Pie Funds

Easton Investments Limited (ASX.EAS) is a fast-growing distribution business in the accounting and financial services business channel with a bright future. EAS grew normalised EBITDA by 28% to $3.3 million for FY16, and we believe that this growth rate is poised to accelerate in FY17 through a combination of organic and inorganic growth opportunities. Organically, EAS has several growth options including Knowledge Shop, which provides training to accountants. Knowledge Shop has begun complementing its traditional face-to-face training with a high margin web-based offering. The web-based offering grew 52% last year, and we believe demand will continue to grow strongly in FY17 as EAS expands web-based training from live events to pay-on-demand training.

Acquisition opportunities

In addition to organic growth options, EAS has signalled its desire to utilise its balance sheet to make acquisitions. The company recently acquired an online distribution business, Panthercorp, which should contribute strongly to earnings this year. With more than $3 million cash and no debt, there should be more acquisitions to come.

Strong alignment between the founder and leadership team

Our belief in Easton’s ability to execute on growth opportunities is bolstered by the strong founder alignment with the CEO and Chairman, together holding 29% of shares on issue. The Chairman included the following statement in the most recent annual report:

“Directors re-affirm that we are intent on maintaining a tight capital base to support growth in earnings per share as we strive to lift profitability, operating cash flow and return on capital.”

This approach to capital management would be lauded in a company worth $400 million, let alone $40 million. We forecast that EAS is trading approximately 12x FY17 while growing EPS around 50%. With sharp management, a tight register, high growth, clean balance sheet and the prospect of additional acquisitions, we believe that EAS won’t be ignored for long.

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Rash - IIR

Our research certainly agrees with your observations and glad to see good companies like this have the support in the marketplace.