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United Oil & Gas (UOG.L) an oil and gas exploration and development company brought to the Official List (Standard Segment) in July 2017 by way of a reverse takeover of Senterra Energy plc. No capital to be raised, expected market cap of £17m and expected 28 Feb Techniplas –global producer and support services company providing highly engineered and technically complex components, making the supply chain to original equipment manufacturers more efficient. FYDec17 rev $515m.
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Tax Systems has delivered interims that reveal performance comfortably in line with unchanged forecasts. Order intake growth of 22%, including 11% growth in new annuity licence orders, supported headline growth of 14% and organic growth of 9% (1H17: 7%). Recurring revenue remained strong at 89% (1H17: 92%); while the consistent 46% (49%) EBITDA margin led to strong cash generation and a reduction in net debt from £20.5m (FY17) to £17.5m (1H18). Having reinforced the core business and delivered new modules and features through investment and acquisition, the board is now looking to develop new business from new solutions. Unchanged forecasts lead to strong confidence in their delivery, with the focal points of degearing and growth making the group an increasingly attractive investment opportunity as execution proof points are routinely delivered. We lift our target price to 118p (99p), equivalent to FY19 15x EV/EBITDA.
Tax Systems
Prelims are in line with unchanged expectations, confirmed at the January trading update (established April 2017 when forecasts moved to IFRS15). EBITDA of £7.0m (£7.0mE) and adjusted PBT of £4.9m (£5.0mE) were delivered from revenue of £15.1m (£14.7mE) as the company delivers 90% recurring revenue from a very stable core client base. Organic growth of 10% including 6% organic annuity base growth demonstrated the benefits of 95% client retention, boosted by the acquisition of OSMO in April 2017, which lifted annuity growth to 12% and headline revenue growth to 17%. M&A continues to present an alternative to R&D, as the group strives to maximise revenue per customer, minimise churn, and generate new customer interest through a broader solution set, while continuing also to focus on cash generation to reduce net debt. Strategically on track, with a mild nudge up to FY18 revenue expectations and £1m improvement to net debt expectations, we reiterate our 99p target and look forward to newsflow.
Tax Systems’ interims highlight the successful initial results of the strategic initiatives to deliver growth. Where growth in the acquired TCSL business had historically been absent and new customer wins sporadic and merely replacing churn, the group has now delivered 7% organic revenue growth and 34% year-on-year order increase – a distinct improvement compared with the roughly zero % organic growth for the past three years. Adjusted EBITDA of £3.4m, representing 49% of full-year forecasts, was delivered from £7.0m of revenue (48% of FY17E), at a typically strong EBITDA margin of 49%, despite investment in infrastructure, systems and processes, staff and culture. Net debt of £23m is in line with year-end expectations, and forecasts are unchanged. Target price 99p reiterated.
Maiden prelims for the part year since reverse takeover in July 2016 reveal performance in line with expectations. The ongoing transformation to inspire growth in a profitable but formerly lifestyle business continues, with investment in product development, sales, and management, and the first acquisition of a complementary solution, as the UK government increases the drive towards “making tax digital” by 2020. The statistics remain impressive, with a customer base of over 1,000 including 23 of the top 25 UK accounting firms, and 43 of the FTSE 100; and a recurring revenue model generates strong visibility estimated at over 85%. We adjust forecasts for the addition of subscription-based OSMO, acquired in April 2017; and for mild amendment in line with IFRS15, where annual licences are now recognised on a monthly basis: EBITDA moves to £7.0m (£7.3m) in FY17, £7.8m (£8.2m) FY18. As the group delivers growth, adding to profitability and cash flow, our target price of 99p equates to unchallenging FY18 multiples, at 12x EV/EBITDA, 20.5x P/E and 5.25% free cash flow yield.
Tax Systems plc (formerly Eco City Vehicles plc) is a provider of corporation tax technology solutions and services in the UK and Ireland, with regular updates for the constantly changing regulatory environment. Clients include 19 of the top 20 accountancy practices in the UK and Ireland and 43 of the FTSE 100. With 90% recurring revenue and 50+% EBITDA margin, the company has an established niche, and the opportunity to deliver a refreshed sales approach. Tax Systems has acquired Tax Computer Systems Limited (TCSL) through a reverse takeover, at an Enterprise Value of £73m funded by a £30m debt facility and a £45m equity fundraise at 67p (equivalent to 1.34p pre 1 for 50 consolidation).
Tax Systems Eco City Vehicles
Tax Systems* (TAX): Initiation of coverage – £45m placing and £73m EV reverse takeover (CORP) | Acal (ACL): Positive outlook unchanged (BUY) | Berkeley Energia (BKY): Analyst interview (BUY)
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