although cash payment is charged and collected monthly. With >95% of CCG's revenue being classed as "recurring" (the remaining 5% being one-off implementation / consultation fees), and a dollar churn rate of <5%, this implies an average customer lifetime of 20 years. Of that <5% annual dollar churn, the bulk of it is composed of either customer bankruptcy or the exit of duplicated communications systems when a customer merges with another not using CCG.

There is no sector-based revenue concentration, with specific customer revenue concentration continuing to fall, seen by the two largest customers currently composing 8% and 7% of total revenue respectively, down from 24% and 17% at IPO. Recognisable logos that CCG has won recently include Wolters Kluwer, St. James Place (a large UK-based wealth manager) and Toll Holdings. It is also worth noting that ~30% of this revenue is “semi-recurring” in the sense that it is linked to some sort of variable such as calls or ICT usage per user / seat, although these tend to not fluctuate significantly.

As a "capital-light" IT service re-seller, terminal gross margins range between 40% - 60% depending on:

1)    Which services / products occupy the majority of the revenue mix; and

2)    Scale, given being larger means higher rebates from key suppliers, and thus lower COGS per product.

EBITDA margins thus are dependent on the above, plus obviously operational efficiency, with EBITDA margins in the publicly listed Australian IT Services space tending to range between 15% to 25%.

Comms Group is currently run-rating gross margins of 45% as adjusted for one-off acquisition expenses, which has been bolstered recently by achieving "Gold Partner" status from Microsoft on its Teams product. Underlying EBITDA margins are running at 14% pro-forma for the recent acquisition of OnGroup which primarily re-sells lower margin Managed Services, although this doesn’t yet obviously include the future benefit of driving the cross-sale of CCG's voice portfolio to its 500 customers yet.

Given group opex is ~70% fixed (labour expenses), incremental EBITDA margins are trending towards >16% when factoring in the cost-synergies that are continuing to come through from the four acquisitions made over the past year. As Comms Group grows, it intends to keep prices flat, thus allowing gross margins to expand due to COGS per unit falling as supplier rebates increase whilst remaining competitive on price. Additionally, given the large proportion of labour expenses, it is positive that Comms Group flagged in its 1H22e earnings call that they were not seeing wage escalation in the context of this current inflationary environment.

Cash conversion will remain very high, given as a "capital-light" re-seller given there is minimal capex required to grow with no major NWC drag. Roughly ~2% of revenue will be spent annually on its IT systems to accommodate a growing customer base, which is slightly offset by receiving better payment terms from key suppliers. I am assuming this drag will remain minimal, and that uFCF / NOPAT cash conversion remains at >95% over the next three years as a result.

Revenue growth – a long runway of organic and inorganic growth:

Comms Group has positioned itself optimally within the IT Services value chain by specialising it’s product suite primarily towards one of the highest growth verticals in “Voice”, with the UCaaS market forecasted to grow at >10% p.a. out to FY25e according to Gartner. Although, going forward within "Voice", there will be a minimal degree of self-cannibalization given roughly ~15% of total existing group recurring revenue is linked to the maintenance of cloud-enabled handset phones (think a Cisco phone that is connected to the internet), which is now being replaced by mobile-first UCaaS. I anticipate on a blended basis CCG can grow organically here at 7 - 8%, which is below both the 10% guidance which management stated was achievable on its 1H22e earnings call, as well as obviously the cited industry growth number of >10%.

When factoring in exposure to lower growth verticals such as “Data” and “Managed Services”, to grow at a blended basis of >7% organic revenue growth at the group level would effectively require ~300 net new SME customers per year (on a current base of 6,500) combined with an ARPU increase of +4% which seems conservative in the context of CCG’s increasing revenue mix towards larger customers.

Whilst organic revenue growth has been sluggish over FY20 and FY21 due to a combination of both Covid prohibiting office access to install new products for both existing and prospective customers and the exiting of unprofitable contracts entered by the previous management, the recent formal end of lockdowns in Australia combined with a re-invigorated go-to-market strategy underpins my forecast of organic revenue growth growing 6 - 7% annually out to FY25e.

Additionally, given the currently low penetration of UCaaS products across the relevant TAM of 10% to 20%, and thus large degree of "blue ocean" space, there haven’t been any reports within the industry regarding "pricing wars" or competitors undercutting to gain market share, and as a result pricing discipline has remained strong within the market.

Coming now to growth potential on an inorganic basis, there are >400 IT service providers in Australia (>95% of those being private) which operate in single-city locations and can be purchased on 4x - 6x post-synergy EBITDA multiples. An obvious risk here is that either financial buyers, or other listed strategic’s pursuing a similar strategy, such as Spirit Telecom (ST1 AX) and Vonex (VN8 AX) drive up acquisition multiples by being spendthrift, although there has been no indication. CCG has remained disciplined on price and has even walked away from an acquisition available at 5.5x post-synergy EBITDA given the management team thought that this was overly expensive for the quality of the target’s underlying SME customer base.

Underpinning my belief that CCG will continue to acquire sensibly is that Peter McGrath (CEO) and Ryan O’Hare (NED) have already successfully overseen four acquisitions; Next Telecom (Jan 2021), Binary Networks (April 2021), Switched On (August 2021) and OnGroup (February 2022). Common to all these deals is:

1)    Delivered cost synergies ranging from 10% - 40% of stand-alone pre-acquisition EBITDA, which are easily extractable given these are delivered through driving procurement rebates, reducing duplicated headcount and centralising hosting costs.

2)    Funding for these deals composed of roughly 80% cash and 20% CCG equity. This equity component is aimed at retaining the founders of these business, who are motivated to join a larger organisation like CCG as they get to remain fully responsible for sales (which is usually their key competency) whilst off-loading back-office responsibilities to CCG.

3)    When making the acquisitions, CCG did not forecast the benefit of any revenue synergies through cross-selling despite these clearly being a key factor behind the deals (I once again re-iterate Peter’s track record of conservatism)

4) Purchased at 3.5x - 6x EBITDA PF for synergies, assuming a minimal component of the contingent earn-out has been hit, which has been the case with the first three acquisitions.

My forecasts for the business, and how I’ve arrived at them:

Comms Group has provided guidance at the 1H22 result in February 2022 of a FY23e run rate of >$50m revenue and >$7m EBITDA (it is a June year-end). I believe this guidance is conservative given it implies:

1)     0% organic growth on an underlying basis for FY23e despite the positive dynamics that have been discussed

2)    Zero additional cost or revenue synergies coming from the recently acquired businesses

Over the length of my stated investment case (the next three years), my organic revenue growth forecast for CCG comprises of a re-acceleration to >7% annually out to FY25e, driven by an annual +3% growth in its customer base combined with +4% growth in ARPU.

Additionally, the company has recently secured a $10m debt facility from Commonwealth Bank, $8m of which was recently used on the OnGroup acquisition. I believe that management is comfortable with maintaining up to 2x ND / EBITDA, and thus assuming a continuation of acquiring businesses at a 5x post-synergy EBITDA multiple would imply that the generation of $25m in incremental equity free cash flow and raising of $30m in incremental net debt will generate $120m in revenue and $20m in EBITDA by FY25e (a 16.5% EBITDA margin) when factoring in my underlying organic growth forecast. This comports to a FY25e ROIC of 21%, up from 15% today, generated almost entirely by gross margin accretion and operating leverage in excess of the incremental capital deployed into the business.

To summarise - the two key revenue driver's that will make this thesis work are that:

1)    CCG’s organic revenue growth re-accelerating to >7%; and

2)    CCG continuing to successfully acquire and integrate at a post-synergy multiple of 4x - 6x EBITDA.

Valuation – current and “fair” valuation ranges:

Taking management’s recent FY23e run-rate guidance of >$50m revenue and >$7m EBITDA, the current share price values CCG at an EV / EBITDA of 6.5x and PE of ~7x, pro-forma for $6m in year-end FY22e net debt, and new shares issued as a result of the OnGroup acquisition, equating to an entry eFCF yield of 15%.

Adjusted for my organic revenue growth forecast and assumption of further M&A, my FY23e sales and EBITDA estimate is $70m and $10m respectively, implying an even cheaper entry multiple of 5.2x EV / EBITDA and PE of 6.5x (with the EV again pro-forma adjusted for the expected debt and equity raised to fund acquisitions).

In terms of fair valuation for this business, I would note that Altigen Communications (ATGN NA), an identical US-based business operating in a more competitive market which generates a lower percentage of recurring revenue and runs at EBITDA break-even levels traded up to 4x EV / LTM recurring sales, which in the case of CCG would comport to an FY23e EV of >$200m (vs. $45m today).

I think it is more prudent to look towards Australian-based peers such as Over The Wire and Spirit Telecom, which have traded in ranges of 8 - 12x. I do not believe Vonex and WebCentral, trading at ~5-7x forward EBITDA, are appropriate comps given their lower recurring revenue, lower organic growth outlook and higher micro-SME exposure. Thus, I believe a “fair EBITDA multiple” for CCG once it is generating my FY25e forecast of ~$100m in sales and ~$20m in EBITDA is 8x. Applying this and adjusting the incremental debt and ~60m new shares raised for M&A over the next three years, comports to a fair value of 24c, or +170% upside in three years.

In a transaction scenario, as mentioned, recent relevant deals include Over The Wire being acquired for 12x pre-synergy EBITDA by Aussie Broadband and Empired (EP1 AX) being acquired by CapGemini for 10x pre-synergy EBITDA. I would think management of CCG would not accept less than a 10x EBITDA exit multiple here, and thus inputting that gets you to a “fair” share price of 36c, or >250% upside over the investment case period.

Summary:

To summarise – this investment case is about backing an extremely capable management team, which has executed this exact strategy successfully elsewhere before numerous times, in a growing sector with an attractive business model at a very low starting valuation. The current share price provides the opportunity to pay a FY23e PE multiple of 6.5 - 7x for a business based on my analysis can grow EPS at >30% p.a. over the next three years provided the execution is there.

Risks:

1. Overpaying / botching acquisitions. This is in my view mitigated by the CEO's success purchasing and integrating three business with CCG already (Next Telecom, Binary Networks and Switched On), whilst integrating and turning the boat around on the shipwreck which was the job left by the former CEO on the initial five companies which were purchased at IPO.

2. Private market acquisition multiple inflation stemming from Spirit Telecom (ST1 AX), Vonex (VN8 AX) and other strategic acquirers bidding these up, although thus far industry post-synergy multiples have remained around the 4 – 6x EBITDA range.

Catalysts

1. Organic growth re-acceleration to >7%

2. Continued well-executed, accretive acquisitions

3. Acquisition by a larger strategic player