Vislink’s FY15 results show management taking action to rebalance the group towards software-related activities in response to structural changes in the global broadcast industry. These actions had an adverse impact on FY15 pre-exceptional and reported profit, but position the group to take advantage of the growth segments in the broadcast industry.
FY15 group revenues fell by 7% year-on-year to £57.8m, ahead of our £54.2m estimate. The sales decline reflects a full year contribution from PBS, strong underlying growth in software (PBS) sales and modest growth in hardware broadcast sales as VCS took market share, all of which was offset by the nonrepeat of a major surveillance order that primarily benefited FY14. FY15 group adjusted PBT declined by 41% to £4.4m (in line with our estimates) as a result of the absence of the major surveillance order and investment in PBS’s sales and software development capability. The dividend was held at FY14 levels to retain cash for investment in the existing businesses and to make acquisitions.
The FY15 profit reduction was exacerbated by actions to address fundamental changes in the global broadcast industry. Broadcasters are switching from hardware to software solutions and from microwave and satellite communication links to IP-based ones. This transition motivated the increased investment in PBS and the VCS restructuring programme, which is intended to reduce fixed costs and make the division better able to cope with swings in demand. Our FY16 estimates (which are broadly unchanged) assume that growth will be mainly driven by PBS and that the VCS restructuring programme will generate a partial recovery in profit.
The share price has rallied from a low of 22.375p in mid-February, but is still around 40% lower than the 53p recorded at the interims in September. Our comparison of Vislink’s FY16e and FY17e EV/EBITDA and P/E multiples against those of its peers in the broadcast and surveillance sectors shows Vislink trading at a significant discount to the mean. Applying a 12% discount for the relatively small market capitalisation gives fair value at 54p (formerly 52p). Although we assume that management will maintain the dividend at FY14 levels during FY16 and FY17, at the current share price this represents an attractive dividend yield of 4.8%.