Tinexta provides IT solutions, information and consulting services in niche markets predominantly to corporate clients. It has leading positions in its domestic markets. In aggregate, we believe these are capable of 6% organic revenue growth through our forecast period while expanding EBITDA margin, cash flow conversion and ROIC. There is likely to be further M&A in order to increase geographic coverage, client reach or expand the product offer. Our multiples-based SOTP and DCF valuations support a valuation of €13.5–14.2.
Tinexta is exposed to favourable growth trends including the transition to a digital world and the requirement for enhanced online security. Starting from a purely domestic Italian focus, the company is exploiting these trends internationally. In particular, given recent regulatory changes, in Digital Trust the group is leveraging its Italian expertise to expand on an EU-wide basis with a unified legal base across the region. At the same time, Tinexta is likely to make acquisitions in Italy and Europe that will further expand its addressable markets, and seek cross-selling opportunities between the business units.
Based on the group’s current structure, we estimate it is capable of producing c 6% organic revenue growth through our forecast period, translating to high-single-digit EPS growth given a gradual increase in margin from modest operational gearing and changing business mix. The track record in improving cash flow generation (cash conversion above 90%) and ROIC while undertaking M&A should provide confidence that it can add further value as it seeks to expand the businesses. We understand that recurring revenue is c 70–80% across the divisions. Management has proven to be shareholder friendly with a dividend payout ratio that has increased to 33% of earnings.
Tinexta’s EV/EBITDA multiples of 9.1x for FY19 and 8.5x for FY20 look low given our forecast of a 6%+ organic CAGR for EBITDA from FY19–21. The free cash flow yield is 6.3% in FY19. A sum-of-the-parts (SOTP) valuation suggests a valuation of €13.5/share. This is supported by our discounted cash flow (DCF) valuation of €14.2/share