Swift Media Ltd’s (SW1) current valuation doesn’t accurately reflect the company’s commercial opportunities as per Pitt Street Research.
Pitt Street’s revenue growth and margin forecasts, derived from Swift Media’s new business combination, indicate a value well in excess of today’s share price.
Following is an extract from Pitt Street’s research report on Swift Media:
Unique combo of technology, content and advertising
Swift Media Limited (ASX:SW1) is a technology, content and advertising service provider focused on the fast-growing closed loop and digital out-of-home market.
It serves an installed base of ~73,000 screens (forecast for YE FY19), offering digital entertainment solutions to a range of verticals, including hotels, aged-care and the resources industry.
Advertising to leverage installed base of screens
SW1 has recently acquired the Digital Out-of-Home (DOoH) advertising business of Medical Media.
DOoH advertising in Australia is growing at nearly 16% CAGR, which provides a strong revenue driver for SW1.
SW1 intends to leverage its unique captive audience by offering highly targeted, high value advertisement opportunities to advertisers.
Operational synergies to drive margin expansion
Medical Media’s advertising business has a c.10% higher gross margin than SW1’s current businesses.
As A$3M in synergies set into the system and further network monetisation takes place, we expect the group’s margins to expand significantly.
Valuation range of A$0.75–0.84 per share
We believe SW1’s commercial opportunities and revenue potential are not accurately reflected in the company’s current valuation.
Driven by growth in the number of screens, the Medical Media acquisition and the new revenue stream from digital advertising on the installed base of screens, we value SW1 at A$0.75 per share in our base case and A$0.84 per share in an optimistic scenario, based on a blend of Discounted Cash Flow (DCF) and Sum Of The Parts-based relative valuations.
Disclosure: Pitt Street Research receives fees from the company referred to in this document, for research services and other financial services or advice we may provide to that company.