Confident, in line, on record opening order book

SCISYS Group 7 June 2019 Update
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SCISYS Group

Confident, in line, on record opening order book

AGM trading update

Software & comp services

7 June 2019

Price

194.00p

Market cap

£57m

Net debt (£m) at 31 December 2018

3.1

Shares in issue

29.6m

Free float

64%

Code

SSY

Primary exchange

AIM

Secondary exchange

ESM

Share price performance

%

1m

3m

12m

Abs

0.5

22.4

14.2

Rel (local)

2.5

21.7

22.2

52-week high/low

213.00p

140.50p

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 events

Interim results

September 2019

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

SCISYS Group is a research client of Edison Investment Research Limited

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
end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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.


General disclaimer and copyright

This report has been commissioned by SCISYS Group and prepared and issued by Edison, in consideration of a fee payable by SCISYS Group. 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 research department of Edison 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

General disclaimer and copyright

This report has been commissioned by SCISYS Group and prepared and issued by Edison, in consideration of a fee payable by SCISYS Group. 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 research department of Edison 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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