Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on GEMALTO. We currently have 9 research reports from 1 professional analysts.
Gemalto reported FY results broadly in line with expectations, with revenues decreasing by 5% to €2.97bn. At the same time, profit from operations decreased by 32% to a 10.4% margin. FCF also strongly fell due to the much lower operating cash flow and higher restructuring costs. For FY18, the group expects sales and operating profit growth in every segment. As a reminder, Thales is going to acquire Gemalto in H2 of this year for a price of €51/share.
Gemalto released its Q3 trading update, showing revenues of €751m which corresponded to a 0.2% decrease yoy on a reported basis (+3.4% at constant exchange rates). Payment & Identity came in at €481m, up 3% yoy, while Mobile showed a 5.6% decrease at €269m. Within these two businesses, the biggest down-movers were again Payment (€199m, -17.4%) and SIM (€129m, -15.1%). At the other end of the spectrum, Government Programs (€169m, +55%) and M2M (€88m, +8.6%) displayed strong growth, the former benefiting from €50m of the recently-acquired Identity Management Business. Platform & Services came in flat (€52m) and Enterprise slightly negative (€113m, -3.4%). By main activities, Embedded software & Products came in at €493m (-2% yoy at constant exchange rates) and Platforms & Services at €257m (+15%). Guidance for FY17 has been left unchanged: stable revenues yoy in H2 17, with a PFO of about €200-230m.
Gemalto released its Q2 earnings release, showing revenues of €742m which corresponded to a 7.8% decrease yoy on a reported basis (-9% at constant exchange rates). Payment & Identity came in at €471m, down 6.5% yoy; within the business, Payment was strongly down and worsening (€215m, -20.4% vs. -14.2% in Q1), Enterprise flat (€112m, -1.8%) and Government Programs strongly up (€144m, +20%) thanks to the integration of €22m from the 3M Identity Management acquisition (it would have been up 1.6% otherwise). Mobile showed a 9.7% decrease to €270m. The SIM business accelerated its fall (€121m, -18.8% vs. -11.3% in Q1), as well as Platforms and Services (€58m, -19.4% vs. +6%), while M2M showed a substantial rebound (€91m, +16.7% vs. flat). By main activities, Embedded software & Products came in at €937m in H1 (-9% yoy at constant exchange rates) and Platforms & Services at €453m (-8%). H1 gross margin came in at 31.6% (down 500bp yoy), leading to a profit from operations (PFO) of €92.7m. The IFRS net profit was also impacted by a €425m goodwill impairment charge related to the deteriorated perspectives in the SIM market. After the profit warning in July, the company confirmed its downgraded outlook: PFO is expected to be €200-230m, leading to a full-year PFO of €293-323m. The announcement of the new strategic plan has also been postponed to H1 18 from H2 17.
Gemalto released its Q1 trading update, showing revenues of €651m which corresponded to a 6% decrease yoy on a reported basis (-8% at constant exchange rates). Payment & Identity came in at €404m, down 7% yoy, while Mobile showed a 5% decrease at €246m. Within these two businesses, the biggest down movers were Payment (€200m, -14%) and SIM (€118m, -11%), the other units being flattish or in the low single-digit with the exception of Platforms & Services (€53m, +6%). By main activities, Embedded software & Products came in at €439m (-8% yoy at constant exchange rates) and Platforms & Services at €212m (-7%). After the previous downgrade from 22 March (profit from operations at a similar level to 2016, i.e. c. €450m), the company downgraded again its 2017 adjusted operating profit objective: H1 PFO is expected to be at €90-100m, and H2 at €300-350m including a minor contribution from 3M, bringing the total to €420m at the midpoint. A €50m savings plan has also been announced.
Gemalto has announced the acquisition of the identity management business of 3M, for a total of $850m. The acquired business is composed of biometric solutions with a focus in civil identification, border control and law enforcement, as well as 3M’s Document Reader and Secure Materials Businesses. It generated revenues of about $215m (in June 2016 TTM), with an operating margin of c. 27%, and is expected to grow by 10% per year until 2020. 450 people will join Gemalto and reinforce the Government Programs business unit, which recorded revenues of €391m in 2015. The acquisition is EPS accretive, will be funded through existing credit lines and cash, but the net debt/EBITDA ratio is expected to remain below 1.5x. The closing of the deal is expected during H1 17, after regulatory approval.
Gemalto released its Q3 trading update, showing revenues of €753m which corresponded to a 2% decrease yoy on a reported basis (-1% excluding currency effects). Payment & Identity came in at €467m, flat yoy, while Mobile showed a 5% decrease at €285m. By main activities, Embedded software & Products came in at €522m (-2% yoy) and Platforms & Services at €231m (flat yoy). The company downgraded its 2017 adjusted operating profit objective and now expects c. €500-520m instead of €660m previously. The objective of reaching €1bn of revenues in the Platforms & Services business unit remains unchanged.
Gemalto published its H1 16 results, with revenues of €1.5bn mostly flat vs. the previous year, i.e. up 1% at constant exchange rates but down 1% in reported figures. By businesses, similarly to Q1, the Payment & Identity business was strongly up (+11% reported, +7% at constant exchange rates) while Mobile was down (-5% reported, -7% lfl). The SIM business fell down substantially (-26%), while all the other businesses delivered growth: Payment +11%, Enterprise +12%, Government +25%, M2M +9%, Mobile Platforms & Services +3%. By activities, Embedded Software & Products decreased by 4% in H1 (€1,010m) while Platform & Services grew by 20% (€484m), now accounting for 32% of revenues (vs. 27% a year ago). The adj. gross margin was slightly up yoy by 92bp (39.2%), while the adj. EBIT came in at €172m, slightly up yoy, corresponding to an 11.5% margin (up 90bp yoy). The IFRS EBIT reached €108m, corresponding to a 7.2% margin (up 500np yoy), leading to a net profit of €59m. The company confirmed its 2016 objective of a 150bp improvement in the gross margin. The 2017 target of €1bn revenue from Platforms & Services may also be reached early, possibly as soon as this year. Finally, Gemalto confirmed that the company was interested in acquiring Safran’s Morpho, with a detailed offer due mid-September.
Gemalto published its FY 2015 results, with revenues reaching €3,122m, corresponding to 16% growth at constant exchange rates and 27% at historical exchange rates. SafeNet accounted for 12% of the growth, as 2015 was the first year of full consolidation, and currency effects represented a 9% boost to the top-line. At constant rates, Payment & Identity grew by 45% to €1,818m, while Mobile witnessed a 10% decrease to €1,279m. On a transversal basis, Platform & Services reached €898m, a 70% yoy increase, and now accounts for 29% of revenues vs. 20% in 2014. The gross margin came in at 36.5% (-180bp yoy), and profit from operations reached €423m (of which €172m for Mobile and €239m for Payment & Identity), corresponding to a 13.5% margin (-200bp yoy). EBIT came in at €203m, corresponding to a 6.5% margin, leading to a net profit of €137m. The company announced a dividend of €0.47 per share, and expects the 2016 gross margin to increase by 150bp; the 2017 objectives have been confirmed, that is to say €1bn of revenues in Platform & Services, and a profit from operations at €660m.
Gemalto’s stock dropped a sharp 12% yesterday to return to its level at the end of 2014 when we had switched our opinion from negative to positive after the stock had already slumped as investors worried that Apple's new SIM card for its latest iPads could threaten part of Gemalto's business. Even if this time the sharp drop is just following the release of its H1 results and could therefore be interpreted as a logical response to bad results, we instead believe that the real reason for the drop has once again to be rooted in the mistrust of investors. Although Gemalto’s H1 results are quite as expected and management remains confident of delivering on its 2017 objectives, major concerns exist among investors about the actual achievement of these 2017 objectives. And we share these concerns!
Research Tree provides access to ongoing research coverage, media content and regulatory news on GEMALTO. We currently have 9 research reports from 1 professional analysts.
|31Jan18 06:00||GNW||Gemalto's Discovery Service boosts on-demand connectivity activation for consumer devices worldwide|
|16Jan18 06:00||GNW||Gemalto and Ponemon Institute Study: Big gaps emerge between countries on attitudes towards data protection in the cloud|
|04Jan18 06:00||GNW||Gemalto launches the first biometric EMV card for contactless payments|
|17Dec17 07:00||GNW||Thales and Gemalto create a world leader in digital security|
|14Dec17 06:00||GNW||Gemalto research reveals hardware technology companies see 11% increase in earnings following shift to software-based revenue models|
|13Dec17 19:11||GNW||Gemalto rejects unsolicited and conditional proposal by Atos|
|12Dec17 06:00||GNW||Gemalto in the process of reviewing the unsolicited and conditional proposal by Atos|
R1 has reported FY results for the year to March to 2018, and they are in line with the April 19th trading statement, although cash at $27m was $1m better, as the working capital build in H1 more than unwound. FCF yield of 17% for 2019E and 20% for 2020E. Retain Buy Pt 770p
Hardman & Co recently welcomed Milan Radia to our roster of established, industry expert analysts. Milan has 25 years of equity market experience at major investment banks and in asset management, and has worked on many high-profile successful IPOs. In 2017, he was ranked the No.1 earnings estimator in the UK for his sector in the Thomson Starmine Awards. Milan has also been techMARK Analyst of the Year and achieved top three Institutional Investor sector rankings for his coverage of the software and telecoms sectors. In our lead article this month he gives an insight into his thinking on some key themes in the sector.
Companies: OPM ABZA AVO AGY APH ARBB AVCT BNO BUR CMH CLIG COS DNL EVG GTLY GDR INL KOOV MCL MUR NSF OXB NIPT PHP RE/ REDX SCLP SCE SIXH TRX TON VAL
Eckoh’s full year results to March’19 are in-line, as flagged at the May trading update. US Secure Payments continues to lead the way, driving 32% underlying growth in the US division. The UK is returning to form after a weak H1’18, with strong momentum going into the current year. We are making small underlying upgrades to our FY’19 forecasts, however the picture is complicated by the non-cash impact of adopting IFRS 15. Adoption of the new standards is expected to result in a delay in revenue recognition, meaning a material reduction in P&L profitability in the near term. We continue to be excited about the group’s growth prospects, which combined with the high level of recurring revenue makes the shares fundamentally attractive.
When we last published the FTSE 100 was reaching an all-time high of 7877. We have subsequently seen increased volatility and some of the previous progress made by markets surrendered. The escalation of the potential trade war between the US and China and the imposition of more tariffs has unnerved markets. At home, we have continued to see M&A activity. While company results have largely been as anticipated, the outlook in some sectors looks less promising. In Share News & Views, we comment on Aortech*, ECSC*, Location Sciences*, Norcros, NWF, Tricorn* and Warpaint London*.
Companies: AOR APC BMS CRPR DMTR ECSC ESC EUSP FDM GETB LSAI SNX SPRP TCN W7L
iomart has delivered prelims in line with the trading update and unchanged expectations for the year to March 2018. The predictability of the high level of recurring revenue (and nature of the difficulty in growing, or even losing, such revenues quickly) means consensus is tight and delivery is at consensus: revenue of £97.7m was within 1% of consensus as it stood before the trading update; EBITDA delivery of £39.8m is also within 1%. iomart has, typically, added to underlying organic growth (7% in FY18; FY17: c.7%) with three acquisitions in the year, albeit none in the second half. The balance sheet remains strong and the group has an increased £80m debt facility, offering continuing strategic choices including further acquisitions. The board has made the decision to accelerate dividend growth to 20% (vs 15%E) to hit the 40% payout ratio early, with the promise to reconsider the parameters of the policy. iomart continues to show private equity and public peers how to do it: target lifted to 450p, equivalent to 10.5x FY20 EV/EBITDA and still delivering a 5.2% free cash flow yield, ahead of the market.
Companies: Iomart Group
Confident and positive prelims describe a growing, profitable, cash generative business, with a balance sheet able to support further investment and enable board consideration of a maiden dividend (FY19E). With the first sales of the integrated solution sold, implemented, and live this month, recurring revenue continues to grow (+7% to £14.0m) and new sales increase. 77% of FY18 sales were into the existing customer base, and 60% of clients still take one product, showing the evident cross sales opportunity: interest in the enhanced platform, from new and existing customers in the UK and from the strengthened Australian base, continues to grow. Castleton has its operational, financial, and technological show in order, and is now able to reap the benefits. We tweak EBITDA +£0.3m (5%) with the exercise of the option to acquire the IP for the platform in Brixx, and illustrate board confidence in the future with a 182% increase in capex, accompanied by the introduction of a maiden dividend, forecasting breakthrough to net cash for FY20. With such positive signals and the rolling forward of our forecasts to FY20 we upgrade our target price from 90p to 125p, currently generating very strong free cash flow yield highlighting the maturing nature of the business.
Companies: Castleton Technology
We are most encouraged that in recent months ECSC has secured three new long-term Managed Services contracts, which will contribute at least £0.9m to the order book. The news that 2018 trading to date is in line with our forecasts at the time of the final results in March is also positive, following the board changes in April. Consequently, we have reinstated our 2018 forecasts (which show ECSC will be EBITDA positive in Q4 and net cash will be c.£1m at yearend) and will resume full coverage with the interim results in September 2018.
Companies: ECSC Group
A more detailed post YE update reveals FY March 2018 earnings were ahead of forecast; higher margins more than compensated lower than expected revenue as the software model transitions from perpetual licences to recurring SaaS business and reflecting the popularity of D4T4’s hybrid analytics cloud solutions. We ease revenue forecasts but lift our FY 2018 FD adj. EPS forecast slightly.
Companies: D4T4 Solutions
We have refreshed our quality style screen for the second time and report on style performance since the last refresh in October. Performance has been very strong, outperforming the small-cap index by c.1600bps (weighted basis) and c.1000bps (unweighted). There has been volatility with the market and this style has yet to be tested in a concerted down market, but in a flat or rising market quality appears to be a successful investment style in small-caps. We have highlighted 11 focus stocks in the new screen and will report back again on performance when we next refresh the screen in about 5-6 months’ time.
Companies: LIO GHT AMO CHH ZYT DOTD GTLY RIV FCRM TAM PAM
EU Supply has issued a positive AGM statement. Revenues in the first four months of 2018 were up 28% year-on-year and sales growth should continue. The size of the group’s order book and strong pipeline of work are also encouraging. Mandatory provisions in the 2014 EU Directives coming into force in November this year have helped accelerate this growth. We have made no changes to our updated forecasts published last week following the placing. We retain our Buy rating and 25p target price.
Companies: EU Supply
Following the news in the recent trading update that the location data verification product, Verify, was performing ahead of schedule Location Sciences (LS) has raised £0.41m primarily to invest in and market a product that is scalable across the world. LS is well-positioned to take advantage of location data becoming a more mainstream marketing tool. With no changes to our forecasts (we have not adjusted for the increased number of shares in issue at this stage), we retain our 0.05p DCF derived target price and Buy rating.
Companies: Location Sciences
dotDigital has delivered interims to December in line with the January trading update and unchanged EBITDA/adj PBT expectations. The three strategic pillars for growth continue to prove highly effective, delivering 25% revenue growth including 17% organic revenue growth, complemented this year by the Comapi acquisition in November. Geographic expansion, increasing numbers of strong partnerships, and product innovation continue to drive the strong growth as the group excels at current operations and demonstrates the strength of its path to become an omni-channel dataled customer behaviour and analysis platform. Target 115p reiterated.
Companies: Dotdigital Group
Last year, Venture Capital Trusts raised the second-highest amount since their launch in 1995, according to the Association of Investment Companies. This is good news for smaller companies seeking growth finance. Changes to pension regulations mean that VCTs are expected to continue to attract investors. Individual qualifying companies can receive up to £10m from VCT investors.
Companies: KEYS NBI MPM PTY BOO W7L
Interim figures on 24 April were in line with the February trading update. However, management signalled a weaker outlook for H2 than the H1 update suggested due to a combination of factors including adverse currency movement, customer losses, weak order intake in early H2 and supplier revenue deferral. We have downgraded our FY 2018 revenue and EBITDA estimates by 9% and 21%, and our corresponding FY 2019 estimates by 11% and 18%. Investor sentiment has been badly dented by the rapid reversal in outlook and given rise to concerns over customer retention and competitive positioning. However, there are enough indications that this weakness is temporal and not structural, and the current valuation suggests significant upside if positive momentum is restored in Q4. We set a new target price of 151p. Buy.
We believe Crimson Tide’s high-visibility model and long-term growth prospects in healthcare and IoT are not fully appreciated by the market. The group has established a track record of sustaining both double-digit growth and a peer-leading EBITDA margin from sales of its proven and uniquely positioned enterprise mobility management platform, mpro5. Post 18 months of investment, we believe the business is now poised for accelerated growth into verticals beyond field worker management and new geographies. Our analysis indicates the opportunity is significant, with potential to tap into a US$47bn addressable market. We initiate coverage with a Buy rating and a PT of 4.4p, anticipating a re-rating as evidence of accelerating commercial traction emerges.
Companies: Crimson Tide