16/03/2022: Just finished my work on the Vodafone Enterprise announcement, and the market is completely missing how transformative this is. This easily adds 80% - 120% upside to the current market cap by FY24e without giving credit to other significant organic and inorganic growth opportunities for the business.
The quick maths is that CCG is expecting to spend roughly ~$1m over the next year (half opex, half capex) to make $8-10m in incremental revenue at a ~60-65% EBITDA margin (70% gross margins minus a recurring annual staff cost of ~$500k-$750k). So CCG will essentially add $5m to $6.5m in incremental EBITDA by FY24e vs. the pre-announcement FY23e run-rate of $7m today.
Yes, you read that correctly, CCG has increased it's FY24e EBITDA by 70% to 95%, with scope to re-sell even more products through Vodafone in the future. Assuming this incremental EBITDA is rated at what CCG is currently trading at (7x EBITDA), this means an incremental equity value of $28m to $38.5m vs. $34m today !!!
This goes to show the tremendous optionality at play when backing a proven & aligned management team. This partnership also paves the way to winning additional ones given becoming the quasi-exclusive GLOBAL supplier of UCaaS to Vodafone Enterprise will generate significant inbound interest for CCG.
Disclosure: I have added to my position significantly
Has been a painful one, but I'm still long (haven't change position sizing). Whilst the M&A roll-up story is likely off the table given the cost of capital has gone up significantly, this should provide an opportunity to focus on driving cost efficiencies, organic growth and cash collection. Agree it looks very cheap.
Thank you for a very good write up - and for working through the inorganic growth numbers.
I suppose questions we will discover the answer to relate to their ability to acquire businesses when their own multiple is not much higher than the level targets will sell at and the share price is not going up. I've seen lots of small, acquisitive professional services struggle with this.
Are they an Aussie local player of a regional player. If the latter then better.
What are these deals with Vodafone and, now, KDDI? They look so good (and you seemed duly excited when the Vodafone deal announced) but they don't seem to be actually "transformative". Why not?
I've been meaning to write an update post on $CCG. Essentially the thesis has changed, and has shifted from a domestic Aussie local IT service roll-up play to a Microsoft Teams wholesale APAC driven strategy (which I am in favor of given the potentially superior economics of the latter). Essentially these two wholesale agreements with Vodafone Enterprise and KDDI mean that for all future deployments of Microsoft Teams calling by the customers of these two telcos, $CCG will host the back-end of this through their proprietary Operator Connect platform and will clip the ticket at 80% incremental margins for this. The reason why $CCG couldn't provide any guidance on potential revenue / profit for this is that the migration of customers to Teams calling is purely up to the discretion of the Telco's and thus we are currently in "wait and see" mode to understand the potential demand for this product (which I believe will be high given the obvious benefits for Enterprise customers to shift away from legacy telco solutions towards Teams calling). Hope that helps!
16/03/2022: Just finished my work on the Vodafone Enterprise announcement, and the market is completely missing how transformative this is. This easily adds 80% - 120% upside to the current market cap by FY24e without giving credit to other significant organic and inorganic growth opportunities for the business.
The quick maths is that CCG is expecting to spend roughly ~$1m over the next year (half opex, half capex) to make $8-10m in incremental revenue at a ~60-65% EBITDA margin (70% gross margins minus a recurring annual staff cost of ~$500k-$750k). So CCG will essentially add $5m to $6.5m in incremental EBITDA by FY24e vs. the pre-announcement FY23e run-rate of $7m today.
Yes, you read that correctly, CCG has increased it's FY24e EBITDA by 70% to 95%, with scope to re-sell even more products through Vodafone in the future. Assuming this incremental EBITDA is rated at what CCG is currently trading at (7x EBITDA), this means an incremental equity value of $28m to $38.5m vs. $34m today !!!
This goes to show the tremendous optionality at play when backing a proven & aligned management team. This partnership also paves the way to winning additional ones given becoming the quasi-exclusive GLOBAL supplier of UCaaS to Vodafone Enterprise will generate significant inbound interest for CCG.
Disclosure: I have added to my position significantly
Hi! Any update in your view after the business update? Now on EV: ebitda 4x
Has been a painful one, but I'm still long (haven't change position sizing). Whilst the M&A roll-up story is likely off the table given the cost of capital has gone up significantly, this should provide an opportunity to focus on driving cost efficiencies, organic growth and cash collection. Agree it looks very cheap.
Thank you for a very good write up - and for working through the inorganic growth numbers.
I suppose questions we will discover the answer to relate to their ability to acquire businesses when their own multiple is not much higher than the level targets will sell at and the share price is not going up. I've seen lots of small, acquisitive professional services struggle with this.
Are they an Aussie local player of a regional player. If the latter then better.
What are these deals with Vodafone and, now, KDDI? They look so good (and you seemed duly excited when the Vodafone deal announced) but they don't seem to be actually "transformative". Why not?
I've been meaning to write an update post on $CCG. Essentially the thesis has changed, and has shifted from a domestic Aussie local IT service roll-up play to a Microsoft Teams wholesale APAC driven strategy (which I am in favor of given the potentially superior economics of the latter). Essentially these two wholesale agreements with Vodafone Enterprise and KDDI mean that for all future deployments of Microsoft Teams calling by the customers of these two telcos, $CCG will host the back-end of this through their proprietary Operator Connect platform and will clip the ticket at 80% incremental margins for this. The reason why $CCG couldn't provide any guidance on potential revenue / profit for this is that the migration of customers to Teams calling is purely up to the discretion of the Telco's and thus we are currently in "wait and see" mode to understand the potential demand for this product (which I believe will be high given the obvious benefits for Enterprise customers to shift away from legacy telco solutions towards Teams calling). Hope that helps!
Thank you again!
What do you pay for a domestic Aussie professional services roll up? PE ~10
What do you pay for regional / global growth stock? PE ~25.
Is it proven to be the latter? No, we will have to wait and see.
Buying shares is a call option on "wait and see"
Does that sound about right?
Yes - that's how I would sum up the thesis exactly.