SCISYS has reported a strong H1 with professional fees jumping 24%. However, this was off a weak H117 and some business was brought forward from H2. Consequently, we are forecasting a more balanced H1/H2 in FY18. We have increased our FY18 revenues by £3.0m to reflect this balancing, but we have maintained our profit forecasts. All divisions posted record revenues, the order book remains robust at close to £100m and net debt continues to decline. Management’s goal of £60m in revenues and double-digit margins within the next few years looks increasingly conservative and we believe the stock is solid on c 14.6x our FY19e EPS.
Group revenue rose by 13% to £28.7m, while adjusted operating profit more than doubled to £2.5m. The Enterprise Solutions & Defence and Space divisions reported strong contribution growth whereas M&B and Annova recorded declines despite record sales. M&B and Annova are being integrated into a single business unit. The interim dividend has been increased by 10% to 0.65p.
Earlier this week SCISYS announced it has won a £2m contract to provide software design, development and support services to Transport for London (TfL) for its timetabling and scheduling as part of its Future Bus Systems programme.
The company says it still does not expect any adverse operational consequences as a result of Brexit. However, it is obliged to protect its positions on Galileo and EGNOS if Brexit proceeds without specific amendments. We anticipate a decision to redomicile the group is likely to be made next month.
We have increased our revenue forecasts by £3.0m in FY18 to £56.0m and by £3.1m in FY19 to £60.1m. We have conservatively maintained our profits forecasts and continue to forecast end FY18 net debt of £3.0m
The stock trades on c 15.4x our earnings in FY18e, falling to c 14.6x in FY19e. Alternatively, the stock trades on c 0.95x our FY19e sales and c 8.5x EBITDA, which we believe is attractive if SCISYS can maintain the momentum. Our DCF model, which is based on our forecasts and organic CAGR of 3.5% over 10 years, a weighted average cost of capital of 10% and an 11.0% long-term margin target, values the stock at 183p, roughly in line with the current share price.
