Straker Translations (STG) | Set up to emerge strong
Result in line: [Amounts in NZ$m] STG reported FY20 revenue of $28m (+13% on pcp) and underlying EBITDA of -$0.5m (vs our $28m and -$0.9m). This was driven primarily by the acquisitions of On Global (10 months) and NZTC (two months). There has been some negative impact from COVID-19, although it has been lower than expected. STG has also implemented a number of cost-saving measures, resulting in a $3.0-3.5m annualised cost reduction. Cash at 31 March was $11.2m and no dividend was declared.
Strategic shift towards enterprise: STG made the decision to focus more on enterprise during the year and less on one-off work, which drove an 18% increase in repeat revenue from this segment, which now represents 86% of total revenue. This came despite the loss of revenue from the closure of Deutsche Bank’s Investment Banking division (which also resulted in a $0.8m goodwill writedown for the Elanex acquisition).
Media a key focus: Another strategic focus for STG is expanding its presence in the media sector, following the acquisition of ComTranslations in March 2019. This sector is growing rapidly as content is translated and/or subtitled for global audiences. STG saw a 55% increase in Media revenue and launched Version 1.0 of its Media Workbench in FY20. In one case, STG completed the translation of an online conference in just five days with 35 people and the RAY Media platform; it would have taken c.8 weeks with previous work processes.
Forecast changes: We have reduced our revenue forecasts in line with cautious management commentary (FY21-23 down by 7%) and also reduced costs, such that net EBITDA changes are minimal (down by 2-5%). Our updated valuation and 12-month price target is A$1.36 (from A$1.44).
Investment view: Overall, this was a good result, with strong performance in key areas (increased enterprise presence, developing/demonstrating Media capability) and muted impact from COVID-19. We believe STG is well placed to accelerate its growth plans as conditions improve, through adding enterprise clients, growing its Media division and making strategic acquisitions as conditions improve. BUY maintained. Click here to read full report