Retail company, AuMake International Limited (ASX: AU8) has executed a binding agreement to acquire all the business assets of affiliated inbound Chinese tourist retail network (Broadway) for a total consideration of $14.2 Mn which is amortised in three stages.
To fund the acquisition, the company has already completed a heavily oversubscribed placement to Institutional and Sophisticated investors to raise A$7 million at an issue price of $0.16 per share.
Broadway is a leading group of retailers with eight store locations across the east coast of Australia and New Zealand, primarily focuses on the sale and distribution of products similar to AuMake, including health supplements, infant formula, wool and food products. It is expected that Broadway FY19 revenue will be around $30 million at a gross margin of 30%. From this acquisition, AuMake International is expecting to improve its financial performance for FY 2020.
Currently, the company is focusing on converting Broadway offline customers to online, increasing repeat sales and higher margin opportunities. The company is also eying to increase the sales of owned brand products due to Chinese tourist appetite for new, lesser known, high margin products. Moreover, the company is targeting to increase the number of tourists visiting Broadway and AuMake offline stores by using the additional available working capital and Broadway’s influential relationships in the Chinese tourism market. After completing the acquisition and equity raising, it is expected that the company will be sufficiently capitalised to execute these objectives in FY 2020.
Moreover, the company has identified significant growth opportunities with this transaction which includes providing online sales functionality (currently 30% of AuMake total sales) to Broadway customers and transitioning AuMake owned brand products into the existing Broadway store product mix. It is expected that the combination of these initiatives will materially increase the company’s EBITDA as a % of sales.
Besides this, the company is also expecting significant operational synergies to decrease total operational costs and cost of goods sold (COGS) as a result of the increased purchasing power of the combined businesses.
The Acquisition is subject to various conditions which include approval from shareholders, obtaining the consent to assign or otherwise transfer all leases and material contracts relevant to the business operations of Broadway and execution of formal Contract of Sale agreements. The consideration for the acquisition will be satisfied by a combination of cash and scrip both at settlement and on a deferred basis.
Now, let’s have a glance at the company’s stock performance and the return it has posted over the past few months. The stock is trading at a price of $0.180, down by 14.286% during the day’s trade with a market capitalisation of ~$57.01 million as on 17 April 2019. The counter opened the day at $0.205 and touched a day’s low of $0.175 with a daily volume of ~2,055,326. The stock has provided a year till date return of -16.00% & also posted returns of -32.26%, -4.55% & 5% over the past six months, three & one-month period respectively. It had a 52-week high price of $0.360 and touched 52 weeks low of $0.175, with an average volume of ~213,615.
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