Activity in FY16 remains buoyant

SNP Schneider-Neureither 7 April 2016 Update

SNP Schneider-Neureither & Partner

Activity in FY16 remains buoyant

Annual report

Software & comp services

 

7 April 2016

Price

€30.81

Market cap

€115m

Net debt as at 31 December 2015 (€m)

1.2

Shares in issue

3.7m

Free float

55%

Code

SHF

Primary exchange

Frankfurt (Xetra)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.2

24.5

116.2

Rel (local)

3.3

32.2

168.9

52-week high/low

€33.5

€13.1

Business description

SNP Schneider-Neureither & Partner (SNP) is a software and consulting business focused on supporting customers in implementing change, and rapidly and economically tailoring IT landscapes to new situations. It has developed a proprietary software product called SNP Transformation Backbone with SAP Landscape Transformation Software (T-B).

Next events

Q1 results

29 April

AGM

12 May

H1 results

29 July

Analysts

Richard Jeans

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

SNP Schneider Neureither is a research client of Edison Investment Research Limited

Activity remains brisk at SNP, with utilisation rates very high, as the company continues to benefit from favourable structural growth drivers, the partnership with SAP, along with its elevated profile in wake of the landmark Hewlett-Packard deal of 2015. SNP has been winning new business with household names in the US including Kellogg’s. The outlook is supported by the group’s broadening global infrastructure following recent acquisitions, along with two training schemes in the US and Germany which represent an important part of the next growth phase. Given the buoyant backdrop, we continue to believe the shares look attractive trading on c 18x our edged-up FY17 earnings.

Year end

Revenue (€m)

PBT* (€m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

12/14

30.5

(0.1)

(13.9)

13.0

N/A

0.4

12/15

56.2

3.4

58.8

34.0

52.4

1.1

12/16e

75.2

6.9

124.1

40.0

24.8

1.3

12/17e

88.4

9.6

173.2

50.0

17.8

1.6

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Final results: Investing for growth

FY15 numbers were broadly in line with the provisional results, announced in late January. Revenues jumped 84.5% to €56.2m, including €8.8m from RSP, acquired in early 2015, and 56% organic growth. The operating margin dipped in Q4, largely due to the establishment of a training programme in the US, which, along with costs associated with the recent acquisitions, are expected to hold down the near-term operating margin by 300-400bp. Nevertheless, we still expect margins to trend higher over the medium term. The training programmes in the US and Germany are each expected to produce around 40 new fully trained IT consultants in 2016, which is expected to lift total headcount from c 600 now towards 700 at the end of the year. The dividend was lifted by more than we had expected to 34c. The business themes differ markedly in North America and Europe – SNP is helping its US customers shift their IT systems to the cloud while in Europe, customers are primarily focused on switching their ERP systems to S/4HANA.

Forecasts: FY17 edged up, FY18 introduced

SNP is maintaining its FY16 revenue guidance of €72-78m, and is introducing EBIT margin guidance of 8-10%. These margins are after the costs associated with the training schemes and acquisition transaction costs. We have broadly maintained our FY16 forecasts, while edging up FY17 revenues and profits. Our year-end cash targets fall back due to lower-than-expected FY15 operating cash flow, mainly due to a €2m reduction in creditors, relating to a one off payment for licences.

Valuation: Strong growth play in the ERP space

The stock trades on c 25x our FY16e EPS, falling to c 18x in FY17e and to c 14x in FY18e. We believe the ratings continue to look attractive given the forecast strong growth and continued margin recovery potential.

Quarterly analysis and forecasts

Quarterly revenues were all substantially ahead of the prior corresponding periods in FY14. FY15 bookings were €59.2m, giving a book-to-bill ratio of 1.05x, while in Q4 bookings were €12.9m. The group ended the year with a backlog of €20.2m. This backlog, along with revenues from the recent acquisitions of Astrums and Hartung in Asia, and the pipeline help to underpin our FY16 forecasts.

Exhibit 1: Quarterly analysis

2014

2014

2014

2014

2014

2015

2015

2015

2015

2015

€'000

Q1

Q2

Q3

Q4

FY

Q1

Q2

Q3

Q4

FY

Professional services

5,516

6,061

5,393

5,772

22,742

9,495

12,909

12,200

12,264

46,868

Licences

2,101

1,129

1,263

1,908

6,401

1,820

1,406

1,957

2,254

7,437

Maintenance

385

323

298

330

1,336

863

368

350

350

1,931

Total revenue

8,002

7,513

6,954

8,010

30,480

12,178

14,683

14,507

14,868

56,236

Op costs (before depn)

(7,092)

(7,467)

(7,387)

(7,672)

(29,618)

(10,915)

(13,268)

(12,880)

(13,689)

(50,752)

Adjusted EBITDA

910

46

(433)

338

862

1,263

1,415

1,627

1,179

5,484

Depreciation

(205)

(211)

(200)

(312)

(928)

(249)

(334)

(280)

(399)

(1,262)

Adjusted operating profit

705

(165)

(633)

27

(66)

1,014

1,081

1,347

780

4,222

Operating Margin

8.8%

(2.2%)

(6.8%)

17.4%

(0.2%)

8.3%

7.4%

9.3%

5.2%

7.5%

Net interest

(22)

(14)

(17)

(13)

(66)

(109)

(204)

(271)

(244)

(828)

Edison PBT (norm)

683

(179)

(650)

14

(132)

905

877

1,076

536

3,394

Associates

0

0

0

0

0

0

0

0

(3)

(3)

Earnout adjustments*

0

0

700

805

1,505

0

0

356

0

356

Profit before tax (FRS 3)

683

(179)

50

819

1,373

905

877

1,432

533

3,747

Source: SNP

We have broadly maintained our FY16 forecasts, edged up FY17 forecasts, and introduced FY18. We forecast group revenues to rise 34% in FY16 to €75.2m (middle of company guidance), which includes the two Asian acquisitions. We forecast revenues to increase by 18% in FY17 to €88.4m (previously €85.9m) and then by 13% in FY18 to €100.0m. Our FY16 EPS is steady at 124c, while FY17 EPS rises by 4% to 173c. We forecast operating margins to continue to firm as the business gains scale and further develops its software offerings.

Exhibit 2: Forecasts

(€'000s)

2013

2014

2015

2016e

2017e

2018e

Revenue

 

 

 

 

 

 

Professional services

18,696

22,742

46,868

64,316

76,019

86,442

Software licences

4,036

6,401

7,437

8,062

8,868

9,755

Software maintenance

804

1,336

1,931

2,800

3,500

3,850

Total software

4,840

7,737

9,368

10,862

12,368

13,605

Group revenue

23,536

30,480

56,236

75,179

88,387

100,047

Growth (%)

(13.3)

29.5

84.5

33.7

17.6

13.2

Professional services contribution

(1,160)

1,162

4,936

6,432

7,982

9,725

Software contribution

580

1,787

2,290

4,888

6,184

7,483

Non-segment-related expenses

(2,339)

(3,585)

(3,272)

(4,275)

(4,506)

(4,725)

Other operating income & other taxes

205

570

268

680

716

751

Adjusted operating profit

(2,714)

(66)

4,222

7,724

10,377

13,234

Operating profit margin (%)

(11.5)

(0.2)

7.5

10.3

11.7

13.2

Net interest

(85)

(66)

(828)

(775)

(775)

(775)

Profit before tax norm

(2,799)

(132)

3,394

6,949

9,602

12,459

Associates

0

0

(3)

0

0

0

Exceptional items

0

1,505

356

0

0

0

Profit before tax

(2,799)

1,373

3,747

6,949

9,602

12,459

Taxation

477

(344)

(1,195)

(2,085)

(2,880)

(3,738)

Non-controlling interests

(84)

(40)

0

(225)

(248)

(267)

FRS 3 net income

(2,405)

988

2,552

4,639

6,474

8,454

Adjusted EPS (c)

(64.7)

(13.9)

58.8

124.1

173.2

226.2

P/E - Adjusted EPS

N/A

N/A

52.4

24.8

17.8

13.6

Source: SNP (historicals), Edison Investment Research (forecasts)

 

Exhibit 3: Financial summary

€'000s

2013

2014

2015

2016e

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

23,536

30,480

56,236

75,179

88,387

100,047

Cost of sales

0

0

0

0

0

0

Gross Profit

23,536

30,480

56,236

75,179

88,387

100,047

EBITDA

 

 

(1,972)

862

5,484

9,077

11,804

14,917

Adjusted Operating Profit

 

 

(2,714)

(66)

4,222

7,724

10,377

13,234

Amortisation of acquired intangibles

0

0

0

0

0

0

Exceptionals

0

1,505

356

0

0

0

Associates

0

0

(3)

0

0

0

Operating Profit

(2,714)

1,439

4,575

7,724

10,377

13,234

Net Interest

(85)

(66)

(828)

(775)

(775)

(775)

Profit Before Tax (norm)

 

 

(2,799)

(132)

3,394

6,949

9,602

12,459

Profit Before Tax (FRS 3)

 

 

(2,799)

1,373

3,747

6,949

9,602

12,459

Tax

477

(344)

(1,195)

(2,085)

(2,880)

(3,738)

Profit After Tax (norm)

(2,322)

(477)

2,198

4,864

6,721

8,721

Profit After Tax (FRS 3)

(2,322)

1,028

2,552

4,864

6,721

8,721

Minority interest

(84)

(40)

0

(225)

(248)

(267)

Adjustments for normalised earnings

0

0

0

0

0

0

Net income (norm)

(2,405)

(517)

2,198

4,639

6,474

8,454

Net income (FRS 3)

(2,405)

988

2,552

4,639

6,474

8,454

Average No of Shares Outstanding (m)

3.7

3.7

3.7

3.7

3.7

3.7

EPS - normalised (c)

 

 

(64.7)

(13.9)

58.8

124.1

173.2

226.2

EPS - normalised & fully diluted (c)

 

 

(64.7)

(13.9)

58.8

124.1

173.2

226.2

EPS - FRS 3 (c)

 

 

(64.7)

26.6

68.3

124.1

173.2

226.2

Dividend per share (c)

8.00

13.00

34.00

40.00

50.00

60.00

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

-8.4

2.8

9.8

12.1

13.4

14.9

Adjusted Operating Margin (%)

-11.5

-0.2

7.5

10.3

11.7

13.2

BALANCE SHEET

Fixed Assets

 

 

7,759

8,291

15,243

25,394

25,734

26,052

Intangible Assets

5,194

5,190

11,675

21,675

21,675

21,675

Tangible Assets

1,070

1,231

1,999

2,149

2,489

2,807

Other

1,496

1,871

1,570

1,570

1,570

1,570

Current Assets

 

 

16,145

17,882

29,996

33,120

41,534

46,652

Stocks

0

0

0

0

0

0

Debtors

9,105

11,286

16,084

21,502

25,280

28,615

Cash

6,355

5,681

13,769

11,475

16,111

17,895

Current Liabilities

 

 

(5,804)

(9,782)

(13,703)

(18,925)

(22,387)

(25,333)

Creditors

(5,204)

(9,182)

(11,101)

(16,323)

(19,785)

(22,731)

Short term borrowings

(600)

(600)

(2,602)

(2,602)

(2,602)

(2,602)

Long Term Liabilities

 

 

(4,338)

(2,501)

(15,513)

(20,013)

(20,013)

(15,513)

Long term borrowings

(2,250)

(1,650)

(12,344)

(12,344)

(12,344)

(12,344)

Other long term liabilities

(2,088)

(851)

(3,169)

(7,669)

(7,669)

(3,169)

Net Assets

 

 

13,762

13,890

16,024

19,576

24,868

31,858

CASH FLOW

Operating Cash Flow

 

 

(2,110)

2,579

1,879

8,701

11,362

14,417

Net Interest

4

(66)

(167)

(775)

(775)

(775)

Tax

(1,062)

(1,102)

(554)

(1,946)

(2,688)

(3,488)

Capex

(230)

(701)

(1,779)

(1,504)

(1,768)

(2,001)

Acquisitions/disposals

(2,267)

(500)

(3,228)

(5,500)

0

(4,500)

Shares issued

(35)

0

0

0

0

0

Dividends

(937)

(335)

(483)

(1,271)

(1,495)

(1,869)

Net Cash Flow

(6,638)

(124)

(4,332)

(2,294)

4,636

1,784

Opening net debt/(cash)

 

 

(10,152)

(3,505)

(3,431)

1,176

3,470

(1,166)

HP finance leases initiated

0

0

0

0

0

0

Other

(10)

51

(275)

0

0

()

Closing net debt/(cash)

 

 

(3,505)

(3,431)

1,176

3,470

(1,166)

(2,949)

Source: Company accounts, Edison Investment Research

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