Tuesday, September 25, 2018

SURG Surge Holdings

OTCQB: SURG Surge Holdings

Surge Overview/ Business Plan:

·         True Wireless (Brian Cox’s private company) contracted in May of 2017 to merge with KSIX.  In December the name was changed to Surge Holdings and two new business initiatives were announced in wireless and payment services using new fintech software applications. The merger closed in April 2018, the last few months were used to complete the foundation work and clean-up of previous company structure, now everything in place for aggressive growth of revenue.

·         8/15/18 is when the first consolidated financials were published (2nd quarter 10Q). SURG is just getting started

·         The company is a wireless and payment services focused on the bottom third of the economy, the 77 million no contract cellular market and more importantly the 51% of the population with credit challenges or no credit. The unbanked, under banked and overlooked. SURG is building a distribution network of mom and pop c-stores.  The neighborhood “depots” are where the target consumer shops.  The management previously built a cellular “top off” payment system in the private sector and sold it.  By “top off” we mean make a cash payment that would be applied to any cellular carrier, Boost, Cricket, Metro, True, Tracphone, etc.  A similar business recently sold to PayPal for over $300 million, SURGE’s Current market cap is incredibly low at $32 million).

·          Surge has taken the “top off” service and enhanced it with wireless, prepaid cards and a wholesale point of sale application portal to distribute additional products.  The payment services platform opens the door for SURG to bundle other products and services to increase revenue and make the stores more money.

·         This is an easy choice for store owners to move from their current top off provider to Surge and become more profitable.

·         Surge software is a virtual digital highway into these stores for distribution through their Point of Sale Application Portal.   This is a game changer, as previous access into these stores required a sales force to get product placement. Surge makes money on the payment services, wireless, prepaid, debit and distribution SAAS for third party products, everything from energy drinks to CBD oils. 

·         SURG investor awareness is just kicking off.  Typically it takes about 60 days to get into gear, giving a window to accumulate stock now before true awareness of the company grows.  The company is significantly undervalued at a $30 million market cap when the merger was valued at $65 million. They already have revenues of $16 million.  4 times revenue is fairly conservative and that would indicate a $72 million market cap. The reality is not many people have picked up on this or know anything about Surge. Hence the stock price is undervalued.  

·          The last research report update (attached) stated: "The key metric for investors: An estimated $1.5M in monthly revenue per 1000 stores, which can be continually replicated with greater sales penetration over time”. This equates to more then 10 times current or $180 million in gross annual revenue by opening 10,000 stores.  The company’s revenue is $16 million annually, this would be approximately 160 Million plus!

·         The recent Oklahoma Grocer’s Association endorsement was for 2,000 stores just in one state.  OGA is a major industry organization endorsing Surge as the best choice for their 2,000 members which will open many other doors of opportunity. There are over 154,000 convenience stores in the Unites States, which does not include grocery, liquor stores or other potential distribution locations.  Less than 10% market penetration achieves these numbers. This is more of a roll out then speculation given the management’s track record in this space.  For example, the Surge team has an existing relationship with ISO’s for payment services, including one individual who controls payment services for 700 stores.  This 1 relationship would gain Surge 700 additional stores and a base revenue of $1 million a month.  If they sell service for 10 phones a month that would equate to 7,000 plans and an additional $1.0 million annually based on a $15 average service plan.

·         SURG can also hire companies to open c-stores, the current management team has built this network and maintains relationships with the independent sales organizations that serve these store.

·         Surge makes money so many ways, wireless services, wireless phone sales, payment services, payments to top off other carriers, payments to municipal governments, and according to the recent social media announcements soon pre-paid debit cards too.    

·         The last PR, announced a target of 15,000 stores by 2019 YE. That would be an excess of $22.5 million a month in revenues or $270 million annually.