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Research Tree provides access to ongoing research coverage, media content and regulatory news on SOPRA STERIA GROUP. We currently have 5 research reports from 1 professional analysts.
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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.
The Slide Rule
12 Jan 17
What is The Slide Rule? The Slide Rule has been designed to dramatically simplify the identification of the best companies in the UK small/mid-cap sector by making a quantitative assessment of the relative potential of each company. At its core, The Slide Rule aims to identify those companies that create genuine shareholder value through strong returns on capital and solid growth, but also present a value opportunity with the potential tailwind of earnings momentum. Companies are assessed within a Quality, Value, Growth and Momentum (QVGM) framework.
N+1 Singer - Morning Song 12-01-2017
12 Jan 17
As anticipated, the second half has again been stronger than H1 and results will be broadly in line with expectations. In line with this, the order book has continued to grow and is at record levels. This confirms that significant progress has been made in the Group’s shift towards its Technology Products division which, as targeted, contributed c.60% of group revenue in FY16. The small acquisition of Cable Power also gives a complementary boost to the product range. It is also worth noting the significant reduction in net debt, £1.0m ahead of our forecast. We remain supportive of the Group’s strategy and continue to see a bright future as this transition towards a design led technology solutions business continues. We look forward to more detail in March at the final results.
Making Mobiles Better
17 Jan 17
Mobile phones are increasingly the key connection for the modern world. This means that the performance of mobile phones, and their networks, is going to become more critical for all the apps and businesses that rely on them. New technologies such as VR, AR, and AV will need better, more reliable connections to really move into the mainstream. In this thematic piece we attempt to identify some of the most important issues facing mobile phone networks and their users, and start to identify solutions and enablers that will solve these problems and create value by doing so.
N+1 Singer - Small-cap quantitative research - Momentum screen refresh + 10 focus stocks
12 Jan 17
We have refreshed our momentum style screen for the first time since inception on 26 July 2016. As before, the screen selects the 25 stocks exhibiting the most extreme momentum characteristics, according to our measurement method. From these we have selected 10 to focus on. Since inception the screen has underperformed both the main small-cap and micro-cap indices against a background of generally rising momentum. We have noted a subset of the basket, where decelerating momentum at the time of measurement appears correlated with significant share price falls since selection. We shall monitor this factor with the new screen, albeit there are only two such stocks showing this pattern, namely Lamprell (not rated) and Gear4music (not rated).
N+1 Singer - Best Ideas 2017 - Top picks
04 Jan 17
Today we publish our Best Ideas for 2017 - 12 stocks that we believe have excellent prospects in the current year together with a detailed discussion of what we see as the key sector and market themes for 2017. Our top picks are Cineworld, Elementis, Herald Investment Trust, Hill & Smith, IQE, MySale, Redde, ReNeuron, RhythmOne, SDL, Servelec and Severfield.
33% upgrade to January 2017 PBT
09 Jan 17
Redstone has released a trading update stating it ‘expects to report EBITDA at the upper end of market expectations’. This implies EBITDA of £1.8m which is above our current estimate of £1.5m. Accordingly, we are upgrading our PBT forecast for the year ending January 2017 by 33% to £1.2m from £0.9m. We reiterate our buy recommendation with a 2.2p price target implying 69% upside.