Sopheon has delivered a very strong 2017 – in line with the previous trading updates, and benefiting from a very good end to the year. The group is ahead of our estimates on all metrics, and is well placed going into 2018 and beyond. Management have signalled their confidence with the welcome introduction of a maiden dividend (2.5p). We upgrade our estimates for both 2018 and 2019.
The group has reported a highly successful 2017 – revenues were some $28.5m, against our recently-upgraded $28.0m and previous expectations of $26.0m. Adjusted EBITDA was $8.0m, up from $5.2m in 2016 and well ahead of our $6.9m expectation – this outperformance flowed through the P&L leading to EPS also well ahead of our estimate. Cash generation was strong, and the group has announced a maiden dividend of 2.5p to reflect management’s confidence in the sustainability of recent growth and profitability.
Sopheon has seen a significant level of contract wins during the year – some 59 licence sales, up from 49 in 2016, driving both the strong 2017 outturn and a very good level of visibility over current-year revenues, up to $19.3m from $14.5m last year. Importantly, the group is seeing a good balance of repeat custom (or expansion of existing client usage), new name sales, and a steady but notable extension into new areas of Enterprise Innovation Management, outside of the traditional product development heartland.
Given the exceptional finish to 2017, it is tempting to materially upgrade our 2018 estimates – we choose a hopefullycautious uplift from $29m to c$30m of revenue, with EBITDA raised from $6.1m to $7.0m. This figure is still slightly below the 2017 outturn, as the group is expecting to recruit additional staff across the year, positioning it well to continue to benefit from clear market trends. We also make a slight change to our tax treatment to aid in comparison of the group’s performance over time – see overleaf.
As we saw when we attended their recent customer forum, Sopheon continues to benefit from an increasing level of Enterprise focus on both product development and broader enterprise management. The group’s Accolade platform is enjoying material wins in its traditional spheres, but also seeing success in new and emerging areas. We note that the RNS also alludes to the possibility of M&A further accelerating this growth, and we look forward to ongoing success in 2018 and beyond.