G3 Group's major shareholders likely to sell down when restriction lifts in November

Wednesday 1st June 2016

The biggest shareholders in G3 Group are likely to sell some of their holdings when restrictions lift in November putting the NXT-listed mail operations and document manager back in compliance with listing rules if it hasn't raised more capital by then.

NZX Regulation yesterday granted G3 a waiver from the NXT market rule that a company must have at least 50 shareholders deemed to be members of the public holding at least 25 percent in total of the stock on issue. The waiver is for six months and starts on June 18, replacing an existing waiver that had been in place since the company listed on the same date last year.

G3 expects to have 78 members of the public holding 24 percent of the stock on June 18. As at May 13, the company had restricted security agreements covering 70 percent of its shares that end on Nov. 12.

Yesterday the company posted a 12 percent gain in annual profit but didn't declare a dividend, saying it wanted to build up its cash reserves for acquisitions. Chief executive Mark Brightwell says the company is considering a capital raise to expand its brands but didn't give a target for funds raised.

"We haven’t yet fully researched the investor appetite for a small business like G3," Brightwell told BusinessDesk. "We are under no illusions that traditional capital markets have changed, and are changing. But we will look in New Zealand and possibly Australia and the UK for a capital raise - if the appetite is there, then we certainly have the strategy and the opportunity to match. First time around we would start out with a modest invitation offer to investors."

Brightwell, who has a direct 4.45 percent holding in G3 in an allocation alongside Augustine Trustee, is among shareholders covered by the restriction on selling. The others are the Christian Family Trust associated with director Evan Christian, with 38 percent of the stock, and JBT Trustee and JDB Trustee Services with 37.7 percent.

G3 was the first to join the NXT market in June last year, listing its 53.8 million shares at 75 cents apiece. They last traded in February at 81 cents and are illiquid as about 95 percent of the stock is owned by directors, executives, and associates of the company.

Since then it has expanded via acquisitions. It entered document management agreements with brands Filecorp and Eureka in October last year, completed the acquisition of Melbourne-based Formfile Records Management at the beginning of its fourth quarter and acquired Rocket Mail, an Auckland-based data management and mailing house operation, in a transaction that settled on April 1.

The company's full-year results show its most profitable business is its UK Mail souvenir postage stamp operations, that generated earnings before interest, tax, depreciation and amortisation of $1.97 million from sales of $5.4 million, an ebitda margin of about 36 percent. Its biggest business, NZ Mail, produced sales of about $35 million and earnings of $1.9 million, or a margin of about 5.3 percent.

UK Mail "has potential and is a focus for us," Brightwell said "However, the UK market we are in is a niche and therefore capped, but a niche we play in very well. Opportunity is to expand services out from this current niche on the back of our strong UK based core business competencies. We are considering the UK wider tourist collateral market as well as UK document/data management markets."

Notes to its accounts show the company is forecasting 6 percent revenue growth in the UK in 2017 and 20 percent growth for NZ mail operations.

BusinessDesk.co.nz

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