Journeo acquisition increases exposure to rail sector

Transport security and information systems provider Journeo (LON: JNEO) is acquiring IGL Ltd, which supplies displays for rail passenger information, for £8.7m.

The initial cost of IGL, also known as Infotec, is £6.2m in cash and £500,000 in shares with £2m deferred. IGL is estimated to have net cash of £4.5m. Cenkos forecasts a revenues contribution of at least £11.4m an EBITDA of £1.7m next year.

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AIM-quoted Journeo is raising £7m at 105p a share to help finance the acquisition and provide working capital. It will also pay off £550,000 of loan note with a 10% interest charge. A retail offer will raise up to £350,000 in additional funds and it closes on 4 January.

Journeo has a significant market share in the bus and coach market. Combining the two businesses should also reduce purchasing costs.

IGL provides additional scale for Journeo in the rail market. It trebles the number of trains using group displays to 2,400 and service revenues could be increased. New products set for launch will improve margins.

IGL has won an $18m contract to supply displays for New York subway trains. The UK is its main market, but it also has customers in Canada ad South America.

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Journeo is expected to make a pre-tax profit of £900,000 in 2022, while adding IGL is forecast to improve pre-tax profit to £3.3m. Earnings are forecast to increase from 10.4p a share to 17.8p a share.

Net cash of £5.8m is forecast for the end of 2023, with net assets of £10.3m. The share price jumped 11.5p to 130p, but the 2023 prospective multiple is less than eight.

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