£23m of new business since mid-December

SCISYS Group 28 January 2019 Update
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SCISYS Group

£23m of new business since mid-December

Trading update

Software & comp services

28 January 2019

Price

180p

Market cap

£53m

Net debt (£m) at 31 December 2018

3.1

Shares in issue

29.5m

Free float

64%

Code

SSY

Primary exchange

AIM

Secondary exchange

ESM

Share price performance

%

1m

3m

12m

Abs

23.3

10.8

38.5

Rel (local)

19.9

13.3

54.5

52-week high/low

194.00p

123.50p

Business description

SCISYS provides a range of professional services in support of the planning, development and use of computer systems in the space, media/broadcast and defence sectors, as well as to other public and private sector enterprises.

Next events

Final results

28 March

AGM

June

Interim results

September

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

SCISYS Group is a research client of Edison Investment Research Limited

SCISYS has released a confident trading update and we are maintaining our forecasts. Cash flow was healthy, with net debt of £3.1m slightly better than the £3.7m we expected. The order book (c £100m at end-FY18) has been bolstered by c £23m of contract wins since mid-December, of which c £8m were after the period end. The move to redomicile to an EU country before the final Brexit deal is already paying off, as c £18m of this business was only winnable if the group parent company was based in an EU country, due to Brexit. With Space and ESD showing solid organic growth, and the full benefits from the M&B/Annova merger yet to flow, we believe the stock is attractive on c 14x our FY19e EPS.

Year
end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

57.2

3.8

10.0

2.16

18.0

1.2

12/18e

56.0

4.4

12.0

2.38

15.0

1.3

12/19e

60.1

5.0

12.7

2.62

14.2

1.5

12/20e

61.9

5.4

13.4

2.88

13.4

1.6

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. IFRS 15 is applied from 1 January 201.

Trading update: Comfortably meets current guidance

The company says it ‘expects to comfortably meet current market guidance in respect of revenues and adjusted operating profit’. The order book was ‘in the region of £100m’ (roughly where it was mid-way through 2018) compared with £91.3m at end-FY17. Year-end net debt reduced to £3.1m despite c £0.75m Brexit contingency costs and a c £0.7m payment of a final earnout settlement for Annova. Both the Space and Enterprise Solutions & Defence (ESD) divisions saw a significant expansion in headcount to meet demand. Annova was re-named SCISYS Media Solutions in December and a formal merger is planned with SCISYS’s Media & Broadcast in 2019, ahead of schedule. The main benefit of the merger will be a unified management team, enabling a co-ordinated approach to account management and sales. Significant cost synergies are not anticipated.

Six contract wins since mid-December

SCISYS has announced six new contract wins since mid-December, totalling £22.7m. Five were in the Space division, totalling £20.3m, and one, valued at £2.4m, in ESD. Overall £17.9m of the Space deals relate to Galileo and Egnos, which were only awarded to SCISYS because it is now domiciled in an EU country. Meanwhile, the ESD deal provides reassurance that the defence sector is happy to continue to award business to SCISYS despite its redomicile outside of the UK.

Valuation: £100m order book underpins forecasts

The stock trades on 15.0x our maintained earnings in FY18e, falling to 14.2x in FY19 and to 13.4x in FY20. Alternatively, the stock trades on 0.88x our FY19 sales and 7.9x 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 186p, slightly above the current share price.

£17.9m contracts on EU-funded space programmes since mid-December

SCISYS has announced six new contract wins since mid-December totalling £22.7m. Three of these, valued at c £7.9m, were after the period end, indicating that the order book was comfortably above £100m in early January. Five of the contracts were in the Space division, totalling £20.3m, and one, valued at £2.4m, in Enterprise Solutions & Defence. The bulk of the contracts will be delivered in FY19 and FY20, although the ESA-ESOC deal extends to 2023 and EGNOS V3 to 2025.

To satisfy EU rules for EU-funded space programmes, not only do service providers need to operate within the EU but their parent companies also have to be based in an EU country. Consequently, the SCISYS parent company redomiciled in Ireland in November 2018. As a result, SCISYS management believes it has mitigated Brexit risks affecting the group. In the table below, all the Space deals excluding the ESA-ESOC contract relate to Galileo and Egnos, which are EU-funded programmes. The four deals are worth £17.9m in aggregate and these deals would not have been awarded to SCISYS had SCISYS remained domiciled in the UK, even though Brexit has not yet been formalised. The bulk of this EU-funded work relates to the next stage of work done in previous stage projects. SCISYS also won additional work, including the Galileo ground segment work and taking over a component of the Mission Key Management Facility in the Thales Alenia Space France contract from another sub-contractor.

Exhibit 1: Recent contract wins

Contract win

Announced

Space

Total

Details

€m

£m

Thales Alenia Space France

17/12/2018

11.2

9.8

SCISYS Deutschland has been awarded a contract with Thales Alenia Space France for the continuation and further enhancement of four Galileo Ground Mission Segment (GMS) elements.

Defence sector

20/12/2018

N/A

2.4

SCISYS UK has been awarded follow-on-work, continuing a defence project started in 2016 which SCISYS delivered successfully to schedule.

Galileo ground segment work

24/12/2018

3

2.6

SCISYS Deutschland has received two initial orders with Thales Alenia Space France for the development and implementation of security-relevant elements within the Galileo Ground Segment.

Galileo contract

03/01/2019

5

4.4

SCISYS Deutschland has been awarded a contract with GMV in Spain for the continuation and further enhancement of three elements in the Galileo Ground Control Segment (GCS).

ESA-ESOC ground station

10/01/2019

2.8

2.4

SCISYS Deutschland has been awarded a contract with ESA-ESOC for Monitoring & Control (M&C) system tailoring services for the ESA Tracking Network (ESTRACK).

EGNOS V3

16/01/2019

1.32

1.1

Contract with AIRBUS Defence and Space for development, integration, verification and maintenance of the EGNOS V3 Performance Assessment Facility (PAF).

Totals

23.3

22.7

Source: Company announcements

Management board appointment

In December, SCISYS appointed Natasha Laird as legal director. Ms Laird has been general counsel since 2014 and company secretary since September 2016. She was instrumental in the process of redomiciling the parent company in Ireland last year. SCISYS now has four full time executive directors – Klaus Heidrich, CEO, Chris Cheetham, FD, Steve Brignall, technical director and Natasha Laird, legal director.


Exhibit 2: Financial summary

£'000s

2015

2016

2017

2018e

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

36,106

45,744

57,164

56,012

60,125

61,940

Cost of Sales

0

0

0

0

0

0

Gross Profit

36,106

45,744

57,164

56,012

60,125

61,940

EBITDA

 

 

1,548

3,995

5,619

6,160

6,689

6,984

Adjusted operating profit

 

 

818

3,214

4,520

4,983

5,472

5,761

Amort'n of acq'd intangibles

0

0

(1,982)

(1,250)

(1,200)

(1,150)

Exceptionals

0

(458)

2,075

(750)

0

0

Share based payments

(11)

14

0

(45)

(50)

(55)

Operating Profit

807

2,770

4,613

2,938

4,222

4,556

Net Interest

(196)

(185)

(710)

(567)

(450)

(400)

Associates

3

17

39

0

0

0

Profit Before Tax (norm)

 

 

625

3,046

3,849

4,416

5,022

5,361

Profit Before Tax (FRS 3)

 

 

614

2,602

3,942

2,371

3,772

4,156

Tax

(241)

(380)

(593)

(874)

(1,243)

(1,340)

Profit After Tax (norm)

384

2,666

3,256

3,542

3,779

4,021

Profit After Tax (FRS 3)

373

2,222

3,349

1,497

2,529

2,816

Average Number of Shares Outstanding (m)

29.0

29.0

29.2

29.4

29.7

30.0

EPS - normalised (p)

 

 

1.3

9.2

10.0

12.0

12.7

13.4

EPS - FRS 3 (p)

 

 

1.3

7.6

11.5

5.1

8.5

9.4

Dividend per share (p)

1.78

1.96

2.16

2.38

2.62

2.88

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

4.3

8.7

9.8

11.0

11.1

11.3

Operating Margin (%)

2.3

7.0

7.9

8.9

9.1

9.3

BALANCE SHEET

Fixed Assets

 

 

16,553

31,955

30,465

29,159

27,944

26,809

Intangible Assets

7,831

22,441

21,086

19,836

18,636

17,486

Tangible Assets

8,635

9,057

9,261

9,205

9,190

9,205

Deferred tax asset & associates

87

457

118

118

118

118

Current Assets

 

 

17,839

27,895

33,333

31,862

34,916

36,067

Stocks

211

261

321

315

338

348

Debtors

12,299

19,621

24,541

24,045

25,810

26,588

Cash

4,352

6,915

8,021

7,052

8,318

8,681

Current Liabilities

 

 

(12,003)

(18,763)

(23,481)

(23,393)

(24,655)

(24,894)

Creditors

(8,699)

(14,959)

(21,191)

(21,353)

(22,865)

(23,354)

Short term borrowings

(3,304)

(3,804)

(2,290)

(2,040)

(1,790)

(1,540)

Long Term Liabilities

 

 

(2,333)

(18,374)

(14,603)

(11,690)

(10,479)

(8,268)

Long term borrowings

(2,007)

(13,355)

(11,667)

(8,754)

(7,543)

(5,332)

Other long term liabilities

(326)

(5,019)

(2,936)

(2,936)

(2,936)

(2,936)

Net Assets

 

 

20,056

22,713

25,714

25,938

27,726

29,714

CASH FLOW

Operating Cash Flow

 

 

1,570

3,442

10,369

6,081

6,388

6,674

Net Interest

(196)

(185)

(710)

(567)

(450)

(400)

Tax

(583)

(1,250)

147

(930)

(1,283)

(1,405)

Capex

(619)

(663)

(1,255)

(1,120)

(1,202)

(1,239)

Acquisitions/disposals

(889)

(7,521)

82

(617)

0

0

Financing

(14)

15

(131)

0

0

0

Dividends

(340)

(671)

(586)

(652)

(725)

(806)

Net Cash Flow

(1,071)

(6,833)

7,916

2,194

2,728

2,824

Opening net debt/(cash)

 

 

(328)

959

10,244

5,936

3,742

1,015

Other including foreign exchange

(216)

(2,452)

(3,608)

0

0

0

Closing net debt/(cash)

 

 

959

10,244

5,936

3,742

1,015

(1,809)

Source: Company data, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by SCISYS Group and prepared and issued by Edison, in consideration of a fee payable by SCISYS Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by SCISYS Group and prepared and issued by Edison, in consideration of a fee payable by SCISYS Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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