Tinexta provides IT solutions, information and consulting services in niche markets, predominantly to corporate clients. In its fastest growing divisions, Digital Trust and Innovation & Marketing Services, it is the domestic market leader and either expanding internationally or seeking opportunities. In aggregate, we believe the group is capable of c 6% organic revenue growth while expanding its EBITDA margin, cash flow conversion and ROIC. There is likely to be further M&A to increase geographic coverage, client reach or expand the product offer. We believe that management guidance for FY19 is conservative.
The Digital Trust business unit offers solutions that provide surety with respect to the validity of digital identities, the authenticity of electronic documents, and the secure storage of electronic documents. It should benefit from the transition to a digital world. The company is leveraging its expertise, given recent regulatory changes, by expanding on an EU-wide basis with a unified legal base. In H119, organic revenue growth was 10%, and the EBITDA margin expanded to 26%.
There are two main businesses: helping SMEs obtain funding and tax credits to help finance research and innovation, and consulting services to help corporates expand outside their home markets. Thematically, the former is expected to drive growth given domestic and EU-wide funding initiatives to boost the development and competitiveness of economies. In H119, organic revenue growth was c 17% and organic EBITDA growth was c 30%, giving an EBITDA margin of 47%.
There are two main operating businesses: data services to help banks and SMEs with granting, ongoing assessment and recovery of credit, and the provision of residential property valuations to banks. The former is a competitive market with strong pricing pressure. Management is confident that recent new product introductions will improve its competitive position. The latter is more stable and Tinexta is the market leader. In H119, the organic revenue decline was c 7%, but cost control and M&A led to an EBITDA margin of 25%.
Tinexta’s EV/EBITDA is 10.0x in FY19e and 9.0x in FY20e. Our DCF-based valuation of €14.6 per share, upgraded at the interim results, offers 12% upside.