Information and Communication Technologies (ICT) - This is a Megatrend Opportunity!!!
Multibagger Pick (Game Changer) of June'22 - Black Box Ltd, formerly AGC Networks Ltd (AGC)
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✍️ "Information and Communication Technologies (ICT)" Megatrend - Lead by a) The digital convergence of the media, ICT and telecommunications industry; and b) The exponential increase in information, computing power and data transfer rates.
🌟🌟🌟 Multibagger Pick (Game Changer) of June'22 - "Black Box Ltd" (BSE: 500463 | NSE: BBOX) 🌟🌟🌟
🏆🏆🏆 Market Cap ~ 2215 Cr | System Integrator & Technology Product Solution Provider | High Entry Barriers | Proxy Play on ICT Theme | Global Presence | Increase in Promoter holding (~71.21%) | 5G adoption as trigger | Owned by Essar Telecom Limited (Shashi Ruia and Ravi Ruia)
✅ AGC Networks leveraged buyout of NASDAQ listed Black Box Corporation in 2019 - A Game Changer!!! ✅
👉 AGC was incorporated in 1986 by Tata Telecom Pvt. Ltd. to manufacture telecommunication equipment, and was acquired by the USA based Avaya Inc in 2004. In August 2010, Essar group took over the company. Presently Essar group owns 71.21% stake in AGC.
👉 During 2018-19, AGC Singapore acquired Black Box Corp (BBX), a $600 million technology solutions provider in Pittsburgh @ just $16.3 million. The integration of the erstwhile NASDAQ listed Black Box Corporation & AGC Networks which began in 2019 is now completed in 2022.
👉 AGC acquired BBX in a leveraged buyout of ~Rs 850 crore which was funded 79% through high yield debt and 21% through unsecured loans from promoters. The company has been focused on reduction in debt post acquisition.
👉 After acquiring BBX, AGC Networks Ltd was renamed to Black Box Ltd. The merger of two companies created a unique organization that has the scale to deliver world-wide technical solutions to the largest organizations.
👉 Black Box Ltd (BBOX) is a Global Solutions Integration (GSI) and Technology Product Solutions (TPS) company with presence across industries in 30+ countries.
👉 They deliver technology solutions in the areas of connected buildings & IoT, digital workplace & customer experience, data center & edge networks, wireless & mobility (including 5G) and cyber security.
👉 The unified communication as a service market is expected to reach USD 87.20 Billion by 2026, growing at a CAGR of 19.25%.
✅ International Collaboration & Increasing Global Demand. ✅
👉 In collaboration with global technology leaders like Avaya, McAfee, Palo Alto, Cisco, Commscope, HPE, Trend Micro, Unify, NEC, Corning, Juniper, Nutanix, NICE, Verint, Poly, Genesys and Mitel among others, the company delivers domain-focused, flexible and customized technology solutions and seamless services that accelerate customers’ business and ensures Return on Technology Investments.
👉 The company has an aggressive inorganic growth strategy which is reflected by its acquisition of Black Box Corporation, Pyrios Pty Ltd (Australia & New Zealand), Dragonfly Technologies Pty Ltd, Fujisoft Technologies UAE, etc.
👉 There has been a high adoption rate of cloud computing across North America & Europe. Growing demand for software defined computing & networking is also expected.
👉 There has been an increase in organizational & consumer data, rapid growth of SMEs & industrialization and large shift towards automation technologies globally. The trend is expected to sustain.
✅ High Entry Barrier and Improving Operations. ✅
👉 The business has a high entry barrier as it requires economies of scale, networks, strong technical personnel and high regulatory requirements.
👉 BBOX is planning to launch new cloud-based offerings, Invest in data center practice and refresh the sales team, hiring partner managers and solution architects for new offerings.
👉 Company aims to Increase focus on cross-selling opportunities between Solution Integration and Technology Product divisions and invest to tap global deployment opportunities with existing and new clients and relevant partnerships with OEMs.
👉 The number of devices and apps that IT departments must deploy, maintain, and manage is rapidly growing. That's why it's critical to work with a global integrator that can help reduce risk and reach objectives faster, like maintaining a strong ROI.
👉 Q3FY22 and Q4FY22 operating margins were low at ~5% each on the back of escalations in labour costs and increase in costs of chipsets. Nevertheless, operating profitability is expected to revert to 8-9% in the forthcoming quarters, supported by continued cost optimization initiatives and price hikes on select variable price contracts.
👉 Since AGC’s acquisition in Early 2019, Black Box has Stabilized Revenue and Gross Margins & Adjusted EBITDA has grown over the quarters.
✅ Revenue Target of 7000-7500 Cr by FY24 & PAT growth of ~300-500% by FY24 ✅
👉 FY22 Revenue was 5370 Cr, EBITDA margin 5% and PAT of 1.3%. With EPS of 4.43, stock is trading at PE of 24.
👉 The management aims to reach 7000 Cr – 7500 Cr revenue in FY24 with an EBITDA margin of 9%- 10% and PAT of 6% – 6.5% on the back of increasing market penetration, addition of new clients and optimization of operational efficiencies.
👉 On the sales front, they will most likely achieve the target of 7000 Cr in FY24 from present sales of 5370 Cr in FY22, it is just 30% growth in next 2 years which is very much possible.
👉 In the next 2 years, expected PAT will be around 400+ Cr (6% PAT margin) on the higher side and may be 200 Cr (3% PAT margin) on the lower side. At present PAT is around 73 Cr, so we can expect a growth of 300-500% in net profit during next 2 years.
✅ Good Management, Promoters converted warrant @ Rs 135 per share ✅
👉 Mr. Sanjeev Verma is President and CEO of Black Box Ltd. He is a seasoned technology veteran with more than two decades of extensive global experience in the Information Communications Technology (ICT) sector. He has a highly successful track record in the areas of business operations, sales & marketing, consulting, M&A and start-up operations. Prior to joining Black Box, Sanjeev held management positions at Wipro, 3D Networks) & Global Tele Systems both in the United States & internationally.
👉 Key trigger for the company is the emergence of 5G networks. With 5G technology on the horizon, businesses will indeed be interested in establishing networks on their facilities.
👉 For the purpose of Black Box acquisition in 2018-19, Promoters infused equity through warrants: Rs. 225 Cr at Rs. 675 per Warrant i.e. Rs 135 per share after face value split from Rs 10 to 2 in May 2022 and CMP is also around 130-135.
🏆🏆🏆 Overall, this company holds immense upside potential because roll-out of 5G will create huge demand for Global Solutions Integration (GSI) and Technology Product Solutions (TPS) companies. Global SI/IT Services companies command gross margins of 30-40%, even Black Box has gross margins in the range of 28-32% but stock is trading at Market Cap to Sales of just 0.42 which is grossly undervalued.
