4iG — Spacecom, 4iG shooting for the stars

4iG (BSE: 4IG)

Last close As at 21/11/2024

HUF815.00

6.00 (0.74%)

Market capitalisation

243,747m

More on this equity

Research: TMT

4iG — Spacecom, 4iG shooting for the stars

Through its subsidiaries, HDT and CarpathiaSat, 4iG has entered into a preliminary agreement to acquire a controlling 51% stake in Space-Communication (Spacecom), a Tel Aviv-listed satellite operator, by way of a US$65m private placement. Spacecom owns and operates four geosynchronous satellites, with a regional footprint, including Hungary, via its AMOS-3 satellite. The acquisition of Spacecom is a logical step for 4iG as it establishes a vertically integrated IT services and telecoms business in Hungary (and regionally). Its JV, CarpathiaSat, has already secured the rights to operate geostationary satellites over Hungary for a period of 20 years from 2024. 4iG has not confirmed how it will fund its investment, but we note that it is expected to complete at a similar time to 4iG’s pending acquisition of DIGI Group. On a pro forma basis, these businesses look set to generate run-rate EBITDA of HUF88bn (c US$300m), unlocking substantial debt funding capacity for the enlarged group. Both DIGI Group and Spacecom are transformational deals for 4iG; we will update our estimates once the deals complete.

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TMT

4iG

Spacecom, 4iG shooting for the stars

M&A update

IT services

21 June 2021

Price

HUF630

Market cap

HUF58.2bn

HUF356€

Net debt (HUFbn) at 31 March 2021

4.2

Shares in issue

92.3m

Free float

37.1%

Code

4iG

Primary exchange

Budapest

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.5

0.3

(3.1)

Rel (local)

(0.4)

(7.3)

(24.5)

52-week high/low

HUF674

HUF505

Business description

4iG is one of the leading IT services and systems integrators in Hungary, working with public sector clients, large corporates and SMEs. Management is focused on becoming the market leader in Hungary by FY22 as well as targeting expansion in Central and Eastern Europe.

Analysts

Richard Williamson

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

4iG is a research client of Edison Investment Research Limited

Through its subsidiaries, HDT and CarpathiaSat, 4iG has entered into a preliminary agreement to acquire a controlling 51% stake in Space-Communication (Spacecom), a Tel Aviv-listed satellite operator, by way of a US$65m private placement. Spacecom owns and operates four geosynchronous satellites, with a regional footprint, including Hungary, via its AMOS-3 satellite. The acquisition of Spacecom is a logical step for 4iG as it establishes a vertically integrated IT services and telecoms business in Hungary (and regionally). Its JV, CarpathiaSat, has already secured the rights to operate geostationary satellites over Hungary for a period of 20 years from 2024. 4iG has not confirmed how it will fund its investment, but we note that it is expected to complete at a similar time to 4iG’s pending acquisition of DIGI Group. On a pro forma basis, these businesses look set to generate run-rate EBITDA of HUF88bn (c US$300m), unlocking substantial debt funding capacity for the enlarged group. Both DIGI Group and Spacecom are transformational deals for 4iG; we will update our estimates once the deals complete.

Year end

Revenue
(HUFbn)

PBT*
(HUFbn)

Adjusted EPS*
(HUF)

DPS
(HUF)

P/E
(x)

Yield
(%)

12/19

41.1

3.3

31.5

22.0

20.0

3.5

12/20

57.3

4.2

37.2

24.0

16.9

3.8

12/21e

82.7

7.3

59.2

41.4

10.6

6.6

12/22e

93.0

8.9

72.4

50.0

8.7

7.9

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

With 65 employees, Spacecom owns and operates a fleet of four geosynchronous satellites in various orbital positions (AMOS-3, AMOS-4, AMOS-7, and AMOS-17), providing broadcast and broadband services to its customers across EMEA. The acquisition of Spacecom provides 4iG with satellite ownership, as well as expertise in launching, establishing and operating satellites.

Spacecom reported FY20 revenues of US$88m and EBITDA of US$52m (a 59% margin) and has a current contracted backlog of US$300m. Based on the acquisition of a 51% equity stake for US$65m, the valuation of Spacecom’s total equity is US$130m and, together with net debt of US$315m, this implies an enterprise value of c US$445m, or 8.6x FY20 EV/EBITDA. For comparison, 4iG trades on 10.9x FY20 EV/EBITDA and 6.1x FY21e EV/EBITDA, with an estimated EBITDA margin of 10.8%.

Spacecom would be 4iG’s first acquisition outside Hungary, delivering a broad regional capability. The transaction remains subject to confirmatory due diligence and approvals, and is not expected to complete until autumn 2021.

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