Recent news flow from The Panoply has, in our view, been very positive. Firstly, the group announced the earnings accretive acquisition of Difrent Ltd (“Difrent”), a profitable digital transformation consultancy to the Healthcare and Social Care verticals. Secondly, it confirmed the revision of a number of the Share Purchase Agreements (“SPAs”) arising from certain historical acquisitions, which will reduce share dilution by 7.7m if the shares return to the 130p level as at the time of the announcement. Lastly, the AGM statement confirmed that H1 21E trading remains solid. We upgrade forecasts following the announcements, with the acquisition increasing adjusted EBITDA by 7% and 14% for FY 21E and FY 22E respectively.
Difrent reported total revenues of £7.4m (+72% YoY) and EBITDA of £0.9m for the year ending March-20. The total initial consideration is £8.8m, payable £4.0m in cash and £4.8m in new ordinary shares. Further consideration may be payable at a rate of 0.66x revenue growth above £7.6m in the 12- month periods ending March-21E and March-22E.
Difrent has a broad service offering and a strong roster of clients in health and social care. With both being core verticals for The Panoply, we believe the acquisition has strong industrial logic. Difrent’s offering includesstrategic consultancy, user centred design business analysis, business change, procurement and front and back end development. Key clients include NHSX, the Dept. of Health, and the DWP.
The group has revised a number of the SPAs arising from four of its recent acquisitions. As a result, if the shares return to the 130p level as at the time of the announcement, maximum expected dilution is reduced by 7.7m shares.
The group’s recent AGM statement confirmed that trading in the first two months of Q2 21E remained “strong” and signalled the Board’s confidence that the FY 21E financial outcome will meet their recently upgraded expectations.
Following the first two announcements, we make upward revisions to estimates. FY 21E and FY 22E adjusted EPS improves by 7% and 12% respectively, reflecting the acquisition, SPA changes and revised assumptions on future interest and tax charges.