SKB has made a company transformative move in its acquisition of Cairns based adventure tourism company, Raging Thunder (RT). This marks SKB's first move outside its traditional skydiving business and opens up a myriad of new opportunities and prospects to its young, but already incredibly successful, business model.
Whilst accompanied by a rights raising of close to $20m, the relatively low price multiple of RT (4x EBITDA versus SKB's almost 10x) makes the acquisition highly EPS accretive.
This is a meaningful acquisition event for 3 reasons:
- It indicates SKB's willingness to move outside its traditional skydiving model, majorly increasing its potential market size and announcing to the industry its intention as an ongoing acquirer.
- It will highlight the meaningful synergies available through back-end bookings, deal packaging and logistics and further solidify SKB's no.1 position in the domestic adventure tourism space.
- It is almost guaranteed to push the company through a market cap of $250m (a far cry from the $58m value it listed at in March 2015) opening it up to interest a host of new investors.
Raging Thunder operates 4 main business lines out of Cairns:
- White water rafting
- Hot air ballooning
- Fitzroy Island ferry cruises
These four business will achieved revenue of around $14m and a profit of $3m in FY16. Combined with SKB's existing operations in Mission Beach, its shop front presence in Cairns and existing network of bus transportation we expected synergies of a further $1m will be extracted in the coming year. This is arguably the most exciting of the 3 major acquisition made since becoming a listed company.
It's worth remembering that with just 8 months of contribution in FY17, the RT acquisition will contribute to earnings growth well into FY18. Our current forecasts conservatively see the company earning around $15m in FY18 placing it on a modest PE of 16x, which we believe is more than attractive giving both its incredible track record to date and obvious growth prospects.
Cyan has been a holder in SKB since IPO and has steadily increased its holding at every new milestone. With the current momentum in the business we can only envisage this investment trend continuing.
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Dean has over 25 years experience in the funds management industry covering all major asset classes. He holds as Master of Applied Finance and is a Graduate of the Australian Institute of Company Directors.