New stock in clients' shares' portfolio: Threat Protect
First Samuel has invested in a 3-year note, yielding 9% p.a. and convertible into shares in Threat Protect.
This week Threat Protect Australia (ASX Code: TPS.ASX) has announced to the ASX that First Samuel (on behalf of its clients) has agreed a $10.5m funding facility. The facility will allow the company to pursue acquisitions, consolidating the fragmented security monitoring industry
The facility encompasses a $1.5m equity raise (at $0.03cps), and a $9.0m 3 year convertible note. Threat Protect will now comprise a ~0.50% weight in clients' equity portfolios. The convertible note will be an additional ~3.1% weight in clients' equity portfolios.
The note is issued at $1 per note, and is convertible into shares at $0.03cps in three years’ time. In the interim, it pays a coupon of 9% p.a. If the note is not converted to shares or cash (with an 67% uplift in capital value) at the end of 3 years, it will “step up” for 2 more years, to a 11% p.a. coupon. The note must be repaid in shares or cash (again at a 67% premium) by five years.
As a result of this deal First Samuel's clients will own 8.3% of the equity in the business, and have a holding in a very strongly paying and secure convertible investment. This will go some way to help us fill the income reduction we are facing with the redemption of the Origin Hybrid in December, and will boost portfolio returns over the next three years.
What is Threat Protect?
Threat Protect is a company that provides monitored security to Australian homes and businesses.
The Australian security industry is highly fragmented, with around 6,500 businesses nationally, and revenues estimated at $6.3b. Of this, around 20% relates to monitored security - which is TPS’s core focus area. Whilst the Australia scene has a few major players (ADT and Chubb), it is actually very fragmented. The opportunity to acquire businesses from relatively small operators (who are often aging and looking to exit) is substantial.
The prices that vendors are prepared to sell these businesses are very attractive, and significantly mitigate the risks of an acquisition strategy - in our judgement. Additionally we see security monitoring as a steady but growing industry, which tends to weather all economic conditions well.
We have tracked the company for some time, as it has been in the small capitalisation portfolio for some clients. We have closely assessed its plans for business growth over the next few years. Consequently, we are quite confident that, given the opportunities that sit directly in front of it today, it will be able to grow to a business of some size and quality. We expect the company to announce a series of acquisitions over coming months, which will be highly earnings accretive to its business today.