Attractively Valued IT Services Firms: Datagroup, Marlowe, Volati

Alejandro Estebaranz of True Value presented his investment theses on Datagroup (Germany D6H), Marlowe (UK: MRL), and Volati (Sweden: VOLO) at European Investing Summit 2022.

Thesis summaries:

Datagroup competes in the IT cloud services sector and has an equity market cap of €480 million. The business is resistant to downturns, with recurring income comprising ~85% of total income. Datagroup has grown revenue at ~15% annually, with a combination of organic growth and M&A. It has less than 3% market share, leaving ample opportunity for share gains. The insiders are highly aligned with shareholders, and dilution related to stock-based compensation has been low. The shares recently traded at 7x EV/EBITDA and less than 10x P/FCF, an attractive valuation for a high-quality growth business. Alejandro estimates FCF of €40 million in 2022 and €50 million in 2023. Assuming a 5% FCF yield, the stock may be fairly valued at €75 per share in 2022 and €110 per share in 2024, as compared to the recent price of €55-60 per share.

Marlowe competes in the compliance, industrial, and software sectors and has an equity market capitalization of GBP 750 million. The business is resistant to downturns, with recurring income comprising ~85% of total income. Marlowe has compounded the top line at ~20% annually. Insiders are highly aligned, with low wages and a 15% minimum return hurdle. Management has pursued a roll-up model, with ~5% organic growth and additional growth from M&A. Alejandro estimates FCF of GBP 50 million in 2023 and GBP 60 million in 2024. Assuming a 4% FCF yield, the stock may be fairly valued at GBP 12 per share in 2023 and GBP 15 per share in 2024, as compared to the recent price of GBP 7-8 per share.

Volati is a stable industrial equipment company with eighteen consecutive years of growth. The business is resistant to downturns. Volati has compounded the top line at ~25% annually (spinoff-adjusted), with a combination of organic growth and M&A. Insiders are highly aligned, with 65% ownership of the equity. The large market offers ample opportunity for M&A, with acquisitions typically available at ~6x EBITDA. Comparable companies recently traded at ~25x FCF and ~15x EBITDA, even as Volati has a better growth profile. Alejandro estimates FCF of SEK 6 per share in 2022 and SEK 8 per share in 2023. Assuming a 5% FCF yield, the stock may be fairly valued at SEK 120 per share in 2022 and SEK 160 per share in 2023, as compared to the recent price of SEK 105-110 per share.

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About the instructor:

Alejandro Estebaranz has served as the CIO True Value fund (ISIN: ES0180792006) since its inception. True Value, based in Spain, is a long-only equity fund founded in 2014. It focuses on underfollowed small- and mid-cap public companies, seeking good businesses with good management teams. He holds a degree in mechanical engineering and a degree in industrial engineering.

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