Management believes the COVID-19 pandemic will have the greatest impact on Tinexta’s profitability in the current financial quarter, before an anticipated recovery later in FY20. There is a confident message on cost savings and ongoing efficiencies to help mitigate some of the expected decline in revenue. We downgrade our forecasts to reflect a slower recovery in Digital Trust and a lower margin in Credit Information & Management. The EV/EBITDA multiple for FY20e is 8.9x.
Tinexta’s Q120 results showed the first impacts of the COVID-19 pandemic, with an organic revenue decline of 8.4% and a decline in adjusted EBITDA of 29.6%. The revenue declines were greater than we anticipated in Digital Trust and Innovation & Marketing Services, albeit the latter had a very strong comparative in Q119. All business units saw a decline in profitability given the speed and extent of the slowdown towards the end of the period. On the positive side, free cash flow generation improved significantly due to positive management of working capital. Management has said that it will provide new financial guidance for FY20 in late June: Q220 is expected to be the weakest period for growth, but recovery is anticipated thereafter.
We downgrade our FY20 EBITDA forecast by 5.8% due to a combination of declines reported in Q120, the assumption of a slower recovery in Digital Trust and a greater margin impact on Credit Information & Management. The downgrade takes our EBITDA forecast for FY20 to €71.3m, which is in line with reported EBITDA for FY19. Although there is no formal guidance, management does not expect ‘great discontinuities compared to the previous year’, as further cost savings and efficiencies are sought.
Multiples have increased given the recent strong share price performance and our downgrades to estimates. The EV/Sales multiples for FY20e and FY21e are 2.5x and 2.4x respectively. These compare with the long-term average since IPO of 1.8x, reflecting a better medium-term growth outlook from the newer group structure following M&A, and the resulting higher EBITDA margin of 29.7% in FY19 versus 18.8% in FY15.The EV/EBITDA multiples for FY20e and FY21e are 8.9x and 8.5x versus the long-term average since IPO of 8.5x.