Karachi, September 21, 2021 (PPI-OT): TRG: Current valuation is just tip of the iceberg!
Combined value of TRG’s portfolio companies stands at PkR413/sh while even if a 25% discount is applied, total value comes out at PkR319/sh, still providing an upside of 82% to last close along with potential of significant payout or a share buyback scheme post-sale of eTelequote.
Afiniti (TRG’s effective stake: 17.2%) specializes in Artificial Intelligence (AI) based enterprise programs, aiding in improving health, enterprise profitability and customer satisfaction by analyzing commercially available data points related to a person’s identity. Afiniti signed a pay-for-performance five year service agreement only last year which significantly improved its revenue as depicted by annualized revenue for 1HFY21 increasing by 2.9xYoY to US$237mn. For valuation, we have taken Palantir and C3.ai as comparable where the companies are trading at P/S of 39.0x and 27.8x, respectively. We believe C3.ai is a better comparable given company’s topline is close to Aifniti’s, hence using a P/S of 27.8x, we arrive at a valuation of US$6.6bn for the company while the value of TRG’s effective stake in the company comes out at PkR350/sh.
eTelequote is another one of TRG’s subsidiary which engages in health insurance marketing however recently, TRGIL has sold all of its stake in the company to Primerica with an enterprise value of US$600mn. Estimated consideration for TRGIL from the proceeds is estimated at US$309mn where after accounting for debt on TRGIL’s balance sheet, net amount expected to be received by TRG for its stake in TRGIL is around US$67mn while additional US$49mn will arrive in the shape repayment of preferred debt by TRGIL to TRG. Hence, a net cash inflow of PkR35/sh can be expected however if company keeps cash for unforeseen circumstances, net cash inflow can be in the range of PkR25-30/sh.
Another subsidiary of TRG is IBEX which got listed on NASDAQ in Aug’20 and is currently trading at US$17.2/sh with a market capitalization of USD312.4mn. IBEX has recently posted significant improvement with its 4QFY21 revenue increasing by 7.9%YoY to US$108.9mn while profitability increased to US$4.0mn, up 5%YoY. At current market cap and TRG’s effective stake of 35.8%, IBEX’s value in TRG’s portfolio comes to PkR27.8/sh.