Iress has taken the opportunity to raise capital to more than provide for its purchase of
-Excess capital raised provides room for more acquisitions
-Acquisition highly dilutive for the short term
-Iress on track for revenue growth in 2020
The acquisition of
Iress will raise
While
Still, Credit Suisse questions an equity raising of such size to acquire a business that is only roughly breaking even, as it indicates an initial dilution of around 10% pre-synergies.
The company has defended its capital raising as "conservative" expecting it to strengthen the balance sheet and support the investment of
Iress pointed out it did contemplate using debt finance for the purchase but decided, in view of the current market volatility, it would be more prudent to raise capital now. The revenue opportunity was the main attraction rather than cost reductions from synergies.
Brokers are somewhat dubious about the benefits in the short term but accept that longer term the combination of scale in technology will provide exposure to large revenue streams.
Longer term, if merger synergies can be achieved, then Iress should have a strong low-cost administration platform that others will struggle to match, Morgans assesses. Still, revenue and earnings of
Meanwhile, Iress' profit is tracking a little behind forecasts although revenue is ahead, which Credit Suisse "gladly" accepts in the current market environment as, given this is a year when many companies will be presenting drab results in August, revenue growth is welcome.
The
The proposed acquisition is via a scheme of arrangement with an all-in cash offer of
The capital raising comprises a fully underwritten share placement for
In the event Iress does not win control of
Morgans also highlights that acquisitions by Iress in the past have not appeared logical at first but the majority have delivered "decent" returns on the investment in the long run.
FNArena's database has two Buy ratings, one Hold (Credit Suisse) and one Sell (Macquarie). The consensus target is
FNArena is proud about its track record and past achievements: Ten Years On
All material published by
© 2020 Acquisdata Pty Ltd., source