• 450
  • 35
  • 收藏

Sterling Check opens for trading at $27.1, up about 18% from IPO price

Tiger Newspress2021-09-23

(Sept 23) Sterling Check Corp. opens for trading at $27.1, up about 18% from IPO price.

Company & Technology

New York-based Sterling was founded to develop a full suite of background screening, verifications and ongoing monitoring services for businesses.

Management is headed by Chief Executive Officer Joshua Peirez, who has been with the firm since July 2018 and was previously president and COO of Dun & Bradstreet and held senior roles at Mastercard prior to that.

The company’s primary offering categories include:

  • Identity verification

  • Background screening

  • Credential verifications

  • Onboarding

  • Ongoing monitoring

Sterling has received at least $775 million in equity investment from investors including Goldman Sachs and The Greenblatt Trusts.

Customer Acquisition

The firm pursues large clients through a direct sales team approach organized by industry vertical and region.

For the 12 months ended June 30, 2021, the firm's platform performed over 75 million searches for over 40,000 clients.

Selling, G&A expenses as a percentage of total revenue have dropped as revenues have fluctuated, as the figures below indicate:

Selling, G&A

Expenses vs. Revenue

Period

Percentage

Six Mos. Ended June 30, 2021

22.8%

2020

27.0%

2019

29.6%

(Source)

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, rebounded to 1.3x in the most recent reporting period, as shown in the table below:

Selling, G&A

Efficiency Rate

Period

Multiple

Six Mos. Ended June 30, 2021

1.3

2020

-0.4

(Source)

The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.

STER’s most recent calculation was 51% for the six months ended June 30, 2021, so the firm has performed well in this regard, per the table below:

Rule of 40

Calculation

Recent Rev. Growth %

44%

EBITDA %

8%

Total

51%

(Source)

Market & Competition

According to a 2021 marketresearch reportby The Insight Partners, the global employment screening market, one of the firm's focus areas, was an estimated $4.2 billion in 2020 and is forecast to reach $6.4 billion by 2028.

This represents a forecast CAGR of 5.5% from 2021 to 2028.

The main drivers for this expected growth are increased populations in urban areas resulting in greater job opportunities and employee demand and a growing incidence of application fraud or inflation.

Also, the number of applicants for each job opening has increased along with a larger number of contract, temporary and 'gig economy' workers.

Major competitive or other industry participants include:

  • First Advantage

  • HireRight

  • Accurate Background

  • ADP

  • Cisive

  • Checkr

  • DISA

  • Triton

  • Other smaller players

Financial Performance

Sterling’s recent financial results can be summarized as follows:

  • Rebounding topline revenue growth

  • Variable gross profit growth

  • Slightly reduced gross margin

  • A swing to operating profit and net income

  • Growing cash flow from operations in 2021

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Six Mos. Ended June 30, 2021

$ 298,698,000

43.6%

2020

$ 454,053,000

-8.7%

2019

$ 497,116,000

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

Six Mos. Ended June 30, 2021

$ 155,539,000

41.9%

2020

$ 236,743,000

-14.2%

2019

$ 275,769,000

Gross Margin

Period

Gross Margin

Six Mos. Ended June 30, 2021

52.07%

2020

52.14%

2019

55.47%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

Six Mos. Ended June 30, 2021

$ 23,204,000

7.8%

2020

$ (23,103,000)

-5.1%

2019

$ (13,374,000)

-2.7%

Net Income (Loss)

Period

Net Income (Loss)

Six Mos. Ended June 30, 2021

$ 4,025,000

2020

$ (52,293,000)

2019

$ (46,682,000)

Cash Flow From Operations

Period

Cash Flow From Operations

Six Mos. Ended June 30, 2021

$ 45,290,000

2020

$ 36,185,000

2019

$ 36,204,000

(Glossary Of Terms)

(Source)

As of June 30, 2021, Sterling had $94.3 million in cash and $744.8 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2021, was $45 million.

IPO Details

STER intends to sell 4.76 million shares and selling shareholders will offer 9.525 million shares of common stock at a proposed midpoint price of $21.00 per share for gross proceeds of approximately $300 million, not including the sale of customary underwriter options.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO (ex- underwriter options) would approximate $2.4 billion.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 15.2%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

We currently intend to use the net proceeds to us from this offering, together with cash on hand, to repay approximately $100.0 million outstanding under our Term loan. We intend to use the remainder, if any, of the net proceeds to us from this offering for general corporate purposes.

Management’s presentation of the company roadshow isavailable here.

Regarding outstanding legal proceedings, management said the firm is not a party to any legal proceedings that it believes would be material to its operations or financial condition.

Listed bookrunners of the IPO are Goldman Sachs, J.P. Morgan, Morgan Stanley and other investment banks.

Valuation Metrics

Below is a table of the firm’s relevant capitalization and valuation metrics at IPO, excluding the effects of underwriter options:

Measure [TTM]

Amount

Market Capitalization at IPO

$1,973,227,914

Enterprise Value

$2,401,254,914

Price / Sales

3.62

EV / Revenue

4.41

EV / EBITDA

122.06

Earnings Per Share

-$0.08

Float To Outstanding Shares Ratio

15.20%

Proposed IPO Midpoint Price per Share

$21.00

Net Free Cash Flow

$44,998,000

Free Cash Flow Yield Per Share

2.28%

Revenue Growth Rate

43.64%

(Glossary Of Terms)

(Source)

As a reference, a potential public comparable would be First Advantage(NASDAQ:FA); shown below is a comparison of their primary valuation metrics:

Metric

First Advantage

Sterling Check

Variance

Price / Sales

5.76

3.62

-37.1%

EV / Revenue

6.53

4.41

-32.5%

EV / EBITDA

23.41

122.06

421.4%

Earnings Per Share

$0.04

-$0.08

-293.0%

Revenue Growth Rate

19.2%

43.64%

127.89%

(Glossary Of Terms)

(S-1/AandSeeking Alpha)

Commentary

STER is going public to obtain investment to pay down some of its debt and for its corporate expansion initiatives.

The firm’s financials show rebounding topline revenue growth, uneven gross profit growth, a swing to operating profit and net income and growing cash flow from operations in 2021.

Free cash flow for the twelve months ended June 30, 2021, was an impressive $45 million.

Selling, G&A expenses as a percentage of total revenue have trended lower as revenue has varied and its Selling, G&A efficiency rate rebounded to 1.3x in the most recent six-month reporting period.

The market opportunity for providing background checks and related services is large and expected to grow at a moderate CAGR Of 5.5% in the coming years, although the continued transition to a decentralized workforce may increase demand a bit above this estimate.

Goldman Sachs is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 37.3% since their IPO. This is a mid-tier performance for all major underwriters during the period.

The general business cycle - when companies hire fewer workers during down economic periods, demand for the company’s services will decline.

While Sterling is not immune to the ups and downs of the business cycle and potential future pandemic variant effects on economic activity, the firm has rebounded impressively and appears positioned to compete in a growing market.

As for valuation, compared to First Advantage, which went public earlier in 2021 and performed since its debut, STER appears reasonably valued on a revenue multiple basis as the firm is growing revenue at a faster rate. STER is nearing EPS breakeven.

Given the company’s strong rebound after the 2020 pandemic period and reasonable IPO valuation, the IPO is worth a close look.

免责声明:本文观点仅代表作者个人观点,不构成本平台的投资建议,本平台不对文章信息准确性、完整性和及时性做出任何保证,亦不对因使用或信赖文章信息引发的任何损失承担责任。

举报

评论35

  • AlvinCWC
    ·2021-09-24
    Looks like a better buy than First Resources 
    回复
    举报
  • Et1502
    ·2021-09-24
    Is this a good mid to long term investment?
    回复
    举报
    收起
  • Sriwonc
    ·2021-09-24
    Like pls
    回复
    举报
  • Duc_NaC_81
    ·2021-09-24
    Wow, nice
    回复
    举报
  • YYKTAN
    ·2021-09-24
    Latest
    回复
    举报
  • Kslee3943
    ·2021-09-24
    Good 
    回复
    举报
  • Tooooooemoon
    ·2021-09-24
    Like
    回复
    举报
  • GohKS
    ·2021-09-24
    Latest. Please like and comment. Thank you.
    回复
    举报
    收起
  • ASMH
    ·2021-09-24
    Like 
    回复
    举报
    收起
    • 钱来多多
      Hi
      2021-09-24
      回复
      举报
    • ASMH
      Like
      2021-09-27
      回复
      举报
  • Fiona888
    ·2021-09-24
    Great
    回复
    举报
    收起
  • Kenny77
    ·2021-09-24
    Good start
    回复
    举报
    收起
    • HOTBE
      Yes
      2021-09-24
      回复
      举报
  • Syww
    ·2021-09-24
    [Strong] [Strong] 
    回复
    举报
    收起
    • Kenny77
      Yes
      2021-09-24
      回复
      举报
  • Seward
    ·2021-09-24
    Great
    回复
    举报
    收起
    • Kenny77
      Ya
      2021-09-24
      回复
      举报
  • AngelaChan
    ·2021-09-24
    Interesting 🤓
    回复
    举报
  • 来人
    ·2021-09-24
    Nice
    回复
    举报
  • Aaronboy
    ·2021-09-24
    Like please
    回复
    举报
    收起
    • DL97
      Likezz
      2021-09-24
      回复
      举报
    • suresh11
      liked
      2021-09-24
      回复
      举报
  • jerwy
    ·2021-09-24
    wow
    回复
    举报
  • KTX
    ·2021-09-24
    Like pls 
    回复
    举报
    收起
    • ratata
      ok
      2021-09-24
      回复
      举报
 
 
 
 

热议股票

 
 
 
 
 

7x24