Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on Atos. We currently have 22 research reports from 1 professional analysts.
Organic revenue grew slightly in Q1 19 (+0.4%), globally in line with expectations. Organic revenue growth was driven by Business & Platform Solutions (+3.5%) and Big Data & Cybersecurity (+11.4%). The good surprise came from Syntel which grew at a higher pace than expected (+8% vs guidance of +5%). Infrastructure & Data Management (-3%) continued to weigh on the overall performance. A positive reversal is confirmed as from Q3 19.
The essential news of the Investors Day was the distribution of 23.4% of Worldline’s shares to Atos’ shareholders, suggesting that Atos can no longer be on multiple fronts when the development of the IT and payment services activities need further acquisitions to increase their market positions. Atos also presented its new three-year plan which includes accelerating organic revenue growth to +2-3%/year on average and improve the operating margin to 11-11.5% of revenue in 2021 (vs 10% proforma in 2018).
The scenario of a positive turnaround of the North American Infrastructure & Data Management activities in H2 19 is unchanged. The acquisitions of Syntel by Atos and Six Payment Services by Worldline, completed respectively on 9 October and 30 November 2018, enable a favourable rebalancing of divisions. The stock is trading at low P/Es, <9× 2019E EPS and 2020E EPS (situation on 5 December 2018), which do not price in the positive impact of the acquired Syntel on the group’s net profit.
Atos posted no organic revenue growth, or only +0.1%, largely below the consensus at +1.9%. The Infrastructure & Data Management division (IDM) concentrated all the difficulties in North America and Germany. Atos missed several deals due to execution inefficiencies of the sales force in North America and at Unify in Germany and was also impacted by a dispute over a contract with a large Telco operator. The poor performance of IDM over 9M18 led Atos to revise downwards its 2018 guidance.
The share price dropped by 10% yesterday (7 August 2018) due to a significant downgrade of a recommendation on the stock market. The main subject of this downgrade is the trend of DSO (Days Sales Outstanding) which benefited from the implementation of financial arrangements on large customer contracts in the Infrastructure & Data Management division and the Business & Platform Solutions division. We do not understand why the financial arrangements are a concern now and were not in 2017 and/or in early 2018 when the releases of the 2016 and 2017 financial reports mentioned a significant increase in the financial arrangements and the positive impact on the DSO, or 15 days in 2016, 21 days in 2017 (and 23 days restated with the application of IFRS 15). In H1 18, the positive impact represented 23 days of DSO. The financial arrangements are used to manage receivables and the change of WCR consequently. They correspond to the sale of receivables without recourse to banks in order to compensate for tougher customer payment conditions. They are negotiated customer by customer and are similar to the factoring. Better customer payment conditions would imply a decrease in these financial arrangements. We do not change our estimates and maintain our Buy recommendation. Our model does not include the acquisition of Syntel, an attractive operation that is neglected actually by the stock market.
The acquisition of Syntel in the US is a very attractive operation. It will reinforce the expertise of the Business & Platform Solutions with strong proprietary digital solutions, increase the critical size in North America and, lastly, support a higher margin amplified by synergies. Based on the current figures, the deleveraging the deleveraging should be rapid (leverage ratio below 0.5x at the end of 2020). On the other side, the integration of Syntel into a non-stabilised North America business unit raises uncertainties.
The North American activity in Infrastructure & Data Management weighed negatively on organic revenue growth, the operating margin and free cash flow. Management is expecting an improvement in H2 18 and confirmed 2018 guidance for the group in the current scope. Atos announced a significant and very positive transaction with the acquisition of Syntel in the US which will reinforce the scope of expertise of the Business & Platform Solutions division.
The acquisition of SPS (2019E revenue of €530m, 2019E OMDA around 20% of revenue), the leader in commercial acquiring services in the DACH region, is a very positive and significant operation for Worldline and Atos. It strenghens the leadership of Worldline in commercial acquiring services and financial processing in Europe. For Atos, it enables it to reinforce the Worldline business line which is a provider of organic revenue growth and solid and recurring operating margin.
Atos did not fail in Q1 18, delivering a satisfactory organic revenue growth rate of 2% in line with the trend seen in 2017. While the Infrastructure and Data Management had a disappointing performance, being the lone division with a decline in organic revenue, the revenue increase of the other three dvisions improved. Lastly, the partnership with Google Cloud should enhance the development of the group’s activities in the US in particular.
Atos achieved its goals in terms of revenue, operating margin and conversion rate to FCF in 2017 despite a weak Q4 17 which showed no organic revenue growth acceleration. Q4 17 revenue growth was impacted by the slowdown of the activity in the Big Data & Cybersecurity division which usually posts double-digit revenue growth and the weakness of the business in many countries, in particular in North America and France.
Following the counter-bid on Gemalto by Thales, Atos gives up acquiring Gemalto in accordance with its strict financial discipline policy. This is to be respected. Despite not knowing the content of all the discussions between Atos and Gemalto, and excluding a higher offer price by Thales, we believe that Atos failed on insufficient guarantees for Gemalto’s employees.
The battle has been engaged. The board of directors of Gemalto unanimoulsy rejected Atos’ proposed cash offer for Gemalto. Considering that Atos is determined to acquire Gemalto, we believe that a positive outcome could be through increasing the offer price and giving some guarantees for Gemalto’s employees in particular.
On 28 November 2017, Atos delivered a friendly offer for all Gemalto’s shares to the board of directors of Gemalto. Today (12 December 2017), Atos made its proposal public. The proposal is a cash offer for all the shares of Gemalto at €46/share, which includes a premium of c.42% to the last unaffected closing price of Gemalto on 8 December 2017 and a premium of c.42% and c.34% respectively to the one-month and three-month volume weighted average prices. The cash offer would represent an investment of €4.3bn for Atos, which should be funded by cash and new debt. On 30 June 2017, Atos had gross debt of €2.3bn and cash & cash equivalents of €2.0bn. Atos mentioned its interest in the cybersecurity technologies and homeland security solutions, IoT/M2M capabilities and the payment services of Gemalto. The new group would have revenue above €15bn (vs €12.3bn for Atos standalone), an operating margin above €1.5bn (vs €1.2bn for Atos standalone) and free cash flow above €0.8bn (vs €0.6bn for Atos standalone) based on the last twelve months to the end of June 2017. Atos is anticipating significant revenue, R&D and cost synergies through cross-selling, joint product development and cost savings (SG&A, procurement, internal IT, premises, tax) which are not disclosed in detail at this stage. According to management, the deal with Gemalto is closer to the Bull acquisition which generated signficant cost synergies than the Xerox acquisition.
In Q3 17, Atos showed satisfactory organic revenue growth (+2.5% vs +2.4% in Q2 17, +2% in Q1 17). The main disappointing news was no organic revenue growth in North America. Q3 2017 figures Revenue reached €3,002m (+8.1% and +10.9% at constant currency). Organic revenue growth was in line with expectations at +2.5%. Organic revenue growth was still significant in Big Data & Cybersecurity (+13.8%) and was moderate in the other IT businesses, i.e. the Infrastructure & Data Management (+0.9%), and the Business & Platform Solutions (+2.2%). Conversely, there was an acceleration in the organic growth rate at Worldline, +6.4% (vs +2.3% in H1 17). Excluding Worldline, organic revenue growth came mainly from France (+4.9%), and Other Business units (Italy, Central Europe, MEA) (+5.6%). The performance was disappointing in the US (0% organically) and slightly negative in the UK & Ireland (-0.7%), and Benelux & the Nordics (-0.4%). New orders amounted to €2,892m. The book-to-bill ratio was weaker in Q3 17 (96%) than in Q2 17 (120%). This is not representative of an annual trend because the book-to-bill ratio is not linear on a quarterly basis. By business, the book-to-bill ratio was high in Big Data & Cybersecurity (132%), Business & Platform Solutions (107%) and Worldline (103%), contrary to Infrastructure & Data Management (87%) for which several large deals are expected to be signed in Q4 17.
Both organic revenue growth and the operating margin were in line with expectations in H1 17. Atos is on a good trend as organic revenue growth is improving quarter after quarter (+2.4% in Q2 17 vs +2% in Q1 17). H1 17 figures Revenue was €6,311m (+10.8%) including a significant change in the perimeter (+9.4pts) and a negative currency effect (-0.8pt) due mainly to the depreciation of the £ vs the €. Organic growth was 2.2%. The Big data & Cybersecurity was the most dynamic division (+13.8%), followed by the Business & Platform solutions division (+2.6%), Worldline (+2.3%) and Infrastructure & Data management (+0.9%). In IT services, organic growth was driven by the UK/Ireland (+3.4%), Other Business units (+6.8%) fuelled by Asia-Pacific and the Middle East, and North America to a lesser extent (+1.8%). The operating margin surged to €538m (+21.2%, +32% lfl) corresponding to a margin rate of 8.5% of revenue. The improvement in the margin rate (+0.7pt based on the statutory numbers) was significant on an organic basis (+1.9pts) and was attributable to all divisions except for Big data & Cybersecurity (-1.4pts lfl to 12.2% of revenue) which is investing in innovative products and solutions. The most impressive achievements were in Infrastructure & Data management (+2.4pts lfl to 9.2% of revenue) and Business & Platform solutions (+1.2pt lfl to 6.1% of revenue). The operating income was €327m (+0.9% and +20% restated from the gain on the sale of the Visa Europe stake in H1 16). The restructurings, rationalisation and integration costs were lower (-15% to €-82m) and the purchase price allocation amortisation was higher (+38% to €62m). Group net income was €211m (+3% and +25% restated from the gain on the sale of the Visa Eruope stake in H1 16) after flat net financial expenses (€-32m) and a lower effective tax rate (-0.9pt to 18.9%). The increase in FCF was significant, +35% to €242m. On 30 June 2017, Atos had a net cash position of €342m. FCF surged by 34% to €242m (+35%) taking into account higher EBITDA, the increase in net capex (+16% to €235m), higher cash-out for the restructurings and integration (+5% to €101m) and lower taxes paid (-14% to €64m). Contrary to last year, Atos did not offer the option of a payment of the dividend in shares. Consequently, the dividend paid in cash to shareholders amounted to €168m (vs €47m in H1 16). On 30 June 2017, the group had a net cash position of €342m (vs €430m at year-end 2016).
Research Tree provides access to ongoing research coverage, media content and regulatory news on Atos. We currently have 22 research reports from 1 professional analysts.
CloudCall is expected to deliver revenue growth of +30% YoY in the six months to June. The company is making good headway into large enterprise accounts although sales cycles are somewhat elongated in this market segment. This growth performance continues the strong trajectory seen last year but is slightly below our run rate projections for 2019E and we are revising our forecasts accordingly.
Companies: Cloudcall Group
CloudCall published a trading update for H1’19, reporting strong commercial progress and reiterated management guidance on net user addition run-rate of >1,000/month for the year. A confluence of factors has led us to rebase our FY19E-FY20E nos for slight delays from: (1) a staggered rollout of the group’s recent enterprise contract win; and (2) time taken to implement SMS within MS Dynamics; alongside (3) additional headcount to smooth enterprise onboarding. However, with liquidity robust post the refinancing of the group’s revolving facility, we continue to view our thesis as intact. We reiterate our Buy rating on the shares as one of our top picks of 2019, seeing substantial upside potential to our revised 260p PT.
Companies: Cloudcall Group
Voyager AIR The Company will focus on the acquisition, leasing and management of primarily widebody aircraft, with asset management services to be provided by Amedeo Limited the IPO will comprise a Placing and Offer for Subscription of Shares to raise up to approximately US$200m. Uniphar, a diversified healthcare services business with a workforce of over 2,000, is looking to join AIM. Raising EUR135m with market cap on admission of EUR309.6m, expected 17 July 2019. Roxi Music UK music streaming service plans London IPO as it goes up against Spotify. They have appointed investment bank Arden Partners for an initial public offering (IPO) on the London Stock Exchange later this year.
Companies: CALL BIRD ABC KDR EMAN BST SCE ZEG SAG FUL
Instem has announced a positive H1 update, with all three areas of the business performing well in the period with new customer wins in Data Collection and increased volumes in Regulatory Solutions and Informatics. The move towards a SaaS model by both new and existing customers is accelerating, which bodes well for the future. Similarly, there is confirmation that Instem continues to capitalise on the opportunities afforded by the FDA’s SEND standard, with outsourced service revenues more than doubling YoY. Overall trading is described as in line with a positive outlook and we make no change to our forecasts this morning. Instem is one of our Best Ideas for 2019 and is successfully executing on a number of fronts, building strategic value along the way.
The Senate Banking Committee on Monday released the testimony of David Marcus, the head of Facebook's cryptocurrency projects ahead of his testimony Tuesday. In his prepared remarks, Marcus perfectly outlines the business model behind the social network’s upcoming Libra digital currency and its Calibra digital wallet. Microsoft might be the primary competitor for Slack, but the widespread adoption of Microsoft's software is not a major problem for Stewart Butterfield, co-founder and CEO of the messaging app. Last week, Microsoft said Teams had more daily active users than Slack. Cybersecurity company Symantec Corp has walked away from negotiations to sell itself to chipmaker Broadcom over price disagreements, people familiar with the matter said on Monday. Symantec's decision raises new questions over the future of the US antivirus software provider, which is looking for a new CEO and has been struggling to grow its business serving companies.
Companies: KAPE AVST CNS DFX ECSC FLX IGP NCC OSI SWG SOPH
Ideagen has reported prelims to April 2019 delivering, as ever, forecasts in line with the May trading update and unchanged expectations. Recurring revenue improved to 67% (FY17: 57%; FY18: 62%), en route to the target 74% by FY20, with a steady stream of well executed acquisitions to boost organic growth (currently 8%) in contributing to the grander ambitions in hand – to achieve the three-year objective of £100m (including c£30m acquired) revenue run rate by FY22. The Integrated Risk Management market is growing at 13% per annum (Gartner, measured by total contract value and not organic recurring revenue growth per IFRS15!), and the confident June Capital Markets Day demonstrated that the group has the depth in management and rigorous processes to accommodate momentum in growth. FY20 forecasts are unchanged, indicating headline 25% revenue growth (organic and acquired) and 32% EBITDA growth, and we issue maiden FY21 forecasts, knowing full well they will inevitably be boosted with the high probability of further acquisitions. Target 180p reiterated.
WANDisco has signed a deal to embed its Fusion technology within the migration and replication platform of a major enterprise cloud partner. We see this as a significant announcement that highlights the strategic value of its technology within the cloud ecosystem. Although details on the financial contribution are not yet provided, we expect it to lead to a big uplift in revenue from this partner.
Instem has published a trading update for H1 2019E – the group is trading well, and we make no changes to estimates. Highlights include a faster-than-expected transition to SaaS for new deals, a doubling of SEND-related sales, and a strong pipeline for H2. Cash collections appear robust, and the business is seeing strength across the board. FY 2019E will be H2-weighted (especially at the profit level, given the SaaS transition) but appears to be shaping up well.
GB Group’s Identity capital markets day was a deep dive into the group’s largest business (36% of FY19 revenues). With electronic identity verification (eIDV) a structural growth market, GBG has invested heavily in the business over the last four years, expanding geographically and adding new capabilities and data sets. We forecast the identity business to be the fastest growing division over the next three years, underpinning the group’s targeted double-digit organic revenue growth target.
Companies: GB Group
Watershed events by their very nature have the power to reshape entire industries. Take cyber-security, which this week saw the UK's data privacy regulator (ICO) slap fines of £183.4m & £99.2m for GDPR breaches on British Airways & Marriott Hotels respectively. Enormous sums of money that will surely send shivers down the spines of Boardrooms worldwide.
Companies: Blancco Technology Group
FY 2019 has been transformational. SRT Marine has pursued a strategy to expand its world-leading AIS hardware business into global provision of complete Maritime Domain Awareness (MDA) solutions; a step change in scale of operations, revenue and profitability. Such major infrastructure projects are naturally slow and suffer political and budgetary uncertainties; delays and disappointments have been frustrating for both management and investors. Finally, a large national contract has been signed and is being delivered, with revenues booked in FY 2019 generating significant profits. Cash payment has begun but the bulk is to be received in FY 2020 leaving £1m net debt but £18m trade debtors in March. £4m of that has already been received on schedule. That contract and these results demonstrate that SRT is now a credible MDA player with huge market opportunities ahead; several other large contracts are in discussion and are expected to be signed and delivered in the next few years. We reiterate FY 2020 expectations for further growth in revenue, profits and most importantly cash flow on the back of a visible pipeline of projects.
Companies: SRT Marine Systems
This trading update highlights the growing strength of Bango’s position. The payment processing platform continues to make excellent progress on the back of rapidly growing End User Spend (EUS), its revenues now covering the cash costs. The cash it generates will fund development of the new exciting data monetisation business, which has made an encouraging start; making early sales while its range of audiences offered expands. In turn, it should feed platform volumes in a virtuous circle to grow the whole group business. Overall, H1 revenue grew 64% YoY to £4.3m, assisted by a full half of Audiens. The full results are out in September.
WANdisco has announced a partnership with Databricks, a rapidly growing supplier of cloud-based analytics. The partnership aims to help enterprise customers using on-premise Hadoop analytics solutions to migrate to Databricks’ Apache Spark-based platform. No financial details are provided but an analysis of the Hadoop market suggests it could be a significant opportunity for WANdisco.
Australia's top three banks said on Thursday they have agreed to partner with IBM and shopping mall owner Scentre Group to test blockchain technology to digitize bank guarantees. The companies are exploring how to move away from paper-based bank guarantees to cut processing time and the risk of fraud, Australia and New Zealand Banking Group, Westpac Banking Corp and Commonwealth Bank of Australia said in a statement. The US government said on Wednesday it was reviewing licence requests from US companies seeking to export products to China's Huawei "Under the highest national security scrutiny" since the company is still blacklisted. In an email to Reuters, the Commerce Department said that as it reviewed applications, it was applying the "Presumption of denial" standard associated with Entity Listed companies, meaning applications are unlikely to be approved. Symantec shares surged more than 20% in extended trading on Tuesday after Bloomberg reported that Broadcom is in advanced talks to acquire the security software vendor. The deal is reported to be worth more than $16bn, implying an EV/Sales multiple of 3.40x (Bloomberg). Agreement on a deal was close but could be delayed until after the July 4 holiday, according to people briefed on the move.
Companies: KAPE AVST CNS DFX ECSC FLX IGP NCC OSI SWG SOPH TECH AMO IQE