Enero: Turning to growth and still looks cheap

Perpetual Equity Investment Company

Perpetual Asset Management (Australia)

Revenue grew only marginally over the half, but most pleasingly EBITDA grew 57% with margins expanding some 4.4% to 12.6%. Enero is targeting a 15% sustainable margin in the long-run which will require further optimisation of staffing costs and other overheads. A renewed focus on top line growth will also contribute to margin leverage and lead indicators look solid with key divisions continuing to win new business.

 

Cash flow generation was another highlight of the result and the company now has a cash balance of over 40% of current market capitalisation. Despite some share price appreciation since February the stock remains extraordinarily cheap in our opinion. Enero has a net cash balance sheet, strong cash flow generation with minimal capex, and an undemanding valuation of circa 4x EV/EBITDA after allowing for non controlling interests in one of their UK businesses. Further, the company has significant carried forward tax losses and a franking credit balance of $22m or 26 cents per share.

 

We believe as legacy earn out agreements roll off over 2017 and 2018, management will be presented with significant capital management opportunities which are not yet appreciated by the market.

 

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Perpetual Asset Management (Australia)

The Perpetual Equity Investment Company Limited is an ASX listed investment company offering investors access to a portfolio of predominantly high quality Australian and global listed securities, selected by Perpetual Investment Management Limited.

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