8I Holdings discusses capital allocation and rapid growth

Interviews

Transcription of Finance News Network Interview with 8I Holdings Limited (ASX:8IH) Executive Director, Clive Tan
 
 
John Treadgold: 8I Holdings Limited (ASX:8IH) is a newly listed equities property investment company; it also operates a financial education and training seminar business. I’m John Treadgold and joining me today at the ASX Investor Series is the Company’s Executive Director, Clive Tan. Clive, welcome to FNN.
 
Clive Tan: Thank you, thank you for inviting me to be part of this event.
 
John Treadgold:8I Holdings started trading on the ASX at the end of last year.  How has the listing assisted your business?
 
Clive Tan: Well I think it’s been very beneficial to us. I think there were at least three things I see that actually benefited us, one of which is in terms of our financial education product and services. It has actually done even better, because people are seeing that, hey this comes from a listed company. This is credible, this is something that people believe in and sales conversion ratio has been up - that’s one of them.
 
I think the second point is spending discussion with other business partners, or business associates. We havea bit more say; I mean our bargaining power has increased. Actually people believe that we will execute what we are going to carry out, so I think that’s very important as well. And the third thing is a lot of private companies are also asking exactly how we do it, and we’re actually sharing with them and we’re actually working through. And they are more open to us having an acquisition stake in them.
 
John Treadgold: For people not familiar with your business. What is the revenue split between the different parts of the business, and is that expected to change over time?
 
Clive Tan: Actually our revenue most I would say, roughly about 50 per cent would come from our education; another 50 per cent comes from our investments. But in terms of profit contribution, actually just about 10 to 15 per centcomes from the education side. The 80 to 90 per cent comes from our investments. So the majority of our profit contribution comes from investments.
 
So just to clarify, education side actually provides a cash flow for us, because in a lot of times, people are forced to sell if there are no cash flows, in terms of when they’re investing, right? But because we have this education segment that provides us a platform, not just to reach out to more people, but also provides us to have our cost structure taken care of. We’re not forced to sell, when people are forced to sell in a market crisis, or times like that.
 
John Treadgold: You recently sold 39.2 per cent of CPA Academy, which you acquired in only February. How did this come about so quickly and what did the transaction mean for 8I Holdings shareholders?
 
Clive Tan: That particular transaction, actually CPA Academy was actually using our training space as an education provider. They were doing Internet marketing. And because we saw what they were doing, we were keen, we talked to them and they were open to us taking a stake in them. Actually it was focused and when we first valued them, we based on actually their education segment.
 
As we knew more about the business as we went, did our due diligence on it, we realised that they actually have online marketing;they’re cost per action aspect. And that part of the business can be skilled up very quickly. It’s not just an education company; it’s more of a tech company if you know what I mean. And because of that, all right, there were investors who were interested; we basically restructured the company. Right now we’re in the process of basically restructuring the company a little bit, so that we can actually prepare it for another listing.
 
John Treadgold: Is this a key strategy, turning around businesses and selling them?
 
Clive Tan: We don’t exactly turn around businesses. We actually look at businesses that are already profitable, cash flow generative and they’re already in good shape, because I have learnt in my own experience that to turn around a company, is a very tough job to do. So we focus on good companies, we buy into them and we actually support that growth.
 
John Treadgold: You’re looking in to acquire a 49.9 per cent stake in Brisbane based property developer, Velocity Holdings Pty Ltd. What attracted you to the company, and how does that fit within the strategy of the group?
 
Clive Tan: Actually for Velocity Properties, this person Brendon was actually introduced to us by a mutual contact. And when I first went down to Brisbane to assess some of the property deals that he was offering, we actually collaborated with them I would say, close to two years now, to actually find some of their property development projects, in fact three of them.
 
So after that what happened is one thing led to another, the projects are in good progress and they’re turning out fine. That’s why they’re open to us taking a stake, because what they realise, property development is actually a very capital-intensive kind of business. And if they don’t have capital, they can’t grow, it’s tough for them to grow in a sense. So that’s why we’re going to them as equity partners, and they’re very open to us doing that for them.
 
John Treadgold: What are the terms of the transaction and how does this measure up with the group’s value investing principles?
 
Clive Tan: There’re a few things we looked at when we look at such acquisition, not just in terms of the business model, the business model must of course make sense. The founder himself, actually in a way looked for undervalued parcels of land and that’s what we like. It’s not something that you bought on the market or something; it’s very difficult to get undervalued. But for him, he got most of the land undervalued. And not only that, because we look at also the management, and our assessment of management has been very credible so far and good. So that’s why we actually took an interest in them.
 
John Treadgold: With all these transactions growth has been quite rapid. Is that sustainable?
 
Clive Tan: Yes definitely sustainable. In fact in my opinion right now, we’re on the growth path, because we have grown tremendously over the past 6.5 years. In fact we started off 6.5 years ago with just $1,000 capital, today we are a group with $35 million in shareholders equity. And I think going forward, looking at the pipeline on the discussion that we’re having with various companies, I think there’ll be more to come.
 
John Treadgold: Investors are certainly impressed with your progress. What else is in the pipeline that our viewers should keep their eye on?
 
Clive Tan: I guess we’re definitely in touch with some parties, but these are all too preliminary to discuss because the way with negotiations and with talks, sometimes they’re OK, sometimes they’re not. So it takes some time to pan out and when it’s time, when it pans out, we’ll definitely make an announcement on the ASX.
 
John Treadgold: Good to know. Clive, thank you for joining us on FNN.
 
Clive Tan: It’s been my pleasure to be part of this FNN event.
 
 
Ends