Christian Olesen presented his in-depth investment thesis on STW Communications (ASX: SGN) at Best Ideas 2016.
STW Communications owns approx. 70 advertising, PR and other marketing services agencies, primarily in Australia and New Zealand. The company’s agencies include the iconic Ogilvy and J. Walter Thompson (JWT) agencies’ Australia/NZ operations, which are part-owned via JVs with Ogilvy and JWT’s parent company, WPP. Following a big earnings miss in 2H 2014, the market became very concerned about the risk of a highly dilutive equity offering at a low stock price, because with debt/EBITDA of 2.8x, the company was suddenly close to breaching its 3.0x bank covenant. However, the covenants were amended in mid-2015 and the company has repeatedly said it does not plan to raise equity. In December 2015, the company announced an all-stock merger with WPP’s Australia/NZ business, taking WPP’s stake from 24% to 61% in a transaction that is slightly EPS accretive to STW pre-synergies. Pro forma for the merger, leverage goes from 2.6x to 2.1x, which should alleviate the market’s concerns about the risk of an equity offering. The business seems to have stabilized following the 2H 2014 earnings miss, and at 7.8x adjusted trailing net income the stock is significantly undervalued.
About the instructor:
Christian Olesen is the investment manager of the Olesen Value Fund. Previously, Christian worked in a dual role of Analyst and Trader for Xaraf Management, a group within Paloma Partners that focuses on a variety of equity and credit strategies. Before that, Christian was Senior Associate in the research department of DebtTraders Group, a New York-based broker-dealer specializing in distressed and high yield bonds, and Senior Financial Analyst in the corporate finance advisory services group of Stern Stewart & Co., a New York-based financial advisory firm best known for its proprietary EVA® (Economic Value Added) concept. Christian holds a B.S. in Economics, with concentrations in Finance and Accounting, from The Wharton School, University of Pennsylvania. He also holds the CFA (Chartered Financial Analyst) designation.
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