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Altostratos gears up for curious $85 million ASX listing

Altostratos gears up for curious $85 million ASX listing
The growth of online-savvy urban consumers creates both new opportunities as well as new supply chain pressures for global I.T. brands
Feb 26, 2019 By Simon Herrmann Tags: IPO, ATO

The IPO market has been a little sleepy so far this year with the exception of star performer Splitit Payments Limited (SPT) which shot the lights out on its ASX debut.

The market is now preparing for the coming listing of Asia-focused IT firm Altostratos Holdings as the company gears up for a $85 million ASX listing.

Altostratos operates across Asia-Pacific and describes itself as a "vertically integrated omni-channel adaptive routes-to-market solutions partner". As the company goes public, investors scratch their heads over the nature of the business and why no lead manager was appointed to help with the raise.

Shedding some light on the business, Altostratos effectively helps other companies that operate in the consumer electronics market to sell their products in Asia through various distribution arms – including online channels and brick-and-mortar businesses – whilst providing additional services around fulfilment and management services. The main businesses within the group – Digiland and Infonet - have been in operation for 25 and 30 years respectively.

The supply-chain landscape has become more complex as global brands seek to meet the growing consumer demand for a seamless “order from anywhere, fulfil from everywhere” buying experience.

The growth of online-savvy urban consumers creates both new opportunities as well as new supply chain pressures for global I.T. brands.

At the same time, the diversity (in terms of both format and location) of traditional brick-and-mortar stores in Asia-Pacific adds complexity to routes-to-market, especially in large geographical markets such as China, Thailand, the Philippines, Vietnam and Indonesia. Further, cross-border trading and trading in previously untapped regional areas creates additional logistical, distribution and after-sales service challenges.

Assuming the maximum subscription of $25 million is achieved, Altostrato will have a hefty market capitalisation of $85 million with three key shareholders controlling 67 per cent. The funds raised from the IPO will be used for research and development, working capital purposes and to build a "fulfilment centre" in Australia. These fulfilment centres include storage and retrieval systems and associated equipment and software.

Revenues have declined for the past two consecutive financial years from $27.8 million in FY2016 to $12.2 in FY18. The prospectus explains that management made the strategic decision to discontinue certain product lines with low margins and focus on high margin – low volume sales going forward. While gross margins have increased slightly from 5% to 8% during the same period, the net loss for FY18 amounted to $3.3 million.

The bottom line is - valuations are derived from spreadsheets and money is merely an agreement among transaction parties. With few key stakeholders on the register and somewhat little transparency on the business, I believe that key questions remain unanswered.

Regardless, we might get some answers on March 5 when the company is expected to commence trading on the ASX under the ticker code ATO. There’s plenty of "funny money" out there and only time will tell if this plan works out or if the chicken will come to roost.

Altostratos Holdings
ASX Code: ATO
Shares on Offer: 62.5m
Listing Price: $0.40
Market Capitalisation: $84.9 million
Listing Date: 30th April 

This article appeared first in The Australian.

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Simon Herrmann Author: Simon Herrmann Feb 26, 2019

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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