In an in-line update, SCISYS says it has made a positive start to FY19, with all divisions continuing to expand. Consequently, we are maintaining our forecasts. Management expects FY19 performance to revert to the traditional pattern of a significantly stronger H2 after the more balanced profile in FY18. Noting management’s new goal to achieve revenue of £75m and operating profit of £7.0m by the end of FY22, we believe the stock is attractive on c 14x our FY20e EPS.
Written by
SCISYS Group |
Confident, in line, on record opening order book |
AGM trading update |
Software & comp services |
7 June 2019 |
Share price performance
Business description
Next events
Analysts
SCISYS Group is a research client of Edison Investment Research Limited |
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In an in-line update, SCISYS says it has made a positive start to FY19, with all divisions continuing to expand. Consequently, we are maintaining our forecasts. Management expects FY19 performance to revert to the traditional pattern of a significantly stronger H2 after the more balanced profile in FY18. Noting management’s new goal to achieve revenue of £75m and operating profit of £7.0m by the end of FY22, we believe the stock is attractive on c 14x our FY20e EPS.
Year |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
53.2 |
3.6 |
9.3 |
2.16 |
20.8 |
1.1 |
12/18 |
58.4 |
4.6 |
13.1 |
2.38 |
14.8 |
1.2 |
12/19e |
61.5 |
5.0 |
12.7 |
2.62 |
15.3 |
1.4 |
12/20e |
63.5 |
5.4 |
13.4 |
2.88 |
14.4 |
1.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. IFRS 15 is applied from 1 January 2017.
Trading update: All divisions expanding
The Space division secured an additional €9.7m contract in April, taking the total Space contracts to €33.0m since mid-December. Media & Broadcast and Annova Systems now operate under a single management team as the SCISYS Media Solutions division and integration activities will continue to run throughout 2019. The Enterprise Solutions & Defence division has extended its support agreements with UK Power Networks to 2020 and Arqiva to 2021, while securing further orders to maintain its provision of onsite consultancy teams to key customers in the commercial and defence/security arenas.
Space division flying
In April, SCISYS announced it is extending its footprint in the EU-funded Galileo satellite navigation programme with a €9.7m order from Thales Alenia Space France. The latest order comes on top of the €23.3m of orders secured by the Space division in December and January and highlights the importance of the re-domiciliation to Ireland late last year, as five deals worth €30.2m (£26.7m) in aggregate would not have been awarded to SCISYS had it remained domiciled in the UK, even though Brexit has not yet been formalised.
Valuation: £100m order book underpins forecasts
The stock trades on 15.3x our maintained earnings in FY19e, falling to 14.4x in FY20 and 13.7x in FY21. Alternatively, the stock trades on 0.94x our FY20 sales and 8.5x 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 3.7% over 10 years, a weighted average cost of capital of 10% and an 11.0% long-term margin target, values the stock at 194p (vs 187p previously, mainly due to rolling the model forward), in line with the current share price. A 1% reduction in the WACC to 9% increases the valuation to 224p. In our view, the 3.7% revenue CAGR is potentially conservative given that revenue growth was 9.8% in FY18 and that we forecast 5.3% in FY19.
Exhibit 1: Financial summary
£'000s |
2016 |
2017 |
2018 |
2019e |
2020e |
2021e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
45,744 |
53,204 |
58,405 |
61,525 |
63,477 |
65,125 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
45,744 |
53,204 |
58,405 |
61,525 |
63,477 |
65,125 |
||
EBITDA |
|
|
3,995 |
5,417 |
6,460 |
6,718 |
7,015 |
7,289 |
Adjusted operating profit |
|
|
3,214 |
4,318 |
5,118 |
5,472 |
5,761 |
6,052 |
Amort'n of acq'd intangibles |
0 |
(1,982) |
(1,252) |
(1,200) |
(1,150) |
(1,150) |
||
Exceptionals |
(458) |
2,075 |
(1,337) |
0 |
0 |
0 |
||
Share based payments |
14 |
0 |
(36) |
(50) |
(55) |
(60) |
||
Operating Profit |
2,770 |
4,411 |
2,493 |
4,222 |
4,556 |
4,842 |
||
Net Interest |
(185) |
(710) |
(499) |
(450) |
(400) |
(350) |
||
Associates |
17 |
39 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
3,046 |
3,647 |
4,619 |
5,022 |
5,361 |
5,702 |
Profit Before Tax (FRS 3) |
|
|
2,602 |
3,740 |
1,994 |
3,772 |
4,156 |
4,492 |
Tax |
(380) |
(593) |
(558) |
(1,243) |
(1,327) |
(1,410) |
||
Profit After Tax (norm) |
2,666 |
3,054 |
4,061 |
3,779 |
4,035 |
4,291 |
||
Profit After Tax (FRS 3) |
2,222 |
3,147 |
1,436 |
2,529 |
2,830 |
3,081 |
||
Average Number of Shares Outstanding (m) |
29.0 |
29.1 |
29.5 |
29.7 |
30.0 |
30.3 |
||
EPS - normalised (p) |
|
|
9.2 |
9.3 |
13.1 |
12.7 |
13.4 |
14.1 |
EPS - FRS 3 (p) |
|
|
7.6 |
10.8 |
4.9 |
8.5 |
9.4 |
10.2 |
Dividend per share (p) |
1.96 |
2.16 |
2.38 |
2.62 |
2.88 |
3.17 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
||
EBITDA Margin (%) |
8.7 |
10.2 |
11.1 |
10.9 |
11.1 |
11.2 |
||
Operating Margin (%) |
7.0 |
8.1 |
8.8 |
8.9 |
9.1 |
9.3 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
31,955 |
30,465 |
30,119 |
28,904 |
27,769 |
26,685 |
Intangible Assets |
22,441 |
21,086 |
20,056 |
18,856 |
17,706 |
16,556 |
||
Tangible Assets |
9,057 |
9,261 |
9,411 |
9,396 |
9,411 |
9,477 |
||
Deferred tax asset & associates |
457 |
118 |
652 |
652 |
652 |
652 |
||
Current Assets |
|
|
27,895 |
27,580 |
29,710 |
32,233 |
33,309 |
34,385 |
Stocks |
261 |
321 |
1,000 |
1,053 |
1,087 |
1,115 |
||
Debtors |
19,621 |
18,788 |
20,545 |
21,642 |
22,329 |
22,909 |
||
Cash |
6,915 |
8,021 |
8,065 |
9,438 |
9,793 |
10,261 |
||
Current Liabilities |
|
|
(18,763) |
(17,998) |
(23,664) |
(24,306) |
(24,490) |
(24,547) |
Creditors |
(14,959) |
(15,708) |
(18,386) |
(19,278) |
(19,712) |
(20,019) |
||
Short term borrowings |
(3,804) |
(2,290) |
(5,278) |
(5,028) |
(4,778) |
(4,528) |
||
Long Term Liabilities |
|
|
(18,374) |
(14,603) |
(9,631) |
(8,420) |
(6,209) |
(3,998) |
Long term borrowings |
(13,355) |
(11,667) |
(5,886) |
(4,675) |
(2,464) |
(253) |
||
Other long term liabilities |
(5,019) |
(2,936) |
(3,745) |
(3,745) |
(3,745) |
(3,745) |
||
Net Assets |
|
|
22,713 |
25,444 |
26,534 |
28,411 |
30,380 |
32,524 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
3,442 |
10,369 |
5,642 |
6,411 |
6,698 |
6,963 |
Net Interest |
(185) |
(710) |
(499) |
(450) |
(400) |
(350) |
||
Tax |
(1,250) |
147 |
(257) |
(1,171) |
(1,405) |
(1,487) |
||
Capex |
(663) |
(1,255) |
(1,429) |
(1,230) |
(1,270) |
(1,302) |
||
Acquisitions/disposals |
(7,521) |
82 |
0 |
0 |
0 |
0 |
||
Financing |
15 |
(131) |
115 |
0 |
0 |
0 |
||
Dividends |
(671) |
(586) |
(655) |
(725) |
(806) |
(895) |
||
Net Cash Flow |
(6,833) |
7,916 |
2,917 |
2,834 |
2,817 |
2,929 |
||
Opening net debt/(cash) |
|
|
959 |
10,244 |
5,936 |
3,099 |
265 |
(2,551) |
Other including foreign exchange |
(2,452) |
(3,608) |
(80) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
10,244 |
5,936 |
3,099 |
265 |
(2,551) |
(5,480) |
Source: Company data, Edison Investment Research. Note: IFRS15 is applied from FY17.
|
|
Research: Consumer
Games Workshop has issued a closing update confirming FY19 revenue of c £254m and pre-tax profits of not less than £80m, in line with our recently upgraded forecasts. Consistent with company policy to distribute surplus cash, dividends totalling £1.55 per share have been paid during the year. The company continues to focus on international multi-channel expansion, customer engagement and product innovation, alongside its openness to exploring ways in which to leverage its rich intellectual property to generate royalty income.