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Silverlake: A One-STOP Banking Solution?
Acquisition of new companies have yet to prove that they can value add to its current revenue stream.
Figures from Silverlake’s valuation ratios point that Silverlake is overvalued
Investors holding onto this stock should consider selling while the stock is at a high.
Company Profile & Business Model
Silverlake Axis is a provider of end-to-end universal integrated banking solution to major financial institutions.
Silverlake Axis’ Integrated Banking Solution (SIBS) assists financial institutions address challenges and implementations driven primarily by market forces.
These challenges can include compliance requirements, need for cost efficiency, business consolidations, and competition.
Source: Silverlake Axis FY13 annual report
Dissecting the Annual Report
Gross profit rose 17 percent to RM253.9 million in FY2013 despite the marginal decrease in revenue. Gross profit margin improved to 64 percent on the back of increased revenue from higher margin activities such as software licensing and maintenance and enhancement services.
To an investor, this means that Silverlake is starting to rely more on its core products that are more profitable. This may not be a good thing for Silverlake in the long run.
In an attempt to widen its reach into new markets, Silverlake also acquired three new companies in the financial year ending June 2013.
Isis International Group has been highly successful in empowering its customers with its enterprise payment solutions. Silverlake will cross sell this payment technology to customers across Asia.
Cyber Village specialises in internet and mobile platform technologies which underpin the e-commerce solutions they offer to customers across a broad range of industries
Merimen Group provides a cloud computing Software as a Service (SaaS) platform for insurance companies. The software allows these companies to interact and transact with their customers. It also enables companies to partner communities to effectively and efficiently process and administer policy origination and claims processing. Insurance processing is a new source of revenue for the Group following the acquisition of Merimen Group.
Although Silverlake have acquired these new companies to enter new markets, investors will need to monitor and review the extent of contribution from these companies to Silverlake’s growth in revenue in the next few years.
Fundamental Analysis
Time to Sell to Cash In Your Profits
Silverlake is a company with sound fundamentals and business model. However, to investors, Silverlake may not be able to provide a good margin of safety as it is currently, in my opinion, overvalued. Its current share price ($0.89) is about nine times of its net asset value ($0.10).
In conclusion, I feel that investors who hold this stock should consider selling while the stock is at a high. Unless of course, said investor buys in fully into Silverlake’s new acquisitions. For investors looking to add Silverlake into their portfolio, it is probably best you stay by the sidelines first.
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