In 2018, Prodware had satisfactory EBITDA in a challenging transformation to SaaS. Conversely, free cash flow was disappointing due to a deterioration in the collection of trade receivables in Q4 18, a strong increase in capex due to the renovation of the headquarters and agencies within the group. Management confirmed the focus on the development of SaaS revenue, margin improvement and higher free cash flow by the end of the strategic programme 2016-21.
Companies: Prodware SA
EBITDA margin increase anticipated based on good revenue.
CHANGE IN TARGET PRICE€ 15.5 vs 15.4 +0.72%
The adjustment of the target price is related to the fine-tuning of our model (see our comments on the change of 2018E EPS).
The share price has recovered since the beginning of the year 2019 (+10% ytd) but has underperformed the software sector (+12.3% ytd) (situation on 25 February 19). The stock is trading at low PE ratios (<8x 2018E and <7x 2019E based on a cautious outlook) and could appreciate further when 2018 earnings are released (11 March 19).
CHANGE IN EPS2018 : € 1.69 vs 1.61 +4.58%
2019 : € 1.75 vs 1.75 -0.08%
The upwards revision of 2018E EPS is due to revenue above expectation (€175.9m vs. €172.2m estimated), thanks to a strong Q4. In 2018, Group EBITDA is now estimated to €32.8m (vs. €32.1m previously), corresponding to a margin rate of 18.6% of revenue (+0.3pt yoy).
CHANGE IN NAV€ 23.0 vs 21.9 +4.95%
The NAV is based on EV/Sales multiples to value both operating segments, i.e. 2.0x for the Infrastructures and SaaS and 0.8x for the Own Software Solutions in Integration of Business Software Solutions. The upgrade of the NAV is due to the switch to 2019E revenue.
In Q4 18, revenue growth (+10.7% on constant scope) was above expectation and benefited also from a low comparative in Q4 17 (-16.7% on constant scope). Prodware had record SaaS revenue growth (+45.9%) following a weak Q3 18 (+2%). Geographically, there was a good development in International (c.+11%), in particular in Benelux (+23.6%) which integrated the Microsoft Dynamics business acquired from CTAC in the Netherlands.
The decrease in revenue by -1.2% on a constant perimeter was broadly in line with expectation; note last year’s high comparative (+3% on constant scope in Q3 17). Software editing and integration were satisfactory overall while SaaS revenue decelerated strongly in Q3 18 following two buoyant quarters. We see this as temporary and not calling into question SaaS future growth since the expansion of SaaS is structural in the software market.
The strong EBITDA margin (21.1% of revenue) resulted from revenue growth, management of subcontracting, the transformation to the SaaS mode and also no restructuring costs, all offsetting the surge in staff costs related to the recruitment of people with greater expertise to meet customer demand.
Revenue growth accelerated above expectations at constant scope in Q2 18 (+6.9% following +4.9% in Q1 18). Growth was driven by the international markets which benefited from the signature of a large number of contracts based on the Microsoft Dynamics 365 online platform. The development of the SaaS model, a source of recurring revenue, continued at high double-digit growth. In H1 18, SaaS revenue represented 17.4% of the total (+3.1pts).
Prodware is making progress with its strategy to refocus the company on profitable business lines and cloud-based solutions. This is reducing revenues in the short term but should ultimately result in higher recurring revenues and more sustainable profitability. We have revised our forecasts to reflect current trading and the transition to subscription-based revenues. On our reduced forecasts, Prodware continues to trade at a discount to peers; growth in recurring revenues combined with margin expansion should start to narrow this discount.
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.
Prodware is well positioned both to grow revenues and to drive sales of its higher-margin software, rather than its integration services. The integration and restructuring of the Qurius acquisition is now complete and the balance sheet has been restructured. Furthermore, management is once again focusing on growth, as evidenced by the stated intent to grow revenues to €300m by 2020, the Prodware Academy programme, the creation of the Business Consulting division and the open desire to make acquisitions. Despite this potential, the shares trade at significant sales and earnings multiple discounts relative to European comparators.
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LoopUp has announced a very strong H1 period, in line with the previous trading update and reflecting a number of months of exceptional performance. This is allowing the business to invest in the major identified new opportunity, to provide telephony within Microsoft Teams, where the early signs are extremely positive. We look forward to further detail on the Teams pipeline and sales levels over time.
Companies: LoopUp Group plc
Covid has accelerated the digitisation of all things physical. No more so than in the €10 trillion global construction industry, which some experts reckon has 5 years of catching up to do. A non-insignificant task (eg Crossrail & HS2) that could take decades to play out, but equally realise 100s of £bns of cost, time & productivity savings annually. The €8bn BuildTech sector (10%+ CAGR – see below) is at the heart of this transformation. Providing the glue & ‘digital twins’ that bind all the inter-connected ‘property lifecycle’ parts together – eg CAD/CAM (design), project mgt, visualisation, AI, asset maintenance (operate) and BIM (Building Info Modelling).
Companies: Eleco Plc
ZOO has provided a short trading update to accompany its AGM which will be held later today. The business is performing well…double-digit revenue growth y/y across H1 is clearly a strong result given the market disruption, and is tracking very well towards our full-year figure. We make no changes to estimates (which we reinstated in July) but will consider revisiting them at the time of the H1 results in early November.
Companies: ZOO Digital Group Plc
As flagged in the July trading update, the Eleco group (formerly Elecosoft) has delivered impressive first half financials in the face of the global pandemic. However, the results are somewhat overshadowed by the retirement of Executive Chairman, John Ketteley, after 23 years in the role. The COO, Jonathan Hunter, takes over as CEO and the Deputy Chairman, Serena Lang, steps up to Chairman. Both are very experienced and offer safe hands to guide Eleco forward through the unprecedented conditions of COVID-19. In the early stages of the pandemic, the group demonstrated its resilience as H1 revenue slipped just 4% YoY with 57% revenue being recurring. Moreover, benefiting from reduced cost of travel and marketing, H1 adj. PBT rose 12% YoY to £2.2m. The profit uplift was matched by strong cashflow, improving net cash from £1.1m at YE to a very healthy £4.4m at the end of June. Forecasts remain under review due to uncertainty in the COVID-19 environment, but Eleco continues to be well positioned – not just to weather the storm of pandemic, but to deliver a strong financial performance across the full year.
Given that Pelatro has visibility of over $5m of revenue for FY20E, we are leaving our forecasts unchanged following the interim results. The pipeline is strong and we are cognisant that the mix of business signed in H2E will have a proportionate impact on reported performance this year. Pelatro is trading at the lower end of its 12-month price range which creates a buying opportunity.
Companies: Pelatro Plc
Actively managing the business successfully through the consequences of COVID-19, Ideagen finals to end April are in line with the May trading update and unchanged expectations: EBITDA of £18.5m as expected, revenue of £56.6m (£56.0mE originally), and robust free cash flow of £10.1m robust even after COVID restructuring costs, leading y/e net debt of £16.8m (0.9x net debt/EBITDA), as expected. Rapid and effective action to accommodate the consequences of lockdown maintained the quality of business, still achieving 5% organic growth, on top of three acquisitions in the period, to deliver 21% headline revenue growth. Once again, expectations were exceeded for recurring revenue, increasing from 74% at 1H20 to 76% (FY19: 67%): target recurring revenue had already been lifted from 75 to 80% by FY22 – and the horizon is now extended to 85% by FY23. FY19 acquisitions are all now integrated in line with the 72-step efficient process; organic growth is maintained even during a pandemic; trading since year end is robust; and the acquisition pipeline still remains active. With the success of the formula evident in its execution, and the benefit of future acquisitions unmodelled, we lift our target price to 235p (220p).
Companies: Ideagen Plc
LoopUp recently unveiled a major extension to its ambitions – the group is aiming to become a leading global provider of telephony “inside” Microsoft’s Teams product. The opportunity is clear and growing, as enterprise customers look to use Teams for “normal” external phone calls, and LoopUp seems well placed to deliver a differentiated offering using its existing infrastructure and knowhow. In this document we provide an overview of the new platform and explain its strategic significance.
Ideagen is a leading supplier of information management software, specialising in Integrated Risk Management (IRM) solutions to highly regulated industries. Consistently recognised in the Gartner Magic Quadrant since 2016 for its solution set, Ideagen has developed a best-of-breed IRM suite through a blend of internally driven R&D and strategic acquisitions, earning the group significant presence in its core markets. Our mantra remains that the three certainties in life are death, taxes and regulatory compliance – Ideagen is positioned to grow from strength to strength, as organisations worldwide are faced with increasingly demanding regulatory standards, and the requirement to provide a referenceable trail of accountability. As the group embarks on its twelfth consecutive year of growth, coupled with the potential upside of inevitable acquisitions, we believe Ideagen is poised for ongoing acceleration into the coming years.
Instem has delivered strong H1 20A results in our view. Despite the backdrop of COVID-19, all three business areas continue to perform well. Notably, the Informatics business made particularly impressive progress in the period. Management commentary on the outlook is positive and we maintain headline forecasts following the announcement. In addition, we increase our forecast FY 20E closing net cash position by £1m. This reflects revised assumptions on working capital movements in the second half.
Companies: Instem Plc
Salarius Ltd. (91.7% owned by TEK) has signed a distribution agreement with FXM Ingredients Inc. to distribute MicroSalt® in Mexico and Latin America.
Companies: Tekcapital Plc
ZOO Digital is one of the companies whose business models have stood it in good stead during the COVID-19 pandemic; its cloud-based platform has proved to be a key attribute over the last six months. Indeed, the changed working practices within the dubbing industry have helped to educate more potential users about the benefits of remote operating and the quality of performance that can be achieved when using the ZOOdubs platform. In our view, ZOO’s Capital Markets Day (CMD) presentations - a recording is available here - achieved a rare combination of being both informative and clear as to those operational benefits and the financial implications (a roadmap to U$100m of revenue) for the Group within an evolving market. We highlight some of the main messages from the speakers – from outside the company in several cases – which covered the market for localisation services, the use and benefits of ZOO’s platform and the technology behind the service.
Interim revenue to June is in line with 1H19 including the benefit of Celtech (acquired April 2019). Recurring data services revenue grew 19.9%, while elements of implementation suffered from COVID-19: Services and Installation -4% and Consultancy & Maintenance -10%. A focus on cost control resulted in furloughed staff (now returned to work) from a larger cost base than 1H19 after the Celtech integration, and some August redundancies in areas where customer activity has reduced and will likely stay low. Nevertheless, the group won significant business in the period from several major customers as a well as a new Outdoor Payment Terminal contract. A pipeline of £12.5m for 2H20 offers typical 2H strength for the group, derived from recurring revenue and the visible order book, subject to obvious concerns about the ability to implement projects. Net cash (excl. IFRS16) of £1.6m includes gross cash of £4.1m and gross bank debt of £2.5m, with £1.5m headroom in the undrawn April 2023 bank facility.
Companies: Universe Group Plc
The launch of LiveData Migrator with AWS represents another big step forward for WANdisco. Aside from diversifying the sales base, it suggests that the company’s technology is becoming the established way to migrate large, active datasets to the cloud. Disappointing H1 financials and a delay in the ramp of Azure revenue from Q3 to Q4 leads us to cut our FY20 forecasts. However, Q4 should see a big uplift in financial performance and our newly introduced FY21 forecasts see sales rising to $37m.
Companies: WANdisco Plc
Watchstone has this morning released interim results to 30 June 2020. During the first six months of the year, the group returned a total of £50.5m/110p per share in cash to shareholders, with a further £18.4m/40p per share post period end in July. The H1 2020A underlying EBITDA loss stood at £1.4m, which excluded Watchstone's only remaining operating business, ingenie, held within discontinued operations. Encouragingly, ingenie saw a much improved trading performance in the six month period, with revenue increasing by £1.5m to £4.8m and the post-tax loss in the period reducing to £0.7m from a £1.8m loss in the comparative period. The net cash position as at 25 September 2020 is reported to have stood at £17.2m (including £2.0m held in escrow), equivalent to 37p per share. Importantly, the Board is ‘confident of returning further cash sums to shareholders in due course'.
Companies: Watchstone Group Plc
Crimson Tide has reported a strong set of H1 results evidencing very strong sales momentum backed by long-term contracts and cash flow. H1 sales grew by 40% and EPS by 154%. Net cash has improved to £0.8m at June 2020 from nil at December 2019. The strategic focus on transportation and supermarkets is working well, partnerships are improving routes to market, and there is growing traction from investments in innovation. We have left our forecasts unchanged for now, but recognise positive pressure and have upgraded our target price from 3.1p to 4.3p. We reiterate our view that Crimson Tide’s valuation will be dictated by its ability to convert the significant opportunity rather than short-term metrics. H1 results show the group is nicely on track to do exactly that.
Companies: Crimson Tide Plc