What is Gigas Hosting?
Gigas Hosting is a Spanish micro-cap company founded in 2011. It operates in the “Infrastructure as a service sector” (IaaS), offering cloud computing services. Gigas is present in Spain, Portugal, the US, Ireland and Latin America.
In the 4Q20, Gigas Hosting announced a transformational change for the company. The acquisition of a Telecom company in Portugal ONI (acquisition price was higher than Gigas Hosting market cap at that moment) and a portfolio of clients.
What is the business of the Gigas Hosting?
Gigas has two products: Cloud Datacenters and Cloud VPN.
The Cloud VPN product is targeting small clients or individuals. Meanwhile, Cloud Datacenter is targeting bigger companies which have higher necessities of space and resources.
As the pictures show, the ARPU from Cloud VPS is almost irrelevant when compared to the one from Cloud Datacenters. As it was expected, Gigas is focused on Cloud Datacenter clients. This is the reason why it has not entered the price-war that is taking place in the Cloud VPS products. Consequently, the number of VPS clients is diminishing.
The company has 9 data centres (2 in Madrid, Barcelona, Lisbon, Porto, Miami, Santiago Chile, Bogota and Dublin.
Gigas offers high-quality services to be able to compete against the big multinationals which dominate this market.
M&A activity of Gigas Hosting (Ignitar, Oni,…)
To understand the magnitude of these M&A operations. In 2019, Gigas obtained revenue of and €2.5MM EBITDA. Moreover, it obtained a net positive result for the first time (€0.22MM). Gigas capitalization before the M&A announcement was less than €30MM. At current market prices, the Pro-forma company would be valued around €70-80MM
Since September 2020, Gigas has bought two companies. Furthermore, it is going to announce the bought of an enterprise’s clients portfolio in the coming days.
Ignitar is a services provider based in Ireland. It provides cloud hosting services to some corporate customers (mainly focused on the SAP Business One ERP software). The clients from Ignitar are from Ireland, the UK, Netherlands and Scandinavia. Gigas bought 75% of Ignitar by €2.2MM. Ignitar employees will continue working here.
However, the huge transformation of the Gigas’ business comes from buying ONI. ONI is a Portuguese telecom company focused on the B2B market in Portugal. It has roughly 1’100 customers and it provides them with telecommunication and IT/security servicers. The forecast for ONI in FY2020 is €37.3MM and €7MM EBITDA. ONI also has a fibre ring connecting Madrid to Lisbon and Porto which will enable smooth integration with Gigas services in the Iberian peninsula. The transaction price will be €40MM (equity).
How is Gigas going to finance these acquisitions?
Gigas is going to carry out two monetary capital increases + external financing + non-monetary capital increase to finance the acquisitions.
The first capital increase looks to raise €17MM, excluding pre-emptive subscription rights. It targets institutional and strategic investors.
There is a second capital increase, it is for €4MM, and it includes subscription rights for current shareholders.
€6.25/share is the reference price for both capital increments.
Gigas has a debt target of net debt/EBITDA <1.5x
Why Gigas Hosting is an interesting company?
This 2020 has been a difficult year for Gigas and its growth rate has diminished. It is mainly due to:
• South American currencies (Gigas get paid in $, but the devaluation of currencies affects the purchasing power of the companies in LatAm)
• There has been a decrement in the number of clients because of Covid-19
• Gigas has increased its discounts to maintain clients
Nevertheless, Gigas is in a sector which is growing rapidly due to the digital transformation and the new necessities that the companies have. It is simply too expensive and too risky to maintain all the information and IT infrastructure (servers) in the same place. In case of any unexpected event at that place, the entire company cannot operate because all the information is in the servers.
Thanks to the acquisition of ONI, Gigas will be able to provide to its customers not only with cloud infrastructure but also with telecommunications services and cybersecurity. Consequently, this integrated offer will place Gigas ahead of its competitors as the traditional companies are not offering these services.
In addition to that, Gigas main investor is Inveready, an experienced investor in early-stage technology-companies which has already been involved in successful stories of MasMovil and VozTelecom. Its expertise within the telecom sector will be helpful to accompany Gigas throughout its transformation.
Conclusion about Gigas Hosting
MORAM sees Gigas as an interesting company within a sector which is forecasted to grow sharply. Moreover, Gigas has good management and experienced investors. MORAM added Gigas to its portfolio in October 2020.
Note: This is not a buy recommendation.