Unifiedpost
A LOT of action under the surface
This write-up was first published in A few micro-caps I'm looking at. We present it here separately to improve its visibility. Also, we just don’t like the old ‘lumped’ format anymore. Going forward, we’ll be publishing write-ups more separately instead of lumping them together as we have done recently. This will improve the timeliness of the ideas and the readability of the posts.
Unifiedpost is a niche SaaS player mainly operating within electronic invoicing, a market which is expected to have secular tailwinds due to regulatory tailwinds.
In simple terms, UPG helps business digitalize and streamline their financial and admin processes. The company provides cloud-based solutions to e.g. automate invoicing and payment processes, exchange documents digitally, ensure tax compliance across different countries, etc. UPG serves a few million customers worldwide over 30+ countries, mostly via longer-term contracts, providing a diversified and pretty visible revenue stream.
The company has been listed for roughly four years, and the shares have not exactly been a success. The share price hovered around €22 for some months after the IPO, but got crushed as rates rose and earnings disappointed.
Top-line growth has been flattish for the past few years paired with some heavy losses, the latter mainly the result of the company’s inability to generate operating leverage and big interest expenses on a pretty expensive – and large – debt position.
In short, UPG has been a total loser.
So, what makes this one worth looking into?
For starters, when I see a stock crap out and the share price remain flattish for some time despite whatever news the company puts out – I’m interested.
More importantly, it seems that UPG management has seen the light, and has recently embarked on a ‘let’s-get-to-cash-flow-positive-asap’ tour. The company announced a strategic review in April 2024, putting out some concrete, near-term goals of achieving a stable financial position and FCF break-even by 2025.
To do this, they have set three main goals:
Grow Core Digital Services: they aim to expand their higher-margin digital services business at a steady rate. This growth is essential because these services are more profitable compared to other parts of their business.
Control costs: keeping expenses in check is crucial to ensuring that the company can finally achieve some operating leverage.
Pay off debt: they have a significant and expensive debt burden to Francisco Partners. Paying this off will reduce its financial burden and drastically improve the balance sheet.
UPG wasted no time, and attacked the debt problem by selling some non-core businesses (given the targeted focus on their main digital services) at very decent prices. The largest asset sale has been the Wholesale Identity Access unit, which was sold for €133m (EV, incl. €7.7m earn-out), 16x FY23 ev/ebitda. This deal was finalised a month ago.
Not bad for a company with an EV of roughly €230m and €130m debt.
The proceeds from these divestments (which also include the sale of other smaller non-core businesses like Fitek/ONEA and 21 Grams) will push the company to a (small) net cash position, significantly improving the UPG’s cash generation profile.
Now there’s an actual path to becoming cash flow positive in the near-term. The company’s profile shifted strongly towards its digital activities which boast much higher gross margins (over 60%) compared to its legacy services (20-30%). Also, revenues from these activities should grow at >10% p.a. for the foreseeable future.
Given the shift in mix and return to growth, it’s not inconceivable for the company to get to mid-to-high single-digit ebitda this year. That would put it at 12-15x ev/ebitda on FY25e, with ebitda growing at 40-50% p.a. in the years thereafter as operating leverage kicks in.
But as always there’s some stuff to keep an eye on. While Digital Services revenues grew at a healthy rate over H1 24, Q3 showed a pretty large slowdown. There’s no Q3 call and I have yet to reach out to the company, but this is something to keep an eye on. It’s a small company, and its normal to have some hiccups, as long as they’re not structural.
But overall, here we have a company that went from being a indebted loser, to a growing company, with healthy gross margins and strong balance sheet – and the share price didn’t move.
The market’s clearly in wait-and-see mode, and that’s the opportunity.
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