Core business order shortfall

eServGlobal 20 December 2018 Update
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eServGlobal

Core business order shortfall

Trading update

Software & comp services

 

20 December 2018

Price

4.60p

Market cap

£56m

A$1.75:€1.11:£1

Net cash (A$m) at end H118

2.9

Shares in issue

1,210.9m

Free float

96.8%

Code

ESG

Primary exchange

AIM

Secondary exchange

ASX

Share price performance

%

1m

3m

12m

Abs

(22.7)

(25.8)

(55.7)

Rel (local)

(19.8)

(18.6)

(50.3)

52-week high/low

13.2p

4.6p

Business description

eServGlobal develops mobile software solutions to support mobile financial services, with a focus on emerging markets. It also has a 35.7% share in the HomeSend cross-border payments hub, alongside Mastercard and BICS.

Next events

FY18 results

February 2019

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

eServGlobal is a research client of Edison Investment Research Limited

eServGlobal has announced that due to order slippage in the core business, it does not expect to reach operational break-even in FY18, with revenues expected of €7-7.5m versus a break-even cost base of €11-11.5m. We have reduced our forecasts to reflect the revised revenue outlook and increased EBITDA loss. We estimate that eServGlobal’s cash balance is more than enough to cover core business working capital requirements as well as expected investment in HomeSend capital raises.

Year end

Revenue (A$m)

EBITDA* (A$m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

10/16

21.6

(7.0)

(3.88)

0.0

N/A

N/A

10/17

10.8

(11.7)

(3.53)

0.0

N/A

N/A

12/17**

12.2

(15.2)

(4.17)

0.0

N/A

N/A

12/18e

11.3

(6.2)

(1.57)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **14-month period.

Order slippage reduces FY18 revenues

When the company reported H118 results in September, it was confident of reaching operational break-even for FY18, which with an expected cost base of €11-11.5m implied FY18 revenues of at least A$17.4m. It now expects to report revenues of €7-7.5m/A$11.1-11.9m, which implies H218 revenues flat to slightly higher than the A$5.6m reported in H118. The company entered FY18 with €5.7m in recurring and deferred revenue; based on order intake to date and revenues recognised in FY18e, it expects this to increase to €7.5m by the start of FY19. It also expects to reduce costs to a break-even level of €10m by the start of FY19.

Forecasts reflect lower H2 orders and HomeSend investment

We have reduced our FY18 revenue forecast to A$11.3m, which results in a widening of the EBITDA loss from A$0.3m to A$6.2m and a reduction in normalised EPS from -A$0.96 to -A$1.57. The business continues to explore the sale of the core business. At the end of November, eServGlobal contributed to HomeSend’s €6.1m capital raise in proportion to its 35.68% stake. We forecast the company will have net cash of A$29m by the end of FY18 and we expect HomeSend to request more funds later in FY19 (its plan is to raise €47m in total), of which we expect eServGlobal to have to contribute up to €14.6m/A$23.1m to maintain its stake.

Valuation: HomeSend the main driver

We believe that most of the company’s value is provided by its stake in the HomeSend joint venture. We estimate that in addition to the well-established use of HomeSend for remittance volumes, the share price is factoring in adoption of HomeSend by banking customers for cross-border payments. Evidence of recent bank signings transferring cross-border payments over to the HomeSend platform will be key to supporting and driving the current share price. Contract wins in the core business could also have a more limited impact on the share price.

Changes to forecasts

Exhibit 1: Changes to estimates

A$'000

FY18e

FY18e

Change

Old

New

Revenues

18,978

11,278

-40.6%

Gross profit

6,149

2,448

-60.2%

Gross margin

32.4%

21.7%

-10.7%

Normalised gross profit

6,149

2,448

-60.2%

Normalised gross margin

32.4%

21.7%

-10.7%

Normalised EBITDA

(277)

(6,228)

2148.4%

Normalised EBITDA margin

(1.5%)

(55.2%)

-53.8%

Normalised EBIT

(3,647)

(9,598)

163.2%

Normalised EBIT margin

(19.2%)

(85.1%)

-65.9%

Reported EBIT

(4,119)

(10,070)

144.5%

Normalised PBT

(8,088)

(14,039)

73.6%

Reported PBT

(8,560)

(14,511)

69.5%

Normalised net income

(9,420)

(15,398)

63.5%

Reported net income

(9,958)

(15,909)

59.8%

Normalised EPS

(0.96)

(1.57)

63.5%

Net debt/(cash)

(35,137)

(28,977)

-17.5%

Source: Edison Investment Research

Exhibit 2: Financial summary

A$'000s

2014

2015

2016

2017

2017*

2018e

Year end 31 October/31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

31,261

25,866

21,577

10,791

12,240

11,278

Cost of Sales

(13,359)

(20,608)

(15,490)

(13,509)

(16,729)

(8,830)

Gross Profit

17,902

5,258

6,087

(2,718)

(4,489)

2,448

EBITDA

 

 

2,571

(10,449)

(6,982)

(11,709)

(15,204)

(6,228)

Operating Profit (before amort acq intang, SBP and except.)

1,987

(12,469)

(10,039)

(15,391)

(19,959)

(9,598)

Amortisation of acquired intangibles

0

0

0

0

0

0

Exceptionals

28,735

(12,539)

(3,533)

(7,905)

(8,649)

(107)

Share-based payments

(438)

(54)

(75)

(160)

(297)

(365)

Operating Profit

30,284

(25,062)

(13,647)

(23,456)

(28,905)

(10,070)

Income from associate

(2,275)

(3,831)

(4,638)

(4,478)

(5,491)

(4,435)

Net Interest

(254)

(1,356)

(2,861)

(2,302)

(2,090)

(6)

Profit Before Tax (norm)

 

 

(542)

(17,656)

(17,538)

(22,171)

(27,540)

(14,039)

Profit Before Tax (FRS 3)

 

 

27,755

(30,249)

(21,146)

(30,236)

(36,486)

(14,511)

Tax

(13,515)

(2,125)

(596)

(592)

(681)

(1,198)

Profit After Tax (norm)

(379)

(14,125)

(14,030)

(22,605)

(28,054)

(15,198)

Profit After Tax (FRS3)

14,240

(32,374)

(21,742)

(30,828)

(37,167)

(15,709)

Minority interest

(138)

(166)

(196)

(12)

(134)

(200)

Net Income (norm)

(517)

(14,291)

(14,226)

(22,617)

(28,188)

(15,398)

Net Income (FRS3)

14,102

(32,540)

(21,938)

(30,840)

(37,301)

(15,909)

Average Number of Shares Outstanding (m)

253.1

264.0

366.6

640.2

676.4

982.9

EPS - normalised (c)

 

 

(0.20)

(5.41)

(3.88)

(3.53)

(4.17)

(1.57)

EPS - FRS 3 (c)

 

 

5.57

(12.33)

(5.98)

(4.82)

(5.51)

(1.62)

DPS (c)

0.00

0.00

0.00

0.00

0.00

0.00

Gross Margin (%)

57.3%

20.3%

28.2%

(25.2%)

(36.7%)

21.7%

EBITDA Margin (%)

8.2%

(40.4%)

(32.4%)

(108.5%)

(124.2%)

(55.2%)

Operating Margin (before am and except.) (%)

6.4%

(48.2%)

(46.5%)

(142.6%)

(163.1%)

(85.1%)

BALANCE SHEET

Fixed Assets

 

 

43,431

42,928

33,274

27,567

31,373

29,832

Intangible Assets

9,011

6,939

5,598

4,411

3,856

3,356

Tangible Assets

3

84

32

136

127

147

Other Fixed Assets

34,417

35,905

27,644

23,020

27,390

26,329

Current Assets

 

 

30,761

34,895

28,240

40,361

16,499

35,128

Stock

 

 

173

66

72

110

139

139

Debtors

 

 

26,811

24,403

17,976

6,870

4,181

4,635

Cash

 

 

3,679

4,976

9,375

33,255

10,801

28,977

Other

 

 

98

5,450

817

126

1,378

1,378

Current Liabilities

 

 

(18,033)

(25,520)

(14,469)

(11,812)

(10,810)

(10,053)

Creditors

(13,010)

(22,285)

(14,189)

(11,812)

(10,757)

(10,000)

Taxation & social security

(2,023)

(235)

(280)

0

(53)

(53)

Short term borrowings

(3,000)

(3,000)

0

0

0

0

Long Term Liabilities

 

 

(865)

(19,532)

(12,649)

(20,392)

(777)

(777)

Long term borrowings

0

(16,531)

(11,759)

(19,075)

0

0

Other long term liabilities

(865)

(3,001)

(890)

(1,317)

(777)

(777)

Net Assets

 

 

55,070

32,359

33,823

35,718

36,158

53,945

CASH FLOW

Operating Cash Flow

 

 

(5,810)

(12,130)

(10,712)

(9,492)

(12,630)

(7,439)

Net Interest

(271)

(423)

(175)

0

(2,735)

0

Tax

2,018

(3,148)

(1,159)

(719)

(132)

(650)

Capex

(6,403)

(2,921)

(1,583)

(2,351)

(2,821)

(2,890)

Acquisitions/disposals

5,418

0

5,133

0

0

0

Financing

3,964

4,365

15,929

32,007

32,286

29,296

Dividends

(146)

0

0

(579)

(581)

(142)

Net Cash Flow

(1,230)

(14,257)

7,433

18,866

13,387

18,176

Opening net debt/(cash)

 

 

(1,909)

(679)

14,555

2,384

2,384

(10,801)

HP finance leases initiated

0

0

48

0

0

0

Other

0

977

(4,690)

2,302

202

0

Closing net debt/(cash)

 

 

(679)

14,555

2,384

(14,180)

(10,801)

(28,977)

Source: eServGlobal, Edison Investment Research. Note: *14-month period ended 31 December 2017.

 

General disclaimer and copyright

This report has been commissioned by eServGlobal and prepared and issued by Edison, in consideration of a fee payable by eServGlobal. 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 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

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 eServGlobal and prepared and issued by Edison, in consideration of a fee payable by eServGlobal. 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 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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