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Broad-based strong profit growth

Tinexta 21 May 2019 Update
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Tinexta

Broad-based strong profit growth

Q119 results

Professional services

16 May 2019

Price

€12.40

Market cap

€578m

Net debt (€m) at 31 March 2019

132

Shares in issue

46.9m

Free float

34%

Code

TNXT

Primary exchange

Borsa Italiana STAR

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

15.8

46.7

92.9

Rel (local)

23.9

45.7

120.5

52-week high/low

€12.00

€5.35

Business description

Tinexta has three business divisions: Digital Trust – solutions to improve digital security; Credit Information & Management – information services to help manage corporate credit; and Innovation & Marketing Services – consulting services to help clients develop and/or grow their businesses.

Next events

Interim results

1 August 2019

Q3 results

14 November 2019

Analysts

Russell Pointon

+44 (0)20 3077 5757

Fiona Orford-Williams

+44 (0)20 3077 5739

Tinexta is a research client of Edison Investment Research Limited

Tinexta reported strong Q119 results, with c 10% organic revenue growth, c 32% organic EBITDA growth, 50% EPS growth and improving free cash flow (FCF) generation. All divisions contributed to profit growth and the acquisitions made in FY18 are performing well. Management has reiterated guidance for FY19, which appears conservative even though Q1 is a seasonally less important quarter. We maintain our forecasts for now but will review them later in the year.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/17

174.8

30.5

0.46

0.14

27.0

1.1

12/18

238.7

48.6

0.74

0.23

16.8

1.9

12/19e

256.5

52.6

0.78

0.26

15.9

2.1

12/20e

272.9

57.4

0.85

0.28

14.6

2.3

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

Strong Q119 results

Tinexta has reported strong Q119 results, with c 10% organic revenue growth, 32% organic EBITDA growth and 50% EPS growth. M&A added a further c 6% to revenue and EBITDA. Revenue growth and margins were driven by the two most important divisions: Digital Trust and Innovation & Marketing Services, 35% and 34% of group EBITDA before central costs, respectively. Digital Trust’s organic revenue and EBITDA growth was 9.5% and 10.1% respectively, and Innovation & Marketing Services was 32.9% and 98.3% respectively. Despite reporting a three percent decline in organic revenue, successful cost management by Credit Information and Management resulted in organic EBITDA growth of 15.6%.

Management’s FY19 guidance looks conservative

Management has reiterated FY19 guidance for revenue of greater than €250m (+4%) and EBITDA of €68–70m (at least c 3% growth). Our forecasts, with revenue ahead of guidance and EBITDA roughly in line, remain essentially unchanged for now. However given that Q1 revenue growth rates in Digital Trust and Innovation & Marketing Services were ahead of our FY19 estimates we see scope to revisit these later in the year. The adoption of IFRS 16 could, we estimate, add €3–4m to EBITDA, although management has yet to issue firm guidance on this.

Valuation: Scope for expansion

Pre the adoption of IFRS 16, Tinexta’s EV/EBITDA multiples of 9.9x for FY19e and 9.2x for FY20e look low versus peers given our possibly conservative forecast of c 6% average organic growth for EBITDA in FY19–21. The FCF yield is 6% in FY19. Our discounted cash flow (DCF) valuation remains at €14.2 per share.

Q119: Broad-based EBITDA growth

Group overview

Q119 results were strong, with organic revenue growth of 10.2%, organic EBITDA growth of 31.7% and EPS growth of 50%. Organic revenue growth was better than expected in Digital Trust and Innovation & Marketing Services. The reported group EBITDA margin increased from 19.8% in Q118 to 22.8% in Q119, before the adoption of IFRS 16, which added a further 1.4% to give a total of 24.2%. Management is yet to issue guidance on the impact of the adoption of IFRS 16 for FY19, but we estimate that this could add €3–4m to our forecast 2019 EBITDA of €70m. Free cash flow generation was strong, with growth of 67.8%, driven by the EBITDA margin improvement above and working capital.

Digital Trust (42% of revenue and 35% of EBITDA)

In what is typically a lower growth quarter for the business unit, Digital Trust reported 9.5% organic revenue growth, ahead of our forecast 9% for FY19. This compares with growth rates of 5.9% in Q117 and 3.1% in Q118. The quarter benefited from unexpected strength in certified electronic mail, as well as the expected and continued strong growth in Enterprise Solutions. Looking forward, management is confident of continuing to report high single-digit/low double-digit organic revenue growth, which, per management, could fluctuate between 8% and 12% on a quarterly basis. The underlying clean EBITDA margin, before the adoption of IFRS 16, fell slightly from 22.5% in Q118 to 22.2% in Q119, but this just reflects a seasonally less important quarter and includes upfront costs at the start of new contracts; we believe margin progression should resume through the year.

Credit Information & Management (32% of revenue and 31% of EBITDA)

Having returned to organic growth in FY18 (2.3%), after declines in FY16 (-3%) and FY17 (-6%), Credit Information & Management reported a decline in organic revenue in Q119 of 3.1%. This reflects tougher conditions, with competitive pricing pressure in the core credit information business, Innolva, and lower growth (c 2–3%) in the real estate valuation business, ReValuta, which had a strong FY18. Acquisitions made in FY18 added 8% to revenue growth. To counter the revenue declines, management continues to control costs well, such that clean EBITDA margin increased from 22.1% in Q118 to 26.3% in Q119, before the adoption of IFRS16, which added one percentage point to the business unit’s margin. At this stage, our FY19 forecast for organic revenue growth of 3% appears high, but the FY18 acquisitions are performing better than expected and management’s EBITDA margin target for FY19 of 23–24% is ahead of our 22.3%. Therefore, net-net there is no need to materially change the absolute forecasts. Comfort is provided by the fact that in Q119 the business unit has booked c 30% of our FY19 EBITDA forecast compared to c 26% of FY18 reported EBITDA in Q118.

Innovation & Marketing Services (25% of revenue and 34% of clean EBITDA)

Innovation & Marketing Services’ organic revenue increased by 32.9% in Q119 (+43.8% Q418). Growth was entirely driven by Warrant Hub, the innovation consultancy where demand continues to outstrip the company’s capacity. Co.Mark, the export consultancy, is described as ‘stable’, as the new CEO formulates a new strategy for the business. We expect growth to moderate through FY19 given the capacity constraints at Warrant Hub. We continue to forecast 3% organic revenue growth in FY19.

Exhibit 1: Financial summary

€'000s

2017

2018

2019e

2020e

2021e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

174,790

238,701

256,470

272,913

290,650

Cost of Sales

0

0

0

0

0

Gross Profit

174,790

238,701

256,470

272,913

290,650

EBITDA

 

 

40,630

65,959

70,224

75,490

81,137

Normalised operating profit

 

 

28,959

50,999

54,588

59,311

64,353

Amortisation of acquired intangibles

(1,861)

(2,849)

0

0

0

Exceptionals

0

0

0

0

0

Share-based payments

0

0

0

0

0

Reported operating profit

27,098

48,150

54,588

59,311

64,353

Net Interest

1,523

(2,520)

(2,737)

(2,802)

(2,577)

Joint ventures & associates (post tax)

4

106

770

847

1,016

Exceptionals

0

0

0

0

0

Profit Before Tax (norm)

 

 

30,486

48,585

52,621

57,356

62,792

Profit Before Tax (reported)

 

 

28,625

45,736

52,621

57,356

62,792

Reported tax

(8,420)

(12,629)

(15,260)

(16,633)

(18,210)

Profit After Tax (norm)

21,519

35,169

37,361

40,723

44,582

Profit After Tax (reported)

20,205

33,107

37,361

40,723

44,582

Minority interests

(78)

(588)

(664)

(723)

(792)

Discontinued operations

0

0

0

0

0

Net income (normalised)

21,441

34,581

36,697

40,000

43,792

Net income (reported)

20,127

32,519

36,697

39,999

43,790

Basic average number of shares outstanding (m)

46

47

47

47

47

EPS - basic normalised (€)

 

 

0.46

0.74

0.78

0.85

0.93

EPS - diluted normalised (€)

 

 

0.46

0.74

0.78

0.85

0.93

EPS - basic reported (€)

 

 

0.43

0.70

0.78

0.85

0.93

Dividend (€)

0.14

0.23

0.26

0.28

0.30

Revenue growth (%)

19.0

36.6

7.4

6.4

6.5

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

23.2

27.6

27.4

27.7

27.9

Normalised Operating Margin

16.6

21.4

21.3

21.7

22.1

BALANCE SHEET

Fixed Assets

 

 

275,773

305,579

302,943

298,765

292,981

Intangible Assets

260,630

270,536

267,899

263,721

257,937

Tangible Assets

8,287

8,232

8,233

8,233

8,233

Investments & other

6,856

26,811

26,811

26,811

26,811

Current Assets

 

 

125,844

143,406

176,600

212,893

253,849

Stocks

2,072

1,344

1,444

1,537

1,637

Debtors

80,285

86,321

92,747

98,693

105,107

Cash & cash equivalents

36,987

35,136

61,805

92,059

126,500

Other financial assets

4,311

8,186

8,186

8,186

8,186

Other

2,189

12,419

12,419

12,419

12,419

Current Liabilities

 

 

(102,868)

(194,356)

(198,221)

(201,652)

(205,365)

Creditors

(47,725)

(93,905)

(97,770)

(101,201)

(104,914)

Tax and social security

(6,125)

(704)

(704)

(704)

(704)

Short term borrowings

(21,723)

(97,380)

(97,380)

(97,380)

(97,380)

Other

(27,295)

(2,367)

(2,367)

(2,367)

(2,367)

Long Term Liabilities

 

 

(155,535)

(109,085)

(109,085)

(109,085)

(109,085)

Long term borrowings

(123,800)

(70,667)

(70,667)

(70,667)

(70,667)

Other long term liabilities

(31,735)

(38,418)

(38,418)

(38,418)

(38,418)

Net Assets

 

 

143,214

145,544

172,238

200,921

232,380

Minority interests

537

3,757

4,421

5,144

5,936

Shareholders' equity

 

 

143,751

149,301

176,658

206,064

238,315

CASH FLOW

Net operating cash flow

 

 

32,151

43,405

53,073

57,097

61,142

Capex

(6,486)

(13,095)

(13,000)

(12,000)

(11,000)

Acquisitions/disposals

(61,072)

(33,182)

0

0

0

Net interest

(1,526)

(1,441)

(2,737)

(2,802)

(2,577)

Equity financing

1,078

1,080

0

0

0

Dividends

(6,977)

(12,067)

(10,669)

(12,040)

(13,123)

Other

4,219

(3,866)

0

0

0

Net Cash Flow

(38,613)

(19,166)

26,667

30,254

34,441

Opening net debt/(cash)

 

 

71,003

104,225

124,726

98,059

67,805

FX

0

0

0

0

0

Other non-cash movements

5,391

(1,335)

0

0

0

Closing net debt/(cash)

 

 

104,225

124,726

98,059

67,805

33,364

Source: Company accounts, Edison Investment Research

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This report has been commissioned by Tinexta and prepared and issued by Edison, in consideration of a fee payable by Tinexta. 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.

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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.

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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

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London +44 (0)20 3077 5700

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New York +1 646 653 7026

1,185 Avenue of the Americas

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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 Tinexta and prepared and issued by Edison, in consideration of a fee payable by Tinexta. 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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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