In league with a leading South African telco, an upcoming IPO is targeting the world’s two-billion plus gamers.  For those who prefer sunshine over dark rooms, PowerAsia presents an alternative IPO theme

Emerge Gaming (EM1) (not yet listed)

Unless you’re a joystick jockey yourself, gaming looks like an esoteric pastime of the misspent youth. But with 2.1 billion players globally devoting hours to improving their League of Legends or Dota2 scores, the lure of the console can’t be denied.

For a cohort of professional players, it’s also highly lucrative.

“Think rock star status athletes competing in front of sell-out arenas, being streamed to millions around the globe competing for millions of dollars,” Emerge Gaming says.

The sector is already big business, worth an estimated $US500m globally in 2016, with this spend forecast to grow to $US1.48bn by 2020.

Plenty of companies are awake to the opportunity to make a dollar, whether though advertising other goods to the youthful crowd or through direct involvement.

But it’s still unclear what monetisation model will work best.

Emerge Gaming is stepping up to the console with a planned ASX listing, having gathered $5m in an oversubscribed raising at 2c apiece, via the shell of the once venerable Arrowhead Resources (AR1).

Emerge organises online video games competition. Its operating business, Gaming Battle Ground (GBG) so far has hosted over 10,000 free-to-play competitions across nine of the most popular games.

GBG operates mainly in South Africa and Croatia (of all places) and claims 30,000 registrants, 14,000 active in the last six months.

The company says that as the professional platforms grow, so too will the market for amateur games organised around a central hub.

Emerge Gaming, we stress, is not without its rivals such as World Gaming Butterfly, pwnwin and Toornament. “Some are offering pay to play and may be more advanced,” the prospectus notes.

Emerge Gaming is also emulating Esports Mogul Asia Pacific (ESH), which backdoor listed in late 2016 after raising $7m at 2c apiece.

Esports also provides a  tournament platform, as well as “exclusive Esports content” and even an Esports learning academy.

Judging from the half-year accounts, Esports Mogul’s path to prosperity has been a slow grind and the stock trades well under its 2c listing price.

Esports reported December half year loss of $8.5m on humble revenue of $76,128, albeit 680 per cent higher.

Just as serious gamers need a secret manoeuvre, Emerge has the advantage of a deal with South African telco MTN to access its base of 30m phone subscribers.

The idea is that MTN charges a daily fee for customers to access the GBG platform, with 40 per cent of “shareable revenue’’ remitted to GBG.

A $26 billion company listed on the Johannesburg exchange, MTN will also provide marketing support and may also chip in for prizes and sponsorships.

Emerge is also negotiating with other parties elsewhere to strike similar deals.

Emerge was to have listed in February, but the pernickety regulators required a supplementary prospectus. Arrowhead holders had approved the deal last year, but need to vote again given the subsequent MTN deal. Then it’s game on.

Power Asia (P88) not yet listed

For those who prefer sunshine to dark and dank rooms, this upcoming but similarly delayed IPO is targeting an overlooked sector of the renewables market: mid sized projects between 10 to 50 megawatts.

These projects are overlooked by the institutions that otherwise are hungry for such infrastructure.

“The small and large segments of the industry are well known but this space is quite empty,” says PowerAsia head of acquisitions Tishan David.

PowerAsia has a pipeline of eight to ten projects locally and in South Australia.

As a starting point, Power Asia is developing the 10MW Sabha Khola hydro project in Nepal and the rights to acquire and develop the 20MW Paget solar plant near Mackay in Queensland.

Costed at $26m, the Nepal project is subject to a memorandum of understanding. The Paget development is estimated to cost $38m.

In essence, PowerAsia is a roll up of three ventures: the retail solar installer Standard Solar, the commercial installer and fabricator Linked Energy and Enpro (project procurement and management).

Standard Solar has installed more than 20,000 solar systems, while the Mackay-based Linked Energy boasts numerous blue-chip clients with a focus on the resources sector.

Solar gets a bad rap in this country but the company notes that 1.5m solar systems are in place, equivalent to 18 per cent of households. Australia also has the highest installations on a per-capita basis and in 2014 was the eight-biggest in terms of new capacity.

A key to the IPO is the involvement of three Chinese alliance partners can elect to participate in the projects on a JV basis. But PowerAsia expects to fund the smaller projects itself, using equity and debt.

Super funds are also likely to be involved, attracted by the reliable yields underpinned by long-term contracts.

The nearest ASX exemplars are Windlab (WND), which is developing wind projects here and aboard based on CSIRO atmospheric modelling and wind energy assessment technology.

The $100m market cap Windlab is solidly profitable, having generated $8.9m of earnings in calendar 2017, on revenue of $23.2m.

Valued at a tad over $90m, the ‘pre revenue’ Genex Power (GNX) is developing a stored hydro and solar plant based on the old Kidston gold mine in northern Queensland.

Carnegie Clean Energy (CCE) has strayed from wave energy to other renewable and among other projects and is negotiating to build a 10MW solar and battery facility near Bunbury.

PowerAsia last week was confident it had raised its targeted $9m at 20c apiece, following a last-minute flood of applications from Hong Kong investors.

A key risk is that the company’s efforts to source projects for its alliance partners “may yield little or no return if the partners decide not to proceed with these projects.”

To date PowerAsia’s earnings have flowed from its established Australian business and this should imbue investor confidence post the listing which is now scheduled for later this month.

Tim Boreham edits The New Criterion

tim.boreham@independentresearch.com.au

Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.