TBS Group public offering in June 2021: Bargain at a discount


Following the strong FY2020, TBS Group financial results in Q121 did not disappoint either. Although top line growth slowed down, profits improved considerably with margins among the highest ever. The Company is placing a third public offering in June at a deep discount to intrinsic value, providing a great opportunity to buy in.

Top line still on the rise but unsurprisingly slowed down

Leading Bulgarian system integrator Telelink Business Services Group (TBS Group, the Company, the Group) added 11.3% y/y in consolidated sales in Q1’21 to BGN 40.9m across regions and product categories. Bulgaria reinforced its leading market position with newly entered markets and Southwestern Balkans stepping up performances. MidWestern Balkans underperformed on expected telecom related CAPEX delays. Understandably, revenue growth relaxed its pace compared to the speedy rally in FY20 (84% y/y up in Q1’20). Yet, we expect the top line to continue its positive trend benefiting from enhanced ICT and digitalization demand from both public and private sector.

Profitability surging fast and outpacing expectations

Profitability remained strong and outpaced revenue growth. All margins improved in Q1’21 exceeding expectations. EBITDA rose 36% y/y to BGN 6.4m driven by economies of scale and higher value added offerings. Thus, EBITDA margin was up 279 bps to 15.59%, almost the highest ever. Net profit margin also neared its peak from Q3’20 (12.32%) at 12.16% (up 251 bps y/y) with bottom line advancing 40.1% y/y to BGN 4.97m. Given the focus of the Group to higher value added offerings, we expect the positive trend to continue although a moderate deceleration might occur as OPEX on regional expansion and potential M&A kick in later in 2021.

Upcoming public offering at deep discount offers great entry point

After successfully placing 14% of the Company’s shares in 2020, TBS Group is preparing a new, 3rd, offering from June 8th until June 15th, 2021. The Company’s shareholders will market up to 7% of the Company’s capital at BGN 13.50 pps pre-dividend, providing c.10% discount to the market quotes prior to the offering announcement and c.70% discount to our intrinsic value estimate. This, coupled with Company’s low multiples compared to peers (10.9 EV/EBITDA, 19.1 P/E) makes the offering a cheap entry point with long-term potential. In addition, Telelink plans to build up to 30% of free float, with more tranches expected in 2021 and mulls potential listing in Frankfurt to boost visibility and liquidity.

Expected dividend and buy-back to support strong corporate governance

Good corporate governance and strong stock performance boost are expected to be further supported by upcoming interim dividend and improvements in the buyback program. Following FY20’s above-average dividend (c. 4.5%+ DY with 55% higher than expected payout), Telelink plans to propose interim dividends in Q3’21 with management supportive of sizable payouts due to strong cash flow generation and underuse of leverage. Additionally, TBS considers increasing the upper limit on its active buy-back program from BGN 13 to BGN 20 per share to provide for its employees’ performance share incentive plan.

TBS Group website for investors