Funtastic rides ecommerce tailwind as investors applaud new acquisition
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Online toy shop Funtastic (ASX:FUN) is doubling down on ecommerce, and investors approve.
The company announced a share placement today in connection with the acquisition of Hobby Warehouse Group (HWG) — an ecommerce play with over 1m subscribers.
HWG is the licensee for the Toys ‘R’ Us and Babies ‘R’ Us ecommerce brands.
Along with Hobby Warehouse Pty Ltd and Mittoni Pty Ltd, FUN said the group generated unaudited revenue of $28.6m in the 2020 financial year.
The acquisition price for the deal is $32.6m, which Funtastic will fund via a $29m share placement price at 11.2c.
That marked a 72 per cent premium to FUN’s last traded price on October 5, before it went into a three-week trading halt.
Upon resumption of trade, the stock shot up to 16c — an early gain of more than 100pc.
Ecommerce has been one of the standout performers among sectors that have picked up a big post-Covid tailwind.
In its rationale for the deal, FUN said the merged entity can extract operational benefits from the “centralisation of divisions, merging of staff and reducing fixed operating costs”.
The company said it hopes to leverage HWG’s existing traction in the market, where it has a customer subscriber base of more than $1m.
HWG’s distribution channels span B2C (Hobby Warehouse Pty Ltd and Toys ‘R’ Us) and B2B (Mittoni).
Funtastic said post-Covid sales momentum has seen HWG’s monthly revenue for its Toys ‘R’ Us division increase to $1.3m, from $600k in January.
The company said its own B2B offering complements the Mittoni brands, which sells to a “larger base of small independents, whereas Funtastic distributes predominantly to a higher concentration of larger retailers”.
On the financing side, FUN said it will issue 291 million shares at the 11.2c placement price, representing 34.43pc of the total shares on issue.
As part of the placement, major shareholder Jaszac Investments Pty Ltd will convert a $6m funding facility to equity.
Funtastic said the deal will also give it the opportunity to exercise tax benefits on its balance sheet, including $19.3m in franking credits and $69.5m in combined revenue and capital losses.