Castle Street Share Discussion Threads

[phenomenonnick] 06/1/2016 11:20

Thanks Panamul, interesting thoughts. This and the comments of others since my original post have caused me to think again. To be fair, my own concerns about the price paid for this first deal didn't really attach any upside to what can be achieved with the firepower at the group's disposal post acquisition. They appear to have £19m of credit facilities available, so up to £35m for further acquisitions. This means they could more than double their size without ANY new shares being issued. So EBITDA per share could double. Earnings per share would need financing costs to be taken into account, but given I think they can find better deals than the one they've just found, I would suggest it isn't impossible for earnings per share to double (ie for EBITDA per share to more than double). Providing the market is happy to move in anticipation of such a deal, rather than wait for it, then somewhere close to 60p in the fairly short term doesn't seem out of the question.

21st Jan is going to be an exciting day!

[leedsu36] 06/1/2016 09:28

TC...we've learned who act is,check another thread out.

All thanks to roscoe guy.

[mr roper] 06/1/2016 08:11

well reasoned post, panamul. Ties in nearly with my 45p open price...This should be like CTP with a steroid injection (16m cash and no debt.)

[panamul] 05/1/2016 23:11

In terms of a valuation of CSI when unsuspended I think we should be looking at the value the market places on Castleton, considering Castleton was also a buy and build put together and run by MXC.Below figures for Castleton are extrapolated from half year figures ending 30/09/15.RevenueSelection £35 million, 65% of which is recurringCastleton £17.5 million, 55% of which is recurringEBITDASelection £3.3mCastleton £3.4mGross marginSelection 39%Castleton 62%EBITDA %Selection 9.6%Castleton 20%Net cash / debtSelection £16.5m net cash (post acquisition)Castleton £6.1m net debtCustomersSelection - over 500Castleton - over 450Castleton valuation Market Cap £60.1mEnterprise value £66.2mRatio of Enterprise value / EBITDA - 19.5If Castle Street Investments is valued with the same ratio of Enterprise value to EBITDA as Castleton the valuation for Castle Street would be as follows:Enterprise value £64.25mMarket Cap £80.75mA market cap of £80.75m would give a share price of 47.2p.However, I think there are a number of reasons why CSI should be valued on a higher multiple of earnings than Castleton at this point in the journey. Castleton has already gone through the buy part of the buy and build. The synergies and cost cutting have been found and are now being exploited. The cross-selling opportunities with the acquired businesses have started already. Castleton is still growing but the low-hanging fruit have already been picked.Selection, on the other hand, still has all those low-hanging fruit waiting for MXC to exploit. Eg- the EBITDA % and Gross margin for Selection are very low and leave plenty of room for efficiencies and cost savings;- Selection already has 500+ customers before starting on the acquisition phase so the cross-selling opportunities will be higherImagine, for example, if the new management team can improve the EBITDA % and Gross margin to match Castleton's. EBITDA would be £6.9m and with the Castleton earnings ratio of 19.5 this would give a market cap of £150m and a share price of 87.6p. And that is before considering the cross-selling, synergies and additional EBITDA from businesses that are acquired.So in my view the very minimum value of CSI should be 47p upon opening. However, considering the huge potential to quickly improve efficiencies and funds available to embark upon the acquisition path, a multiple of earnings of around 30 straight away would not be unreasonable. This would give a market cap of £115.5m and a share price of 67.5p.Anyway, those are my thoughts on this. Looking forward to the 21st to see how it plays out.Good luck everyone.DYOR

[zac_mo] 05/1/2016 21:37

Great find and lools like this baby will eclipse CTP......so what are we expecting 5/6 quick firr acquisitions post AGM?

[mr roper] 05/1/2016 14:44

Selection Services eyes £100m sales under new owner

Newly acquired MSP set for expansion, new CEO Andy Ross tells CRN

By Jack Gilbert

More from this author


04 Jan 2016

Serial channel investment house MXC Capital has bagged a 25 per cent stake in managed service provider (MSP) Selection Services, as it looks to create a £100m buy-and-build mid-market player.

MXC's move is part of Castle Street Investments' (CSI) £34.8m reverse takeover of Selection. To fund the acquisition, CSI, which was previously a dating website but sold its assets to become an investment vehicle, announced the conditional placing of shares to raise £30m. As part of this placing, MXC announced an investment of £12.9m worth of equity, which equates to roughly 25 per cent of the shares of CSI.

Selection is a private equity-owned MSP focused on the mid-market with revenues of £34.5m for the year ending June 2015. As part of the deal, MXC partner Andy Ross is becoming CSI's new CEO, with Selection's MD Grahame Harrington due to leave the firm following the deal's completion.

Ross told CRN he has been charged with building up Selection through acquisitions.

"What you typically find in the mid-market is that the CIO deals with a number of different suppliers," he said. "There is no one supplier who can deliver everything they need. In the enterprise space, a lot of the larger providers have their own network, datacentres and their own people, but we are going to replicate that in the mid-market."

He said that while Selection has a good base as an MSP, it still relies on third parties, such as Telicity, for datacentre hosting facilities and that restricts it over pricing and is not "the most efficient way of doing things".

"So our plan is to take a managed services platform – in this case we started with Selection – and deliver around that with our own network and datacentre assets," he said. "So over time we can deliver the full range of services and technology our clients need, but do it on our own assets base. Therefore we have control over the assets and the pricing and that will make us more competitive in the market."

In order to provide its own autonomous services, Ross said there will be acquisitions, with the first "likely" to come in 2016. A statement released by CSI said the targets will be "assets offering datacentre infrastructure, network connectivity and managed services".

He said he is hoping to transform Selection from a £35m-revenue firm to a £100m-player in the next three years through these acquisitions.

Following these deals, Ross said it's "likely" that the Selection brand will be changed once other firms are integrated into it. But he said that besides the departing MD, Harrington, and CFO, Mark Woodall, there will be no other changes to personnel at the MSP.

A lot of players similar to Selection are constrained by their private equity owners who don't provide them with enough capital to expand, Ross added. But he said the MXC and CSI takeover will provide Selection with the financial backing it needs to grow rapidly.

This investment by MXC is not the first buy-and-build MSP venture it has undertaken, with it also investing in Pinnacle and Redcentric.

But Ross said he is "confident that there is very little overlap between" these MSPs, as Redcentric is focused on the large end of the market and Pinnacle is focused on the small end, with Selection in the middle.

Industry analyst Megabuyte said Selection still has a long way to go to provide a full offering, but it is in the right hands now.

"Under [private equity firm] Palatine's watch, Selection had done much of the groundwork in making the transition to a cloud services provider," the analyst said. "On top of its core IT managed services offering, it has acquired cloud services and business comms to round out the service.

"However, we believe that work still needs to be done to pull all those strands together into a coherent customer offering. This work can now be completed under the new management team, and potentially within the scope of a larger group. And on that note, the fact that CSI has structured the deal so it still has plenty of fire power on its balance sheet suggests that further acquisitions may not be too far behind."

[zac_mo] 04/1/2016 22:57

The stake building all makes sense..mates rate. They are looking at revenue of 100 milliom+. Just take a look at what thr CEO at North gate did before they were taken out on e cheap. ..guess who is in charge here ;-) roll on the 21st...

[arlington chetwynd talbot] 04/1/2016 16:01

Hey LM, good te see you mate. Can't see these types hanging on once unlocked, can you? That earnings growth hidden way down the bottom isn't great, hence the need te stress turnover growth over and over and over... lol
Seen all this b4 bud, margin pain.

[arlington chetwynd talbot] 04/1/2016 15:56

See leeds, reason not te chase this once unlocked is that growth rate, no not that one, t'other. The earnings one, it's not great but about right. So we'll see a few bailing te chase the next one no doubt. Some still locked-in though leeds, missing a trick or 3 ;)

[lachlan macquarrie] 04/1/2016 15:53

Act,your comment was duly noted.Note,no tears here.Hope every one here had lovely time.Atb to every one.

[crapcrap] 04/1/2016 13:38

you will be talking yourself into buying more shares soon! lol

[phenomenonnick] 04/1/2016 13:19

45p would be amazing, but is a £75m market cap. Seems a bit optimistic. Clearly with the placing twice oversubscribed at 30p there ought to be appetite to chase it higher than that though. I'm guessing somewhere between the two. I'd be delighted with 40p and with a rating like that they should find it pretty easy to make earnings-enhancing acquisitions.

[ravi422] 04/1/2016 12:42

mr roper thank u. Is this good news for the company? Any guess to open price

[mr roper] 04/1/2016 12:41

read the RNS
Castle Street Investments PLC Acquisition, Placing and Re-Admission to AIM

[ravi422] 04/1/2016 12:39

Hi can someone please tell me this company is about

[mr roper] 04/1/2016 12:36

hxxp://www.insidermedia.com/insider/national/it-services-group-bought-for-35m

[mr roper] 04/1/2016 12:33

selection is the start. No guarantees it will remain in it's current shape. Look at what MXCP did to Calyx last year. MXCP always have a plan. The placing was oversubscribed x 2 and has some quality Institutions on board. Slater anyone? The new co is debt free and they have 16m to spend. This is the START.

Head of Terms..1 down, 3 to go..

My guess at relist price...45p.