Consumer antivirus provider Avast (AVST) has unveiled plans to float on the London stock market, providing another investment option of scale for investors in the exciting cyber security space. It hopes to raise about $200m of cash (roughly £140m), although that will largely be used to cut debt of somewhere in the $1.4bn to $1.6bn ballpark.

This is a company whose products many investors may already be using, but may not realise it. Avast owns the highly popular AVG (which it bought in 2016) suite of antivirus tools and both brands feature prominently on the Google app store when searching for antivirus solutions.

STRONG CONSUMER CYBER PLAYER

It mainly sells direct to consumers although it also supplies various endpoint protection, device performance and privacy tools, password management and parental control solutions to smaller and medium-sized businesses (SMBs).

But its real strength is consumer, boasting around 435m worldwide users (290m PC and 145m mobile). These are monetised both directly through premium versions of solutions, and with advertising backed free models. About half of users are in Europe, the Middle East and Africa (EMEA), another third across the Americas. The rest come from across the Asia-Pacific region, so it is well-known across the globe.

The company has put up impressive growth figures over the past three years putting full year 2017 underlying operating profit at just shy of $300m ($299.7m to be exact) on $652.9m of revenue. However, hefty exceptional and amortisation charges meant that translated into a $28.9m loss at the pre-tax level.

SPECULATING ON VALUATION

No detail is given on expected valuation, but a $4bn number has been doing the City and press rounds over the past few months, implying £2.8m. But the ultimate valuation could be higher.

‘This would represent a trailing EV/cash EBITDA (enterprise value to cash earnings before interest, tax, depreciation and amortisation) multiple of around 12-times which feels a little conservative,’ says Megabuyte analyst Indraneel Arampatta.

‘Particularly when Sophos (SOPH) is trading on a trailing cash EV/EBITDA multiple of 23.’

PRIVATE EQUITY EXITS

Worth bearing in mind is that the IPO is being used as a partial out for Avast’s private equity backers (Summit and CVC) and founders, which may not sit well with some investors.

At the moment founders retain a significant share (46%), while CVC holds 29% and Summit 7%. Directors and employees hold 18%, although partial stake sales look most likely rather than complete exits.

Avast also plans to pay dividends sooner rather than later. Operating cash flows last year were $307m, or 75% of adjusted EBITDA. Taking into account relatively modest capex of $15.9m, suggests free cash flows of $291m, or 71% of EBITDA, which implies there is the hard cash there to fund dividends.

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJBell logo

Issue Date: 12 Apr 2018