CTOS Digital Bhd has been in the news recently for a sizeable sale of its shares. The company sold 5% in equity via a placement exercise to raise RM173.8mil, while at the same time its major shareholder private equity firm Creador disposed of some 184.88 million CTOS units, trimming its stake to 30.1% from 40% previously.
The credit reporting agency had in December last year said that it intended to fund the synergistic acquisition of banking software specialist Juris Technologies Sdn Bhd (JurisTech) via a placement of its shares.
But what about the selldown by Creador? Why was it done at the same time as the share placement?
A banker familiar with the exercise explains that the share sale of both new CTOS shares and the Creador block were done in one book-building exercise.
He explains that there had been strong demand for CTOS shares and that it is unusual that a placement and share sale by a vendor of a company the size of CTOS can take place at the same time.
“Such an exercise is rare because you would need significant investor interest to get it done,” he explains.
In CTOS’ case, it is noteworthy that the Employees Provident Fund (EPF) has emerged as a substantial shareholder. Following the recent share sales by CTOS and Creador, the EPF now owns 5.3% in CTOS.
Meanwhile, Creador’s chief executive officer Brahmal Vasudevan explains that the private equity firm is now happy to remain with the current 30.1% stake for “many years”.
“We had always intended to sell down a bit (of CTOS).
“Recall that before CTOS went public, Creador held 80%, which then came down to 40% and now we have 30% left, which we intend to keep for some time.
“We first made the CTOS investment back in 2014. The thinking is to keep this stake for many years and we remain very excited about developments taking place at CTOS, especially from the acquisition of JurisTech,” Brahmal tells StarBizWeek. Interestingly, Creador acquired more shares following the recent selldown. A CTOS filing on Thursday shows that Creador bought 611,000 CTOS shares.
Meanwhile, CTOS’ acquisition of a 49% stake in JurisTech for RM205.8mil is the group’s largest ever acquisition since inception.
Part of the acquisition will be funded through bank borrowings.
The deal, according to deputy group chief executive officer Erick Hamburger, allows both companies to complement each other’s strengths to bring a stronger end-to-end digital lending solution proposition to the market.
“JurisTech provides digital solution software and platforms to companies, while CTOS provides data and analytics. Combined, we bring a complete end-to-end digital lending solution to the market, subsequently establishing ourselves as a one-stop-solution for financial institutions,” he tells StarBizWeek. CTOS had earlier guided that the strategic stake would immediately contribute an additional 13% to its financial year 22 (FY22) forecast net profit, which translates to about RM9.5mil according to Hong Leong Investment Bank Research.
The business is also cash-generative with about 65% of its total revenue being recurring.
Going forward, the rollout of five digital banking licences, slated to be announced by the end of the month, will also provide CTOS new opportunities to tap.
Digital banks are expected to be more borrower-centric with tailored customer solutions, faster approvals and disbursement of funds.
This would inevitably require more credit reporting assessments for lending to the underserved and unserved banking population, which includes the small and medium-sized enterprises, say analysts.
CTOS, which was listed in July last year and has a 71.2% market share, has been fuelling its growth via acquisitions.
Besides the JurisTech deal, it raised its shareholding in RAM Holdings Bhd to 8.1% after buying an additional 3.5% stake in the bond-rating firm late last year. Earlier in August, it increased its stake in Thailand’s Business Online Public Company Ltd to 22.65% from 20% previously.
On whether there could be more acquisitions, Hamburger says that the company is constantly on the lookout for potential acquisition targets that complement its business model, but is selective.
“They must provide us with product synergies, capability extension and regional expansion opportunities,” he adds.
In the fourth quarter ended Dec 31, 2021, CTOS registered a core profit after tax and minority interests (Patami) of RM13.5mil, bringing FY21’s core Patami to RM60.1mil.
In its strategic roadmap, which was released in January, CTOS believes that its growth strategy will position it well to continue achieving a 15%-20% compound annual growth rate growth trajectory. It has guided for a Patami profit of RM75mil-RM80mil for FY22 and RM90mil-RM95mil for FY23.
Shares of CTOS closed at RM1.51 yesterday, giving the stock a market cap of RM3.49bil.