PROACTIS’ interim trading statement provides the first opportunity to gauge performance since Perfect was consolidated. The overall picture looks healthy: revenue of £26.3m has more than doubled yoy and EBITDA of £8.5m is ahead our expectations (£8.0m). While customer activity is not quantified, it is described as strong, and the target of £5m in annualised synergies by the end of FY18 is confirmed. We believe PROACTIS can deliver £20m in EBITDA in FY18 and leave our forecasts unchanged.
In Going for Scale (Jan ’18) we highlighted the strategic value of Perfect. Consolidated for all but four days of 1HFY18, this statement provides the first chance to assess its financial contribution. Trading is described as “in-line” with a “healthy” number of new customer wins. Revenue of £13.5m looks solid (albeit impacted by Sterling strength), and the EBITDA contribution of £3.7m (a 27% margin) is ahead of our expectations. Given expected seasonality Perfect appears on track to generate at least £7.5m of EBITDA in FY18.
Activity levels are described as strong compared to last year on a like for like basis, and both the pipeline and order book are “encouraging”. Backing out the contribution of Perfect implies revenues grew 8%yoy and a 38% EBITDA margin (a 12ppt increase yoy). The profitability of the core business is ahead of our expectations. Progress on synergies appears particularly good. The target of delivering £5m of annualised cost savings by the end of FY18 was confirmed and the company is more than halfway there after six months (£3.3m has already been achieved).
Our FY18 EBITDA estimate of £20m implies £11.5m in 2HFY18. This appears achievable considering 2H should benefit from incremental synergies and PROACTIS’ profits are typically 2H weighted. In FY17 58% of profit was generated in 2H - a similar split in FY18, before factoring in any additional synergies delivered in 2H, implies some £11.6m.
In a market where scale is increasingly important, we saw significant strategic value in the Perfect deal. Time will be needed to fully realise this value, but this statement highlights it is also delivering on its financial promises. Demonstrating the ability to successfully integrate is vital to PROACTIS’ scale strategy. We believe this strategy could create significant value over time.