In early June this year, OnTheHouse.com.au (ASX:OTH) listed on the Australian stock exchange at a price of AU$1 per share, valuing the company at over AU$80m. Today that AU$1 is worth only 36c, valuing the company at just AU$29m.
So does this dramatic drop in value mean the business is a great buy or is the share price on the way to even lower values?
In June the company raised AU$55m on a valuation of around AU$25m. Underpinning the AU$25m valuation was the OnTheHouse.com.au business. This is a small, not so well known property portal in the Australian market. A look at the proforma shows that the underlying business had basically no revenues so it is hard to see how it is worth AU$25m before the capital raising.
The AU$55m raised basically went straight out the door to buy 2 businesses – Console and PortPlus. Console is a property management and sales management software business while PortPlus is a CRM and web site solution business. Together these businesses are projected to do $16m in revenue for the 12 months ending 30 June 2011. The proforma profit on the $16m is $4m for the same period.
In addition to this they have acquired a stake in Residex, a data business.
Having raised the money and then spent the money acquiring businesses, the business has also secured access to a debt facility to help fund the growth.
So the obvious question shareholders have to ask themselves is what type of business are they investing into? Is it a software business, an online marketing business, a data business or a conglomerate?
The problem with these types of business is that shareholders and analysts have significant trouble valuing them. They don’t understand the operations of each of the elements of the business and they don’t have any legitimate comparables. You can’t compare OnTheHouse with the REA Group or with RP Data or with other well-known companies as none of them do what OnTheHouse is attempting.
Therefore it is not surprising that the share price has slumped to 36% of its listing price in just over 2 months.
So who are the winners so far?
Clearly the owners of Console and PortPlus are smiling. They have pocketed AU$50m between them and in the case of PortPlus, an additional 7.5 million shares – perhaps significantly more than the underlying businesses were really worth.
The float managers are also clearly happy having pocketed a cool $4.8m in cash.
And who are the losers?
Well not surprisingly it is the people who participated in the float. Their investment has lost 2/3rds of its value in just over 2 months and they are looking down the barrel of further losses.
So what next?
Well clearly the business has to perform. The results in the prospectus have to be delivered and hopefully bettered. Rumors have it that 15 people were let go the other day presumably in a combination of cost savings and synergies.
It is clear that the management has to extract some synergies from these relatively disparate businesses – the challenge will be if there really are synergistic opportunities.
Finally, the management needs to spend significant time educating the investor market as to what the business does and what the true potential is. This is a long and challenging path.
So my prediction is that the shares will drop a little further, perhaps to 20c or so, and then sit around that mark for the next few years. They will only climb once strong results have been delivered.
Advertising Partner
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{ 3 comments… read them below or add one }
A good summary Simon. Industry people are having trouble trying to work out the business model and the group have been short on letting the market know exactly what they are and how they intend to achieve financial goals. It would be no surprise that rationlizing the employees would be the first step- particularly between the console and portplus teams. What is really confusing the way they have tried to populate their portal. I understand that there may be some scraping and API from homehound, but that property listings are not being updated. This will really p..s off agents and searchers no end and not help in deepening relationships. There is no money for a major advertising campaign and based on the devaluing share price the ability to raise further capital is basically zilch.
Even at 20c a share the company is not attractive as a takeover target, so where it goes from here will be interesting to observe.
These guys may well have a solid business if they focus on their CRM and Data Management businesses.
This may well be the plan but as Vic mentions, nobody seems to know what their plans are.
Again, if I was in their shoes, I’d be 100% focused on their data control businesses, make those are profitable as they can and forget about the portal world as a money spinner.
Good I hope they go bust and stop playing God with their incorrect guestmate values and false and misleading information on properties.