BMIT Technologies (BMIT) is principally involved in the provision of data centre services within the Maltese economy, including provision of bandwidth, connectivity and co-location services, and the sale of hardware to third parties.
BMIT consists of a group of companies, where the primary four companies are: BM IT Limited, Kinetix IT Solutions Limited, BM Support Services Limited and BellNet Limited.
BMIT’s main revenue stream is chiefly derived from services to online gaming companies, however, over the years the company has extended its product and services range, to cater for cloud and managed IT services, targeting other knowledge-based segments in Malta.
BMIT is currently a fully owned subsidiary of GO plc, however, following an approval of an extraordinary general meeting of GO plc carried out on December 3, 2018, GO was authorised to dispose a maximum of 49% of the ordinary issued share capital of BMIT for a consideration of up to €49 million, equivalent to €0.49c per share.
BMIT’s valuation, which was carried out by PwC, is primarily based on the income approach, whereby projected cash flows of the group are discounted to their present value using a discount rate that reflects the relative risk of investment.
The estimated value arrived with the income approach is of €100 million, which as per BMIT’s slideshow published on the upcoming IPO, results in an implied EV/EBITDA multiple between 9x and 11x, with listed peer companies trading at an average EV/EBITDA multiple of 20x.
The recent published consolidated financial statement of BMIT for the years 2015 to 2017 demonstrate that the group has an established track record and has experienced year on year increase in both its revenue and EBITDA, contributing towards a growing net profit. BMIT has also maintained a healthy dividend payout ratio averaging at 106.6% for the last three years.
It is worthy to note that the group has a relatively low annual capital maintenance of €1 million, apart from the construction of a new data centre in Żejtun with a total investment of €10 million which will be financed through an equivalent loan amount granted by GO and is planned to be finalised by quarter one of 2020. Having such a low capital requirement enables the group in projecting a considerable dividend payout ratio of 95%, resulting in an estimated net dividend yield of 4.4% and 4.9% for the projected years of 2019 and 2020 respectively.
How has this affected GO plc?
By way of company announcement dated October 3, 2018, GO announced that it will dispose a maximum of 49% of its shareholding in BMIT, where at least a minimum of 25% of BMIT’s shares are taken up at the Initial Public Offering (IPO) for it to materialise. GO’s objective for such IPO is:
• Deliver shareholders' returns;
• BMIT to have access to capital markets as a standalone corporation;
• Raising profile of BMIT;
• Accelerating GO’s investment plan to deliver fibre infrastructure across Malta.
GO’s share price stood at €3.70 prior to the announcement of the planned sale of BMIT and has surged upwards to €4.10 by October 15. Currently it stands at €3.90 per share representing an increase of 5.4% from the previous share price of €3.70. Such increase in the share price is substantiated in view of the most likely receipt of €49.0 million in cash by GO, which represents 12.4% of its current market cap, which stands at €395.1 million.
It is imperative to note that post the IPO, GO will still retain major shareholding of BMIT and it will still consolidate the financial performance of BMIT Group within its consolidated accounts.
In my opinion, I believe that BMIT offers an attractive dividend yield in view of the inherent risk of the business.
Disclaimer:
This article was issued by Rowen Bonello, research analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.