As you may recall, back in May 2023, I recommended a little IT company called Cirrus Networks (ASX: CNW). Subsequently, that little business received a takeover offer from a bigger IT services business called Atturra (ASX: ATA). At that stage, I changed my recommendation to “sell one third, keep two thirds.” Subsequently, the takeover occurred and without doing anything, I received $0.0473 cash and 0.0179 Atturra shares for each 1 Cirrus share held, in line with the default option under the takeover offer.
Immediately upon making the takeover effective, Atturra announced a 1-for-4 renounceable rights issue to raise approximately $50 million (Offer) at an issue price of $0.80 per Atturra share. The capital raising strongly supported by the founder, Chairman Shan Kanji. But as I commented at the time, this meant there was some pressure on the share price, since all shareholders had the opportunity to buy shares at $0.80.
In my post explaining why I planned to hold my Atturra shares, I said, “I think Atturra shares are worth more than 80c per share. Perhaps 90c to $1 would be more attractive to sell at.”
According to S&P Capital IQ, there are only three brokers covering the stock, Morgans, Shaw and Moelis. That does definitely imply upside as more brokers follow the stock. As a roll-up company, a key metric is how many brokers follow it, since more brokers generate more buyers. And of course, brokers will likely cover it in the end, since the will want to throw their hat in the ring for the inevitable capital raisings required to grow.
That said, the highest broker estimate for” normalised earnings per share” for FY 2025 is 6c, and for FY 2026 is 6.5c.
So even using the highest estimate for FY 2026, Atturra is on a FY 2026 P/E ratio of 15.8. If we use the company’s FY 2024 “underlying NPATA” of $16.3m, the current underlying P/E ratio is 19.6. If we use FY 2024 diluted statutory earnings per share of 3.52 cents, the P/E ratio is 29.3.
As a very basic rule of thumb, businesses like Atturra don’t grow very fast organically, and struggle to make EBIT margins over 10%. Sprinkle in some debt and tax, you will be lucky to see 10% organic revenue growth and 7% NPAT margins. Only if Atturra moves closer to this optimised potential would its shares look cheap in hindsight. There is no guarantee of that.
The point here is that we can now sell our Atturra shares to willing buyers for something more closely resembling a fair market price.
Therefore, Atturra is a Sell.
My aim will be to sell my shares around or above $1. In the spirit of not rushing, I’ll wait until at least Friday, 20 September, before selling any shares.
Please note that this advice is general advice only. I have not considered your investment objectives, and this is not personal advice. This advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937). The author owns shares in ATA at the time of publication.
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