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SOPRA STERIA GROUP
SOPRA STERIA GROUP
Solid organic growth
03 Nov 16
In Q3 16, Sopra Steria had solid organic revenue growth (+4.7% following +5.4% in H1 16) mainly driven by France, Other Europe and the software businesses. Q3 16 revenue: Revenue reached €875m (+3.5%). The overall growth rate included a change in perimeter (+4%) related to the integration of LASCE Associates and Active 3D and a negative currency effect (-5.2%) mainly related to the translation effect of the drop of the pound vs the euro. Organic revenue growth was good (+4.7% vs +3.2% in Q3 15), driven by the Consulting & Systems integration activity in France, €309.5m, +6.6% (vs +5.6% in Q3 15), o/w +12% in consulting services alone, thanks to strong demand in the aeronautics & defence and the transport sectors, the activities in Other Europe, €172m, +6.4% (vs +8.7% in Q3 15), in particular in Italy and Benelux, +20% organically, and the software businesses including Sopra Banking Software, €80.7m, +8.9% (vs +10.8% in Q3 15), and Other Solutions, €48m, +4.3% (vs +8.3% in Q3 15). In the UK, organic revenue growth was low, +1.1% (vs +2.4% in Q3 15), o/w +0.5% in the public sector and +2.4% in the private sector. This was not attributable to Brexit. As expected, it was due to the slowdown of the activities in the JV SSCL which is in the mature phase of its development.
Strong organic growth, margin improvement
28 Jul 16
Sopra Steria had a good H1 16 including strong organic revenue growth (+5.4%), cost optimisation that enabled a higher operating margin in the UK despite no revenue growth and the continuing positive impact of the restructurings and reorganisation in I2S France and C&SI in Germany. H1 16 earnings. - Revenue reached €1,879m (+6.3%). Organic revenue growth was strong and included an acceleration (+5.4% o/w +7.4% in Q2 16). Organic growth was driven by the Consulting and Systems integration France (+9.5%, o/w +11.4% in Q2 16) including a slowdown in lower organic revenue for I2S France (-1.3% in Q2 16, following -4.5% in Q1 16), Other Europe (+5.7%, o/w +7.7% in Q2 16) and Sopra Banking Software (+7.4%, o/w +13.7% in Q2 16). Conversely, organic revenue declined slightly in the UK (-0.9%, o/w +0.6% in Q2 16) and increased moderately in Other Solutions (+1.7% o/w +2% in Q2 16). - The operating result on business activity surged to €134m (+25%) and the margin rate improved to 7.1% of revenue (+1pt). This performance was mainly attributable to C&SI France (+0.6pt to 8.6% of revenue), the UK despite no revenue growth (+0.9pt to 7.3% of revenue thanks to cost optimisation), Other Europe (+3.8pts to 4.4% of revenue, including the renewal to profit in Germany). - The operating profit was €103m (+56%) after higher expenses related to stock options (€-10m vs €-0.4m in H1 15), amortisation of allocated intangible assets (€-10m, +6%) and lower other net operating expenses (€-11m vs €-31m in H1 15) due mainly to lower restructuring/reorganisation costs (€-8m vs -30m in H1 15). - Group net profit was €54m (vs €27m in H1 15). The negative FCF was less yoy (€-101m vs -163m in H1 15) thanks to an improvement in the change of WCR. The funding of the acquisitions (Cassiopae, LASCE Associates, EchoSystems, 8.6% of the shares of Axway) represented significant cash out-flows of €105m. On 30 June 2016, net financial debt remained significant at €720m (vs €531m at year-end 2015 and €618m on 30 June 15). It represented 69% of total equity.
Buoyant Consulting & Systems Integration in France
03 May 16
Sopra Steria had good organic revenue growth (+3.3%) led by the Consulting and Systems integration activity in France. Q1 16 revenue Revenue reached €913m (+4.7%). The overall growth rate included a change in perimeter (+2.9%) related to the integration of CIMPA and a negative currency effect (-1.5%). Organic revenue growth was good and accelerated (+3.3% vs +2.4% in Q1 15), driven by the Consulting & Systems integration activity in France, €337m, +9.5% o/w c.+20% in the consulting services alone, thanks to strong demand in the Aeronautics & Defence, Transport and Banking sectors. Organic revenue growth was satisfactory in Other Europe (€171m, +3.7% vs +2.4% in Q1 15) thanks to higher volumes in all countries except for Denmark and Switzerland. Conversely, revenue decreased to €237m (-5.7%) in the UK. Organic revenue was down, -2.3% vs +1.5% in Q1 15, due to no growth in the shared service platform SSCL in its current scope. 2016 will be a transitional year for SSCL. In software, revenue is not linear quarter by quarter and both activities were compared to a challenging basis of comparison last year. Sopra Banking software revenue was flat (vs +7.6% in Q1 15 which included significant licence revenue related to La Banque Postale contract) and organic revenue from the Other Solutions increased moderately, +1.4% vs +8% in Q1 15.
Strong C&SI business in France
29 Feb 16
+FY2015 figures+ Revenue reached €3,584m (+57%, +6.4% pro forma for the Sopra Steria merger). Organic revenue growth was 2%, in line with expectations. Organic growth was driven by the Consulting & Systems Integration business in France (+3.5% driven by the Banking sector, Public sector, Aerospace/defence/security) and Other Europe (+6.3%), Sopra Banking Software (a disappointing +2.5%) and Other Solutions (+3.2%). There was rather flat organic revenue in the UK (-0.7% while we had expected -2%) and a drop in the Infrastructure management business (-10.3% to €183m as expected) that was not compensated for the strong performance in the small Security services activity (+25% to €17m). Operating profit on business activity (before stock options, the amortisation of allocated intangibles, and restructuring costs) increased to €245.5m (+27%, +6.2% pro forma) corresponding to a margin rate of 6.8% of revenue, above expectations (guidance: 6.5% of revenue). Cost synergies related to the Sopra Steria merger were higher than expected (€45m vs €30m estimated). The reported operating profit was €153m (+3%, -2.5% pro forma) after higher restructuring and reorganisation costs (€-67m mainly related to the Sopra Steria merger vs €-44m in 2014) and asset depreciations (€-3m). Group net profit was €84m (vs €98m reported in 2014 and €93m pro forma in 2014). It included a significant increase in the effective income tax rate (36.4% vs 24.7% pro forma in 2014 when there was €12m non-taxable in the UK, a favourable country mix). Net debt amounted to €531m (+20% pro forma) representing 1.76x EBITDA and gearing of 43%. The operating cash flow was €124m after an improvement in the change of WCR (DSO: reduction of 64 days) and FCF was €49m (initial guidance: zero). All of these included significant restructuring-related payments (€-56m). In 2016, the payment of some social costs on a monthly (vs quarterly) basis in France and shorter supplier payments in the UK will have a negative impact on the WCR (€30m estimated). The proposed dividend is €1.70/share (vs €1.90/share in respect of FY2014). There was no explanation for the reduction in the dividend. Given the decrease in 2015 group net profit, €1.70/share corresponds to the payment of a dividend of roughly €35m (P/O ratio of 41% vs 39% in respect of FY2014). Nevertheless, it is a disappointment as we had expected a stable dividend per share.
Synergies from the merger as the first milestone
29 Jan 16
*Medium-sized IT services company, also a software editor* Sopra Steria Group is the new IT services company arising from the merger of Sopra and Steria in April 2014. It is a European IT company with significant exposure to France and the UK, at respectively 46% and 28% of estimated 2015 revenue. The Group whose new organization was effective on 1 January 2015 is specialized in consulting & systems integration (57% of revenue), infrastructure management and security services (16%), solutions (13%) and business process services (14%) (2014 figures). In IT services, the Group has a solid background in consulting (1,500 consultants) and systems integration (strength of Sopra and Steria) and has expertise in business process services (strength of Steria) o/w the operating of shared services platforms in the Public sector in the UK. Inversely to its French peers Capgemini and Atos which are not software editors, the Sopra Steria offering includes vertical/transversal software (banking, HR, property management) which complements IT services and accords the Group expert status in these domains. Finally, the Group is a reference in the financial services (27% of revenue in 2014), the public sector, and the aerospace/defense and transport/services sectors (respectively 23%, 15% and 12% of revenue in 2014). With revenue of €3.5bn estimated in 2016, Sopra Steria is a medium-sized IT services company compared to its peers Capgemini and Atos whose revenues are expected to be €13.0bn and €11.7bn respectively in 2016. This is reflected in the market capitalisation of €2.0bn (EV/2016Sales: 0.86x) which is substantially below those of Capgemini at €13.8bn (EV/2016Sales: 1.39x) and Atos at €7.2bn (EV/2016Sales: 0.89x). *Significant upside, earnings drivers* The stock is a Buy recommendation with a 42% upside (TP : €140/share) and is currently undervalued based on all valuation metrics. The appreciation of the stock should be driven by the Group's ability to drive organic revenue growth (+2% expected in 2015) and deliver the synergies related to the combination of Sopra and Steria. In 2015, guidance is for organic revenue growth of 2% and an operating margin on business activity of 6.5% of revenue. The combination of Sopra and Steria is expected to generate synergies of €62m in 2017 o/w €30m is expected in 2015 with implementation costs of €65m o/w €50m should be accounted in 2015. The cost synergies are principally in France and, to a lesser extent, the UK, and come from the reduction in staff (<1,000 employees), office rationalisation and IT purchasing. In addition to the delivery of merger-related synergies, the development strategy consists of growing organically (+2-4%/year forecast in the medium-term), managing the repositioning in value-added infrastructure management services in France (breakeven estimated in 2015; operating margin of 5% of revenue targeted in 2017), restructuring the consulting and systems integration business in Germany (breakeven estimated in 2015; operating margin of 8% in 2017), capitalizing on the success in BPS services in the public sector and developing these activities in the private sector in the UK, and accelerating organic growth in the Solutions activities (+5-10%/year forecast in the medium-term) through the acquisition of companies (priority to banking solutions) to reach 20% of total revenue in software in 2017 (vs 14% of revenue estimated in 2015). *Axway Software* Axway Software is a listed software editor controlled by the Pasquier and Odin families through the holding company Sopra GMT and Sopra Steria Group. There are product synergies between Sopra Steria and Axway Software. For instance, Sopra Banking Software co-developed the multiservices platform HeliPay with Axway Software. Sopra Steria does not plan any divestment from Axway Software and is targeting the development of commercial synergies with the company over the next three years. !Simplified_Shareholding_Structure.png! *Beyond the integration of Sopra and Steria* In the short-term (2016-17), the management priority is to achieve the targets assigned at the Sopra Steria merger, i.e. revenue of €3.8-4.0bn (vs €3.5bn estimated in 2015) and an operating margin of 8-9% of revenue in 2017. In addition, a reduction in net debt is also an important issue. Net debt is estimated at €513m (gearing 44%) at year-end 2015. In the medium-term, Sopra Steria Group will need to continue to participate in the consolidation of the IT services market to expand its geographical coverage in Europe.
A data-driven H1 raises expectations
05 Dec 16
The first reporting period under the new D4t4 Solutions brand saw the group (previously IS Solutions) deliver good growth, leaving it well on track to meet PBT forecasts in FY 2017, and we now increase FY 2018 forecasts. The business continues to flourish from its focus on data management and analytics, enabling its international blue-chip client base to gather and gain advantage from the mass of customer data available, utilising the leading-edge Celebrus solution. Industry analysts predict 12% CAGR for the BI & Analytics market through to 2020, and D4t4 is riding this wave of demand.
08 Dec 16
Elderstreet stake acquired 02 GENERAL NEWS Globalworth premium In this issue Venture capital firm Draper Esprit has taken a 30.8% stake in venture capital trust manager Elderstreet. Both investment managers focus on the technology sector and they will be able to co-invest. Elderstreet has investments in a number of AIM-quoted companies through its VCTs. The purchase was funded by an issue of Draper Esprit shares worth just over £250,000. Simon Cook, the chief executive of Draper Esprit, is a former partner at Elderstreet so he knows the business and the people who run it, although he did leave more than 14 years ago. Cook has previously acquired portfolios from 3i and Cazenove, two other firms where he has worked. Draper Esprit has an option to acquire the remaining shares in Elderstreet, which has more than £25m under management. Adding Elderstreet to the group enables Draper Esprit to offer investors a range of EIS funds, VCTs and an ISA qualifying listed evergreen patient capital fund. The enlarged group has venture capital assets under management of more than £350m. At the end of September 2016, Draper Esprit had a net asset value of 352p a share, which is similar to the current share price. The June 2016 flotation price was 300p a share. Draper Esprit is quoted on Ireland’s Enterprise Securities Market as well as AIM.
06 Dec 16
600 Group* (SIXH): Interim results: order book showing signs of improvement (CORP) | Real Good Food* (RGD): Commodity volatility impacts numbers (CORP) | Minds + Machines* (MMX): .vip goes live in China (CORP | Imaginatik* (IMTK): Interims (CORP) | iomart* (IOM): Quality business as usual (CORP) | Fulcrum (FCRM): Upgrades continue (BUY)
N+1 Singer - Morning Song 05-12-2016
05 Dec 16
RTHM is acquiring a profitable Canadian listed mobile specialist for equivalent of US$42.5m consideration in shares (88.235m). This helps adds to two growth vectors RTHM is targeting; (i) adds unique exclusive audience (10m unique) and (ii) Exclusive demand Yahoo and Facebook. The business has 15 premium and owned and operated apps which provide users with rewards for activity. The business is expected to deliver c$9m of EBITDA in FY18 including $2m of cost synergies. This equates to just 4.7x EV/EBITDA. This marks what we see the first step in RTHM activity to scale the business and deliver on margin potential (see our initiation notes). Our initial estimates for EPS revisions are very significant - for FY18 are 2.3 cents (currently 0.6) and for FY19 4.3 (currently 2.5). There is a call at 830 for investors and we will revise post this.
Taking a prudent road
28 Nov 16
As flagged in September, H1 2017 profit is indeed below LY; adj. PBT of £0.5m compares with £1.5m in H1 2016 as Trakm8 invests heavily in new technology and acquisition integration. Management remains confident in another very strong H2 performance and in particular is focused on closing a couple of large high-margin software-related sales which would see the group meeting the original FY 2017 expectations of £5.9m adj. PBT. However, should these fall outside the March year-end, profits are only likely to be in line with last year’s £3.9m, albeit on a growing revenue base. Prudence dictates we assume a worst-case scenario in our forecasts so that surprise is only in the upside – if the deals close in the year, the company will meet those original revenue and profit expectations.
Joy of Techs
21 Nov 16
ICT evolution is driven by technological development as advances are made which both meet and shape customer requirements. Our 2011 note No such thing as a telco described the modern reality in that former ‘telcos’ now deliver varying elements of a range of managed services. We built on this theme last year, exploring in further detail their evolutionary paths, operating fundamentals, and cashflow yield similarities. In the consumer environment, demand for bundles of technology is complemented by demand for content. Across the pond, the mooted combination of AT&T and Time Warner typifies the bundled need of ‘pipe’ and content, since unbundled alternatives such as FaceTime and WhatsApp can be easier and clearer to chat over, and Amazon and Netflix are easier to watch anywhere. In the UK, BT’s defensive actions cover delivery, content and capabilities, acquiring EE yet also buying football rights. While TV was long ago added to triple play to become quad play, voice is now merely an app, and fixed and mobile seen as just dumb pipes: it's the content that will influence consumer choices. Growth of TV and film as well as music and gaming over IP leads to UK small cap opportunities. In context of the drive to maximise value from pipes and access by offering content and data, we look at some amongst the potential tech small cap beneficiaries: Amino*, Keyword Studios, ZOO Digital*, 7digital*, KCOM* and CityFibre*.