The Spirit Telecom Ltd (ASX: ST1) share price has surged 7.3% today following the announcement of a capital raise and acquisition. The news comes on the back of the company’s release of record FY20 results earlier this week.
Capital raise and acquisition
Spirit Telecom is seeking $23.2 million in a capital raise to provide immediate geographic expansion. The tele-communications company wants to do this through the simultaneous strategic acquisition of three IT managed service providers across Sydney Metro and Central NSW.
The three businesses bring strong intellectual property, products and engineering skills and generate $12 million in combined revenue. More than 60% of revenue is recurring and earnings before interest, taxation, depreciation and amortisation (EBITDA) is $2.5 million.
Furthermore, the IT companies acquired will be re-branded as Spirit Solutions Partners.
Spirit Telecom is seeking to disrupt the major telecommunications companies in addition to the major expansion plans. Funds raised will be allocated to further acquisition opportunities, to accelerate the development of the cloud product range in the Spirit X Digital sales platform, and to market the Spirit brand and products nationally.
Record results for FY20
Spirit Telecom announced record FY20 results with revenue up 100% to $34.9 million resulting in a ‘transformative’ year for the company. Recurring revenue growth was up 48% to $23.5 million and solutions and projects revenue up to $11.4 million.
Underlying EBITDA surged 88% to $3.73 million which was at the upper end of the guidance range.
The company has a healthy balance with $14 million of cash and available debt at end of FY20 with a $6 million drawdown.
Spirit Telecom managing director Sol Lukatsky was pleased with the result, saying FY20 had been a year of “phenomenal growth and transformation”.
Mr Lukatsky said:
The July trading update shows we’re off with a fast start to FY21 and we continue to pursue an aggressive growth agenda both organically and via a range of acquisition options.
In FY21 our priority is to bring our entire cloud and IT offering onto our digital sales platform, Spirit X, and expand our wholesaler dealer network – creating an even stronger engine for organic growth. We’ll continue with our disciplined M&A strategy, to find right-price, right-fit businesses that support the expansion strategy, as well as continuing to focus on integration and optimising growth synergies.
What’s ahead for the Spirit Telecom share price?
It has been a fast start in FY21, which bodes well for the Spirit Telecom share price.
July new sales of $2.3 million were up 165% month on month from June FY20 to July FY21. Sales were bolstered by the recent acquisition of Gold Coast-based Voice Print Data Group (VPD). Organic demand for Spirit products is also driving the growth.
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Motley Fool contributor Matthew Donald has no position in any of the stocks mentioned. The Motley Fool Australia has recommended SPIRIT TC FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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