Morningstar

Morningstar, Inc.

Equity Bottom-Up

We recommend MYOB shareholders vote against the KKR acquisition at the Scheme meeting on April 17, 2019. Although the offer has been recommended by MYOB’s board of directors and the independent expert, Grant Samuel, we think the AUD 3.40 per share offer price is too far below our stand-alone fair value estimate of AUD 3.94 to justify recommending. We were comfortable with the original offer price, of AUD 3.70 made last October, and the revised offer, of AUD 3.77 last November.

Narrow-moat rated MYOB’s 2018 financial result was in line with our expectations but overshadowed by KKR’s likely acquisition of the company. Group EBITDA was within 1% of our forecast, implying no growth on the prior year, although group revenue growth of 7% was respectable and sustainable. Weak profit growth is consistent with management’s long-held plan to transition the company to cloud based products via its Connected Practice strategy. This involves reinvesting profits into the cloud…

We revert to our pre-offer fair value estimate for MYOB following KKR's revised bid for the accounting software firm. Presumably, KKR sees value beyond their lowered bid price of AUD 3.40. We certainly do. Our pre-offer estimate for the firm was AUD 3.82, and when factoring in the effect of time value of money, we increase our fair value estimate to AUD 3.94 per share. MYOB is a high-quality company, with a narrow economic moat sourced from customer switching costs. And with a share of around…

We aren’t particularly surprised by KKR’s AUD 3.70 per share takeover bid for narrow-moat-rated MYOB as the stock has traded significantly below our AUD 3.82 fair value estimate for around a year, which justified inclusion on our Best Ideas list. KKR already holds 19.9% of MYOB’s shares following purchases both on market and of a 17.6% stake from Bain Capital for AUD 3.15 per share. Bain has retained a 6.1% stake in MYOB, presumably to prevent KKR’s stake from reaching 20.0% just yet, which…

Australia

MYOB Group Limited provides desktop and cloud business management software solutions. The Company offers accounting software, tax, payroll, and other business management software solutions, such as MYOB banklink, a desktop solution to deliver micro and small businesses transaction data from its bank to its accountant using live data feeds.

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