Broadly in line as new CEO starts in mid-February

Brady 29 January 2019 Update
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Brady

Broadly in line as new CEO starts in mid-February

Trading update

Software & comp services

29 January 2019

Price

63.5p

Market cap

£54m

Net cash (£m) at 31 December 2018

4.6

Shares in issue

83.4m

Free float

68%

Code

BRY

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.6)

(2.7)

8.6

Rel (local)

(2.7)

(0.6)

22.8

52-week high/low

68.2p

55.8p

Business description

Brady is the largest Europe-based E/CTRM player. It provides a range of transaction and risk management software applications, which help producers, consumers, financial institutions and trading companies manage their commodity transactions in a single, integrated solution.

Next events

Final FY18 results

March 2019

AGM

May 2019

Interim results

September 2019

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Brady is a research client of Edison Investment Research Limited

FY18 numbers were broadly in line with expectations and we have maintained our forecasts. Management remains confident on the outlook as the group stands to benefit from the streamlining and investment of the last few years. In December, Brady appointed Carmen Carey, currently a Brady non-executive director, as its new CEO. An initial priority for the new CEO will be developing the new sales strategy. The market opportunity is substantial, and we believe Brady is well positioned to benefit from the significant sector consolidation.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17**

22.3

(2.9)

(5.6)

0.0

N/A

N/A

12/18e

23.7

0.3

0.3

0.0

198.5

N/A

12/19e

24.9

1.3

1.2

0.0

53.1

N/A

12/20e

26.3

2.1

1.9

1.0

33.4

1.6

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Excludes recycling business and restated for IFRS 15.

Investment case: E/CTRM is a highly attractive space

Brady has more than 300 customers, including many blue-chip names that cover a wide range of commodity businesses such as trading companies, financial institutions, producers and manufacturers. The global E/CTRM market was worth c $1.65bn in 2016 (ComTech Advisory) and is forecast to grow at c 6% CAGR in 2016–20. Brady has a strong position in niche areas including commodity logistics, credit risk, metals (number one globally) and European energy, yet has a relatively modest market penetration overall (we estimate 1.2%). Recurring revenues were c 70% of the FY18 group total, which is in line with the 70% medium-term target.

Trading update: Broadly in line

FY18 revenues were c £23m (we forecast £23.7m), while adjusted EBITDA (Brady definition) was in line with our forecasts at £2.6m. Year-end cash was slightly below expectations at £4.6m (£5.1m) as two projects were invoiced later than expected in the final days of 2018. Brady says it continued to make significant progress in delivering on its strategy, including several customer-focused projects.

Appointment of new CEO

In December, Brady appointed Carmen Carey as its new CEO, with effect from 18 February. As part of this process, Ian Jenks will step back from his role as executive chairman to non-executive chairman. Ms Carey joined the Brady board as a non-executive director in March 2017. She is an IT industry veteran with a strong sales focus, whose career has encompassed leadership roles as an executive in fast-growing, global, VC-backed and publicly traded technology companies.

Valuation: Well positioned in a consolidating sector

While we only forecast modest near-term profitability, the long-term shift to microservices and cloud will enable much improved scalability of the business model. If Brady could take a 5% market share and generate 20% operating margins, it would suggest c 400% upside if the stock traded on c 10x earnings.

Exhibit 1: Financial summary

£'000s

2015

2016

2017

2018e

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

27,374

25,373

22,275

23,724

24,917

26,334

Cost of Sales

(10,867)

(9,804)

(10,119)

(9,472)

(9,728)

(10,105)

Gross Profit

16,507

15,569

12,156

14,252

15,189

16,228

EBITDA

 

 

1,506

1,910

(2,581)

694

1,606

2,444

Adjusted Operating Profit

 

 

924

1,290

(2,879)

344

1,256

2,051

Amortisation of acquired intangibles

(1,640)

(1,618)

(1,559)

(1,270)

(1,270)

(1,270)

Exceptionals items

(469)

(1,250)

(4,363)

0

0

0

Share based payments

(243)

(90)

(11)

(150)

(400)

(500)

Operating Profit

(1,428)

(1,668)

(8,812)

(1,076)

(414)

281

Net Interest

31

3

(22)

(10)

30

60

Profit Before Tax (norm)

 

 

955

1,293

(2,901)

334

1,286

2,111

Profit Before Tax (FRS 3)

 

 

(1,397)

(1,665)

(8,834)

(1,086)

(384)

341

Tax

(329)

(188)

102

(67)

(283)

(507)

Profit After Tax (norm)

813

1,992

(4,656)

267

1,003

1,605

Profit After Tax (FRS 3)

(1,726)

(1,853)

(8,732)

(1,153)

(667)

(165)

Average Number of Shares Outstanding (m)

82.7

83.0

83.3

83.6

84.0

84.4

EPS – normalised (p)

 

 

1.0

2.4

(5.6)

0.3

1.2

1.9

EPS – FRS 3 (p)

 

 

(2.1)

(2.2)

(10.5)

(1.4)

(0.8)

(0.2)

Dividend per share (p)

0.00

0.00

0.00

0.00

0.00

1.00

EBITDA Margin (%)

5.5

7.5

(11.6)

2.9

6.4

9.3

Adjusted Operating Margin (%)

3.4

5.1

(12.9)

1.5

5.0

7.8

BALANCE SHEET

Fixed Assets

 

 

31,461

37,035

26,578

21,793

20,687

19,264

Intangible Assets

29,831

35,999

26,091

21,253

20,036

18,479

Tangible Assets

1,147

978

487

540

651

785

Deferred tax

483

58

0

0

0

0

Current Assets

 

 

13,633

14,640

13,340

10,194

12,125

14,098

Stocks

0

0

0

0

0

0

Debtors

7,039

7,297

4,787

5,098

5,355

5,659

Cash

6,594

7,343

4,089

5,095

6,770

8,439

Current Liabilities

 

 

(10,804)

(12,669)

(13,483)

(13,731)

(13,893)

(14,110)

Creditors

(10,804)

(12,669)

(13,483)

(13,731)

(13,893)

(14,110)

Short-term borrowings

0

0

0

0

0

0

Long-Term Liabilities

 

 

(4,814)

(5,670)

(4,593)

(4,593)

(4,593)

(4,593)

Long-term borrowings

0

0

0

0

0

0

Other long-term liabilities

(4,814)

(5,670)

(4,593)

(4,593)

(4,593)

(4,593)

Net Assets

 

 

29,476

33,336

21,842

13,663

14,327

14,659

CASH FLOW

Operating Cash Flow

 

 

2,363

2,737

(316)

2,376

3,671

4,590

Net Interest

31

3

(22)

(10)

30

60

Tax

(416)

(428)

247

(760)

(257)

(465)

Capex

(2,591)

(2,167)

(2,806)

(3,535)

(2,703)

(2,517)

Acquisitions/disposals

(1,186)

(326)

0

2,936

934

0

Financing

469

47

190

0

0

0

Dividends

(1,524)

0

0

0

0

0

Net Cash Flow

(2,854)

(134)

(2,707)

1,006

1,675

1,668

Opening net debt/(cash)

 

 

(9,580)

(6,594)

(7,343)

(4,089)

(5,095)

(6,770)

Disposal

0

0

(265)

0

0

0

Other

(132)

883

(282)

()

()

()

Closing net debt/(cash)

 

 

(6,594)

(7,343)

(4,089)

(5,095)

(6,770)

(8,439)

Source: Brady (historicals), Edison Investment Research (forecasts). Note: IFRS 15 has been applied from FY17. FY17 excludes the recycling business.

General disclaimer and copyright

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

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

General disclaimer and copyright

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

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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