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IndigoVision announced solid FY’19 results highlighting a 6th consecutive half year of topline growth, improved profitability, and materially stronger than forecast cash generation ($3.6m; N1S: $1.8m). Strong cost control and tight cash-flow management have led to a much higher year end net cash figure than forecast ($2.2m; N1S: $0.4m), and we push up FY’20E net cash forecasts to £3.9m (was $1.1m) although P/L forecasts remain broadly unchanged. The Group also announced its updated ‘IndigoVision 2020’ strategy targeting further top-line growth, whilst also reintroducing a dividend (2p/share) to return cash to investors alongside $0.5m of share repurchases during the year. The Group currently trades on 6.1x P/FY’20E earnings; peers currently trade on 10.8x inclusive of a 33% liquidity discount.
Indigovision Group
IndigoVision has reported a y/e trading update, confirming strong EBITDA growth, in line with forecasts, meanwhile sales also grew by 9% - to $50m (vs. $52mE). Cash performance was in line - y/e net cash $2m vs. $2.5mE (ex Agora acquisition), implying FCF of c.$1m. FY19’s performance therefore positions IND strongly for FY20, where we expect a combination of both external tailwinds and internal reorganisation to provide continuing benefits. We therefore reiterate existing forecasts. IndigoVision trades on 5.8x 1-year forward P/E based on our forecasts.
IndigoVision have announced the completion of the c.€3.0m acquisition of Agorasys SA (‘Agora’), a strategic IP bolton which is expected to add further strength to the Group’s Video Management Software (‘VMS’) tech stack. €2.5m of cash consideration (inc. €2.3m to clear debt) and 34,422 of share consideration is payable upon completion, with the remaining balance deferred dependent on certain performance contingencies. The Agora product delivers integration of multiple systems across disparate locations to a single interface, and enables standardisation of procedures, improved analytics, operating cost rationalisation and a verifiable process audit trail. Current sales at Agora include a high proportion of recurring revenues, with a scalable rental model available to central monitoring stations. Management see strong potential use cases across Utilities and other critical infrastructure verticals once integration into the Group’s product set is completed (expected back-end of FY’20E). We raise FY’20E revenue forecasts by 3.0% to $56.5m, with EBITDA rising 4.3% to $3.9m. The deal is 2% accretive to FY’20E FD earnings based on our forecasts. P/FY’20E EPS valuation sits at 6.1x compared to a discounted peer group multiple of 11.0x.
IndigoVision’s improved performance looks set to be sustained through FY’19E and into FY’20E. The digitisation of the surveillance industry has led to accelerated end–market growth, with the group well placed to meet demand supported by a strong brand and restructured sales team. Investment into global distribution channels, a new CRM and an upgraded ERP platform are expected to drive both better visibility of revenues and sustain recent improved working capital management. We introduce FY’20E numbers forecasting 33% EPS growth, the current valuation of 8.4x FY’19E P/E looks undemanding, with the share price a 4% discount to FY’19E NAV.
H1’19 results confirm the positive top-line momentum highlighted in the recent trading update. A fourth consecutive period of top-line growth saw revenues reach $24.1m (+8% y/y), with the seasonally weaker H1 profitable for the first time since 2014. A diversified supply chain has enabled partial tariff-free access to the key US market, supporting 15% top-line growth in North America. Net cash rose $0.8m to $2.8m supported by the return to profitability, with liquidity further improved by a new 3-year $10.0m debt facility providing additional working capital capacity and M&A optionality. Valuation at 7.3x P/E looks attractive, with significant potential medium-term growth opportunities available.
In a positive H1 trading update IndigoVision unveiled a fourth half year period of sequential top-line growth. As a result of revenues rising to $24.1m (+8% y/y) and cost rationalisation undertaken in the prior year, management expect to deliver positive half-year operating profits for the first time since 2014. The balance of net cash held by the group rose to $2.7m by the end of the H1 period (Dec-18: $2.0m). Current trading looks in-line with expectations, following similar seasonal H2 weighting patterns as in prior years, so we make no changes to our full year forecasts. A 1-year forward P/E multiple of 6.6x looks attractive, and provided management are able to successfully deliver continued positive top-line momentum in the medium-term, upside potential is high.
Trading in the first four months of the year was in line with expectations. As in previous years, sales are expected to be H2 weighted and, whilst visibility of order timing is limited, management indicates that the current pipeline is supportive of the target to return the Company to profitability in FY19. We are encouraged by this positive start to the year and therefore leave our forecasts unchanged. We expect a significant improvement in financial performance this year, forecasting PBT of £2.0m vs. a £0.6m loss last year.
Today’s update confirms solid year on year progress, with sales expected to increase by 9% to $45.9m in FY18 (N+1SE: $48.0m) and the positive gross margin trend continuing throughout the year. However, whilst the Group expects to report a significant reduction in its operating loss in the year, the revenue shortfall means it is now expected to be loss making in FY18 vs. our break even forecast. A strong cash outperformance is a key positive in the statement, with net cash at the period end standing at $2.0m (N+1SE: net debt of $2.6m). This was driven by an improvement in payment terms and a reduction in inventories. We expect to update our forecasts at the results in March, but place them under review for now. With momentum continuing to build in response to recent management actions, we expect a further performance improvement in FY19.
FY18 is expected to be a year of stabilisation and management has reiterated guidance of a break even position in the current year. Significant Board, leadership and strategic changes were made in H2’17, and in H1’18 the Company launched a number of new products and services. The benefits of these actions are starting to come through, with losses narrowing in H1’18 vs. H2’17 and revenue continuing to grow. We therefore retain our revenue and profit forecasts for FY18. We introduce a new FY19 forecast year, assuming a return to profitability with continued sales growth. The shares are trading on an FY19 P/E of 5.1x. Should management deliver on our forecasts and successfully turn the business around, this multiple is undemanding.
Results are as indicated in the November trading update and, as the Chairman states, were not acceptable with IndigoVision ‘not achieving its full potential’. Significant Board, leadership and strategic changes have since been made including the restructuring of the North American business at a cost of c.$2m. Management is considering FY18 to be a period of stabilisation with a break even result. After what was described as an encouraging start to the year, we await further updates from the new Chief Executive with interest as the year progresses.
The prompt appointment of Pedro Simoes as Chief Executive is a positive decision, in our opinion, given his strong cv within the big players of the industry and his knowledge of the critical North American market. It should be noted that he has only been with the Group for 4 months, but we look forward to hearing his initial thoughts at the time of the final results in March.
Despite encouraging signs in the US, unforeseen delays in the Middle East mean that management expectations will now not be met, with a full year operating loss now anticipated. Chief Executive Marcus Kneen has left with immediate effect and Pedro Simoes has been appointed Interim Chief Executive. The Group is clearly in a period of transition and we await further updates in coming months, but a key positive is that the balance sheet remains strong, with $2.5m of net cash expected at the year end.
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The return to profitability in H2 and for the year as a whole is encouraging, albeit activity levels have been lower than our expectations. We have reduced FY16 PBT from $2.0m to $0.3m but would note that the balance sheet remains very strong with net cash of c.$4.5m expected at the year end. We await more details of the outlook for the new product ranges and for FY17 in general with the final results in early 2017.
As we said earlier in the year, given the investment and restructuring in the US, we expect an H2 weighting in FY16. As indicated at the update in July, sales are slightly behind last year but efficiencies and cost savings mean that operating performance is ahead. Given the modest half year loss, the dividend has been passed, but the balance sheet remains strong with net cash now expected to reach $5.0m by the year end. The H2 pipeline is stronger than H1 and, although conditions remain competitive and project timing is difficult to gauge, we retain our full year P&L forecasts.
As we said in March, given the investment and restructuring in the US, we expect an H2 weighting and this remains the case. Sales are slightly behind last year but efficiencies and cost savings mean that operating performance is ahead. We look forward to further updates on progress later in the year.
The return to profitability in H2 was encouraging, albeit tempered by some contract delays. As we said in January, importantly, the balance sheet has strengthened markedly with net cash of $2.8m comfortably exceeding our then expectation of $0.5m net debt. Given the investment and restructuring in the US, we expect an H2 weighting and have reduced our expectations for FY16 PBT from $3.0m to $2.0m. We look forward to further updates on the management improvement plans as the year progresses.
The return to profitability is encouraging, albeit the delay in a Middle Eastern project has tempered the H2 performance as reflected in our forecasts below. Importantly, the balance sheet has strengthened markedly with net cash of over $2.0m comfortably exceeding our expectation of $0.5m net debt. We retain our expectations for FY16 at this stage, with the rate of improvement encouraging and the Middle Eastern contract still pending, and await more detail on trading with the finals in March.
Today’s trading statement for the 12 months to 31/12/15 confirms that the group has returned to profitability in H2 thanks to swift management action to reduce costs. It also reveals a higher level of expected year end net cash than we had anticipated, namely at least $2m against our estimate of ($0.5m). Year on year sales declined c18% in H2 which was an improvement on H1, but lower than expected thanks to a project delay in the Middle East. We place our forecasts under review until the New Year.
As indicated in April, IndigoVision has experienced a challenging first half which has led to an operating loss; we have reduced our forecasts to reflect the downturn in activity. Management reacted quickly with cost reductions, and H2 profit is expected to exceed the H1 loss thanks to this and a good order pipeline. Management is aiming to reduce lumpiness but this will take time and big projects remain a key element which, dependent upon timing, could yet drive a better result in H2 than is currently expected. Reduced activity has led to a net debt position ($0.46m) at the half year and the interim dividend has been passed; a final dividend is expected to be paid given management’s expectation of H2 improvement, and we expect a return to net cash in FY16.
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IND REDD SMMT 73S
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