Back on track with a solid H2

SCISYS 28 January 2016 Update

SCISYS

Back on track with a solid H2

Trading update

Software & comp services

28 January 2016

Price

68.5p

Market cap

£20m

Net debt (£m) at 31 December 2015

1.0

Shares in issue

29.0m

Free float

63%

Code

SSY

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.9)

(0.7)

(22.2)

Rel (local)

(0.2)

5.2

(13.5)

52-week high/low

93.5p

58p

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 event

Final results

31 March 2016

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

SCISYS is a research client of Edison Investment Research Limited

SCISYS has released an underlying positive trading update, which shows the difficult H1 is now firmly behind it. H2 trading was encouraging and FY16 guidance has been maintained, supported by a strong order book and healthy pipeline. Cash generation was stronger than we expected with the group ending the year with £1.0m net debt (we forecasted £1.4m). SCISYS has a long-term goal to generate revenues of £60m+ and double-digit margins, although we noted in September that the target for this has slipped back from FY18. Nevertheless, this objective keeps the shares looking attractive trading on c 10x our FY17e earnings.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/13

42.6

3.0

9.3

1.46

7.4

2.1

12/14

40.4

3.2

8.2

1.61

8.3

2.4

12/15e

36.0

0.1

(0.9)

1.70

N/A

2.5

12/16e

38.0

2.3

6.1

1.80

11.2

2.6

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

Trading update: Back on track after difficult H1

SCISYS says that its H2 performance was encouraging and expects underlying FY15 results will “comfortably meet current market guidance”. Additionally, FY16 guidance has been maintained and hence we have held our forecasts. The opening order book has been boosted by a high level of activity in Q4, including two particularly large contracts. In H1, SCISYS revealed the group’s first significant problem project since FY07. This related to cost overruns on a fixed-price development project and was completely resolved by October. Consequently, SCISYS has further tightened its project risk assessment procedures.

The two significant contracts signed In Q4 were a £4m four-year contract to develop, support and host a business/regulatory application for the UK Ministry of Defence and a further contract from Thales Alenia Space France for the system extension and software enhancement in the Galileo Ground Mission Segment. The latter contract is carried out under a programme of the European Union, funded by the EU, and is worth c €5.2m over two years.

Forecasts: Net debt falls, otherwise maintained

We have reduced our end of FY15 net debt forecast by £0.4m to £1.0m on reduced working capital levels, while the end of FY16 position switches by the same amount to £0.1m net cash. All our other forecasts are maintained.

Valuation: c 10x FY17e P/E looks attractive

The stock trades on 0.6x our FY16e revenues and 6.3x EBITDA – attractive given the long-term trend of margin improvements and a strong cash flow discipline. The group retains a strong balance sheet that includes the freehold on the group’s HQ, which was sold in 2007 for £9m and repurchased in 2011 for £5m.

Exhibit 1: Financial summary

£'000s

2012

2013

2014

2015e

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

39,453

42,598

40,359

35,997

38,004

39,860

Cost of Sales

0

0

0

0

0

0

Gross Profit

39,453

42,598

40,359

35,997

38,004

39,860

EBITDA

 

 

3,581

4,179

4,156

1,123

3,360

3,766

Adjusted operating profit

 

 

2,662

3,221

3,361

369

2,502

2,871

Amort'n of acq'd intangibles

(45)

(283)

0

0

0

0

Exceptionals

(328)

(1,191)

(135)

0

0

0

Share based payments

(49)

(35)

(42)

(63)

(75)

(100)

Operating Profit

2,240

1,712

3,184

306

2,427

2,771

Net Interest

(214)

(217)

(177)

(230)

(210)

(190)

Profit Before Tax (norm)

 

 

2,448

3,004

3,184

139

2,292

2,681

Profit Before Tax (FRS 3)

 

 

2,026

1,495

3,007

76

2,217

2,581

Tax

(384)

(153)

(766)

(400)

(466)

(568)

Profit After Tax (norm)

2,064

2,701

2,394

(261)

1,826

2,113

Profit After Tax (FRS 3)

1,642

1,342

2,241

(324)

1,751

2,013

Average Number of Shares Outstanding (m)

29.0

29.0

29.0

29.3

29.9

30.5

EPS - normalised (p)

 

 

7.1

9.3

8.2

(0.9)

6.1

6.9

EPS - FRS 3 (p)

 

 

5.7

4.6

7.7

(1.1)

5.9

6.6

Dividend per share (p)

1.32

1.46

1.61

1.70

1.80

1.90

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

9.1

9.8

10.3

3.1

8.8

9.4

Operating Margin (%)

6.7

7.6

8.3

1.0

6.6

7.2

BALANCE SHEET

Fixed Assets

 

 

16,632

16,164

17,155

18,221

18,199

18,180

Intangible Assets

7,362

7,006

8,233

9,333

9,333

9,333

Tangible Assets

9,252

9,137

8,899

8,865

8,843

8,824

Deferred tax asset

18

21

23

23

23

23

Current Assets

 

 

19,767

19,270

18,886

15,729

17,023

18,393

Stocks

367

344

325

290

306

321

Debtors

11,466

13,829

12,334

11,001

11,614

12,182

Cash

7,463

3,969

5,798

4,009

4,674

5,461

Current Liabilities

 

 

(13,449)

(12,261)

(10,561)

(9,581)

(9,813)

(9,985)

Creditors

(12,129)

(9,508)

(9,686)

(8,956)

(9,438)

(9,860)

Short term borrowings

(1,320)

(2,753)

(875)

(625)

(375)

(125)

Long Term Liabilities

 

 

(5,011)

(4,090)

(5,023)

(5,112)

(4,901)

(4,690)

Long term borrowings

(4,902)

(3,888)

(4,595)

(4,384)

(4,173)

(3,962)

Other long term liabilities

(109)

(202)

(428)

(728)

(728)

(728)

Net Assets

 

 

17,939

19,083

20,457

19,257

20,507

21,898

CASH FLOW

Operating Cash Flow

 

 

5,110

(1,379)

4,774

1,854

3,170

3,567

Net Interest

(214)

(217)

(177)

(230)

(210)

(190)

Tax

(157)

(1,325)

100

(914)

(500)

(413)

Capex

(1,116)

(666)

(618)

(720)

(836)

(877)

Acquisitions/disposals

(1,952)

0

(358)

(830)

0

(300)

Financing

29

(16)

(61)

(20)

0

0

Dividends

(361)

(381)

(435)

(468)

(499)

(539)

Net Cash Flow

1,339

(3,984)

3,225

(1,328)

1,126

1,248

Opening net debt/(cash)

 

 

33

(1,241)

2,672

(328)

1,000

(126)

HP finance leases initiated

0

0

0

0

0

0

Other

(65)

71

(225)

0

0

0

Closing net debt/(cash)

 

 

(1,241)

2,672

(328)

1,000

(126)

(1,374)

Source: SCISYS accounts, Edison Investment Research

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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