The Q1 revenues release shows that with revenues of €42.5m in Q1 Prodware continues to make solid progress (+2.6% Q1 on Q1 underlying growth) and that there are also signs of a turnaround in the Benelux and all important German markets. The €79m debt restructuring post year-end leaves Prodware well financed to achieve its ambitious medium-term growth objectives. The shares, however, continue to trade on substantial and undeserved multiple discounts to comparators.
Q1 revenues of €42.5m show that Prodware remains on course, with underlying top-line growth of 2.5% Q1 on Q1. In Q1 the geographical sales mix shift towards the Francophone zone seen in FY15 was reversed, with strong performances in Spain and Israel. There were also signs of turnarounds in Germany and Benelux, confirming our view that the restructuring is complete and the foundations of growth across all geographies are in place. We are adjusting our forecasts slightly following this announcement and the release of the full FY15 report and accounts in April. Our revenue and earnings forecasts are not substantially changed and certainly not by enough to alter our view that Prodware’s shares are undervalued. Our debt figures are significantly changed (up by €12m FY16e) following the oneoff heavy investment in new product development in FY15. Details of the changes are shown overleaf.
Following the year end the company has completed the restructuring of its debt and it is perhaps only now that the commitment to the 2016-21 drive for growth has become clear. With nearly €80m of restructured debt in place, Prodware has the resources to finance the organic and acquisition driven growth that management has discussed (see our November 2015 note Drive for growth). We suspect that until the delivery of the promised growth becomes more evident, this debt may weigh upon the share price.
Prodware’s shares continue to trade at a substantial discount to those of its closest listed comparators (see Exhibit 2). While the acquisition of Qurius and its integration and turnaround have proved more problematic than may have been anticipated, the restructuring and repositioning process now appears complete and the business is well placed to drive growth in both margins and revenues.