Wolf Set To Strike Australian Small Merchant Market
WolfStrike holds the exclusive distribution rights for Castles’ range of EFTPOS and contactless terminals in NZ and Australia. Castles is one of the largest manufacturers of payment and contactless terminals in the world, and was listed as being the 7th largest terminal manufacturer in the world by The Nilson Report (2011).
Quite early in Ian Bailey’s roadshow presentation, the penny drops for Australian investors – they have seen this before. Not the company, but the model.
Bailey is the managing director of technology rental company WolfStrike Rentals Group Limited, which is set to join the Australian Securities Exchange (ASX). WolfStrike is targeting the small-to-medium sized retailer and merchant market, supplying a range of rental products including payment systems and terminals (EFTPOS and contactless), cash registers, CCTV and alarm systems, cash registers, audio and PA systems, proximity beacons (advertising system that allows direct target marketing to a customer’s smartphone) and table pagers (a system that notifies customers with a flash/ vibration when their order is ready.
There is also a range of software applications (including loyalty programs) and smartphone applications, as well as various hardware platforms that link smartphones, marketing, advertising and payments technologies. The product suite is bundled into whatever package a customer wants, and a long-term (36-month) rental contract is agreed.
“We source the product, whether we buy it ourselves or source it through a third party, supply it, and rent it out on a long-term contract,” says Bailey. “Not only will we supply it, we’ll install it, train your staff on it and support it, and we’ll give you updates and enhancements as it goes through its lifecycle. At the end of that rental contract term, if you don’t want it any more, you can give it all back to us, or alternatively, keep renting it on a one-month basis. Or we’ll upgrade you to the latest stuff at the same price.”
Every time, he gives the presentation, someone invariably says, “I get it, like Silver Chef!”
When it listed in May 2005, Silver Chef Limited was the first – and only – dedicated hospitality equipment funding business in Australia. Restaurants, caterers, cafes, coffee shops and takeaway food operators could rent or lease their equipment, freeing-up their working capital and preserving their cash flow. In particular, the franchisees of more than 100 franchise brands in the fast food, coffee and cafe sectors became natural customers of Silver Chef. The company subsequently expanded into New Zealand, and then Canada..
“The real opportunity for us is to follow an
acquisition strategy in Australia, because that is
a highly fragmented market,” WolfStrike MD Ian Bailey.
Fund managers loved the story. In 2008 Silver Chef launched GoGetta, a division that was aimed at extending the flexible funding, short-contract offering to a wider variety of industries, in the commercial equipment market, with rental, leasing, and rent-to-own options, for everything from trucks and construction equipment to fitness studio fit-outs, new equipment or second-hand.
“Ours is an almost identical business model. We source, supply, manage, and own the equipment, and rent it to the merchant on a long-term (36 or 48 months) rental contract. It takes away the hassle of researching the market, choosing and actually owning equipment that you don’t necessarily have to own,” says Bailey.
“This side of things is a real pain for a lot of people who want to start retail businesses, because they don’t necessarily know where to get this equipment. We say to a customer, ‘you’ve got two choices: you can go and talk to a POS (point-of-sale) provider, a CC-TV (closed circuit TV) provider, an EFTPOS (electronic funds transfer at point of sale) provider, a digital signage provider, you can talk to each one of those, and sign individual contract with each of them for their particular product. Or, we can supply all of that, bundled into one facility.’
“You could go to Apple and buy an iPhone for $1,200, but you don’t – instead you go to Vodafone or Telstra and get one from them for $50 a month. Why do you do that? Because they provide the full end-to-end service.”
Bailey says Silver Chef listed with a rental base of about $5 million, but has increased that to $390 million. Its initial capital raising was $11.2 million, but its market capitalisation has grown to $281 million. “They’ve done that over a relatively short period of time, by a combination of acquisition and organic growth. That is the same strategy we’re following.”
WolfStrike has already bought five New Zealand companies that operate in this space, and is looking to make further acquisitions in New Zealand and Australia. “We want to make some Australian acquisitions as soon as we can, to build a beachhead in the Australian market. Our potential market in New Zealand is about 87,000 merchants, but in Australia it is about 430,000 merchants,” says Bailey. “The real opportunity for us is to follow an acquisition strategy in Australia, because that is a highly fragmented market.” The company is also eyeing the Asia Pacific market, by way of future targeted acquisitions and organic growth.
Over the 12-month period to December 2015, the company’s rental book more than doubled, from $4 million to $8.38 million, and monthly contracted gross revenue surged from $300,000 to $700,000. The WolfStrike rental book stands at $8.38 million, generating just over $208,000 a month in revenue.
WolfStrike has an agreement with ASX-listed company Mint Payments Limited (MNW), to license and rebrand the MINT mobile phone POS system, and to market the Mint mobile phone POS products in Australia, as a WolfStrike product under the “Settle” brand. Apps are now available for the product on Apple and Google app stores.
WolfStrike holds the exclusive distribution rights for Castles’ range of EFTPOS and contactless terminals in New Zealand and Australia. Castles is one of the largest manufacturers of payment and contactless terminals in the world, and was listed as being the 7th largest terminal manufacturer in the world by The Nilson Report (2011). Castles products are provided to WDL on an exclusive basis, and are re-branded under the WolfStrike brand.
The company also holds exclusive distribution rights for the XCR POS Hospitality software and products for New Zealand and Australia. WDL also holds the non-exclusive New Zealand distribution rights for the HPRT range of POS, label and receipt printers, and has local relationships for the supply of the FEC range of POS screens and the CipherLab range of barcode scanners and mobile handheld computers.
WolfStrike is listing through the shell of CFT Energy Limited, which has been suspended from ASX quotation since August 2008. The company is offering 100 million new shares at 2 cents a share, to raise $2 million. That is 11.9 per cent of the issued capital: on listing (at 2 cents) WolfStrike will have a market capitalisation of $16.9 million, assuming conversion of all convertible notes.
WolfStrike Rentals Group is combining three companies, the New Zealand-incorporated WolfStrike Distributors Limited (WDL) and WolfStrike Rental Services Limited (WRS) and the Australian-incorporated WolfStrike Distributors Pty. Ltd. Because of this the financial information in the prospectus is presented on a pro forma basis. On this basis, for the period from 1 April 2015 to 31 October 2015, the company generated revenue of $6 million, EBITDA (earnings before interest, tax, depreciation and amortisation) of $3.1 million and net profit of $2.5 million.
If that figure were annualised, Bailey says the issue carries a price/earnings ratio of between 4–6 times earnings, which he describes as “quite reasonable.” On those numbers, many investors would consider an investment in a company following a similar strategy to Silver Chef to merit close scrutiny.
A growing client base that is diversified across different sectors and product types underpins the strong recurring revenue profile. The largest client accounts for about 1.5 per cent of the total book value, and the rate of client default is low, at less than 1 per cent. Even a small market share penetration in Australia – that is, up to 1 per cent of the addressable market – has the potential to significantly boost WolfStrike’s existing revenue base.
The balance sheet on a pro forma basis will have total assets of $19.4 million, including a $2.2 million cash balance, supported by the $2 million share issue.
The offer is due to close on Monday, 22 February, with the shares due to re-list on the ASX on Monday, 7 March.
James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au