ASX:CLG
Close The Loop Ltd
Investment Summary
The fund managers believe that Close The Loop Ltd (CLG) presents a compelling investment opportunity, reflecting its strong position in the circular economy. They note the transformational impact of the FY23 acquisitions, specifically ISP Tek Services and Captive Trade Corp, highlighting a significant net profit growth of $5.4m and 32% year-on-year increase in profitability. Fund managers assert that CLG’s valuation at ~5x EV/EBITDA and 8.5x NPATA is conservative, especially given the new business's potential for growth, indicated by the 35% NPAT increase year-on-year in its first two months and a strong Q1FY24 performance. They also emphasize the recent renegotiation of the HP contract to a 3-year exclusive agreement as a critical de-risking event, reinforcing their positive outlook. In their opinion, future growth will stem from expansion into Europe and diversification of OEM partnerships. Overall, the managers express confidence in management's ability to surpass guidance and deliver robust financial results.
Commentary From The Managers
Cerutty Macro Fund
30 Nov 2023
$0.34
- Cerutty Macro Fund continues to hold Close the Loop Ltd (CLG) as it has been a staple in the portfolio since inception.
- Recent significant updates have reaffirmed positive views on management and built momentum for FY24.
- CLG operates in the ‘circular economy’, focusing on recovery, refurbishment, and reuse.
- The company collects from 260k sites globally and remanufactures 500k electronic consumables per year.
- The acquisition of ISP Tek Services, a U.S.-based electronics refurbishment business, enhances CLG's operations.
- On a pro-forma basis, the combined business is expected to generate $200m revenue and $43m EBITDA with conservative growth assumptions.
- The current market valuation prices CLG at a ~5x EV/EBITDA multiple and 8.5x NPATA.
- In early 2023, ISP Tek Services contributed to a ~35% NPAT growth compared to the prior corresponding period.
- Management expressed confidence in achieving greater than $43m EBITDA guidance for FY24.
- Recent contract renegotiation with HP converted to an exclusive 3-year agreement, reducing key client risk.
- Future growth prospects include expanded volumes with additional OEMs, replicating the business in Europe, and warranty product refurbishment.
Cerutty Macro Fund
31 Aug 2023
$0.45
- Cerutty Macro Fund has maintained a core position in Close The Loop Ltd since the fund's inception.
- Close The Loop focuses on a circular economy, specializing in collection, recycling, and resource recovery.
- FY23 was transformational for Close The Loop, acquiring ISP Tek Services and Captive Trade Corp (CTC).
- CTC is an electronics refurbish and trading platform based in Texas, USA.
- The acquisition occurred at a favourable run-rate ~4.8 PE multiple and was 100% accretive on an EPS basis.
- Despite only consolidating for 2 months, CTC contributed a net profit of $5.4m, showing 32% growth year-on-year.
- The fund was impressed by Close The Loop’s full year results, which exceeded both the fund's and market expectations.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.