Digimatic Group update

In my earlier post, I’ve shared my view on the dubious transactions that propelled Digimatic Group’s valuation from just 3m to 270m on IPO in 11 months. Since then, the share price has crashed by 65% to 0.14 now, which, in my opinion, is still overpriced.

Digimatic has just released its FY16 results. Revenue 9.1m, PBT 1.1m, net profit 1.02m and net profit attributable to shareholders 856k. At current market cap of 95.7m, the P/E is > 100x!

Digimatic - Financials FY16.png

Source: Company’s FY16 accounts

The net profit has included waiver of loan from shareholder 520k. This should clearly be removed from the operating profit, resulting in 336k net profit attributable to shareholders. We are looking at adjusted P/E of 280x! There are other adjustments that we can make to the financials, but we can stop at here as they won’t bring the valuation anywhere close to the market cap.

With the net profit at such a low base, it can swing wildly from year to year. If it secures a big contract from one or two big advertisers, the revenue and net profit could look markedly different next year. But, current market cap has grossly overvalued its growth potential (if the growth potential does materialize at all).

Champion Star United Inc (CSUI), who paid 14.5m to buy part of Digimatic’s shares from 8I Holdings, holds 155.14m shares of Digimatic now. These shares are now worth 21.7m,  achieving a return of nearly 50% on the initial investment in slightly over one year. While CSUI looks like a winner, it actually has difficulty to sell the shares because Digimatic’s shares are very illiquid. Anyone who wants to sell the shares now will drive the price lower by several percentage points. The paper profit of CSUI could evaporate when other shareholders realize how overpriced the shares of Digimatic are and start selling them.

I’m curious who CSUI really is. If it has experience in corporate transactions, it couldn’t have bought the shares at such overpriced levels, twice! Being incorporated in 1982 in British Virgin Islands and having no other public information makes it even more dodgy. All these red flags and overvaluation tell investors one thing: stay away from it.

 

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7 thoughts on “Digimatic Group update

  1. Champion Star = Mcircle members = Exclusive inner club of MIP grads who have money to invest, who paid S$6k or more just to buy in.

    Poor schmucks.

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  2. Now, it makes sense to me. My big question mark is who the Champion Star United Inc is, and now it’s answered. That’s why it’s willing to buy at higher and higher valuation.

    One year after its IPO, the share price of CPA Academy (Digimatic) has fallen by more than 70% to 0.09 now, and I think current price level is still overpriced. I wonder how Champion Star will eventually sell off its shares in Digimatic.

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  3. They can’t, most of them have a 1-2yr moratorium holding period. I believe the 8I management strategy was to price it at a waay sky high valuation from the start, artificially control the liquidity of the shares by locking most of them in (including the founders of Digimatic), and hoping that in 1-2yrs time the fundamentals of Digimatic would improve to a point where the valuation makes sense.

    Since Day 1 they have branded Digimatic as a ‘tech’ company, akin to iProperty Group in ASX, which trades at a high PE multiple too. And they have also prepared their investees to expect low profits/losses in the initial years as these are part and parcel of growing and scaling fast. However, there may not be synergies simply by agglomerating a few different business models together and rebrand it as a full fledged digital marketing agency.

    Time will tell if Digimatic is able to match up to the lofty valuations that have been placed upon them, and the onus is on them to deliver.

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      1. Season 3 has just started. Velocity Property Group started trading on the ASX.
        8IH has a 5.29% stake via their subsidiary – Vue at Red Hill Pte Ltd (4th largest stake in Velocity).
        Crescenta Investment Ltd and Labelle Capital Inc has a 2.33% and 1.81% interest respectively.

        8IH announcement: “The initial fair value gain upon listing of Velocity at A$0.20 per share is estimated to be S$2.5 million.”

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      2. At current market cap of 74m for Velocity Property Group, 8IH’s stake of 5.29% is just AUD ~4m. It’s very small to them. 8IH have already earned the real money (in cash) when they sold the stake to Labelle Capital and Crescenta, so I think they wouldn’t pay so much attention to this stake, which is likely to be illiquid.

        I’m suprised that Labelle and Crescenta’s stake is so small at 1.81% and 2.33% respectively. That’s just AUD 1.3m to 1.8m. I thought they would have bigger share and realize good return for their initial investment. I certainly don’t understand the shareholding structure.

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