Encouraging FY17 order outlook despite FY16 revenue shortfall

eServGlobal 17 November 2016 Update

eServGlobal

Encouraging FY17 order outlook despite FY16 revenue shortfall

Trading update

Software & comp services

17 November 2016

Price

6.75p

Market cap

£43m

A$1.61: €1.12:£1

Net debt (A$m) at end H116

19.8

Shares in issue

640.2m

Free float

96%

Code

ESG

Primary exchange

AIM

Secondary exchange

ASX

Share price performance

%

1m

3m

12m

Abs

(11.5)

(11.5)

23.0

Rel (local)

(8.2)

(9.7)

13.1

52-week high/low

8.25p

1.95p

Business description

eServGlobal develops mobile software solutions to support mobile financial services, with a focus on emerging markets. The company also has a share in the HomeSend international remittances hub, alongside MasterCard and BICS.

Next events

FY16 results

December 2016

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 confirmed that revenues for FY16 fell below its guidance range and, despite a material reduction in costs, EBITDA profitability was not achieved. However, recent order intake and the prospect of winning several material contracts that are currently in negotiation provide a more positive outlook for FY17. Management also confirmed that HomeSend continues to make progress and is on track to break-even in 2017.

Year
end

Revenue (A$m)

EBITDA
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

EV/EBITDA (x)

10/14

31.3

2.6

(0.20)

0.0

N/A

26.4

10/15

25.9

(10.4)

(5.41)

0.0

N/A

N/A

10/16e

21.4

(7.8)

(4.00)

0.0

N/A

N/A

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

Revenue shortfall confirmed for FY16

eServGlobal expects to report FY16 revenues of €14-14.5m (A$21-21.7m), below its guidance range of €19-20m. With reported revenue of €5.5m in H116, this implies revenues of €8.5-9m for H216. The shortfall was due to the combination of contracts signed close to year-end where revenues will not be recognised until FY17 and beyond and negotiations on material contracts not closing by year-end. The company confirmed FY16 costs of c €19.5m (A$29.3m), in line with previous guidance and down from €23.8m in FY15, and hopes to reduce this below €18.5m in FY17. Year-end cash was c €6.4m (A$9.5m).

Order book supports more positive outlook

The company’s FY16 contracted order book of €21m is 60% higher than a year ago; in addition it is still negotiating several material contracts and recently signed a major channel partnership that should help it to access parts of Africa it had previously struggled to reach. This provides some comfort that FY17 revenues should be stronger than in FY16. We have revised our FY16 forecasts (revenues -28% to A$21.4m, EBITDA cut from A$0.1m to -A$7.8m, net cash of A$0.6m moving to net debt of A$3.4m). We suspend our FY17 forecasts pending the availability of FY16 results (expected end December) and a review of financials by the new CFO, Andrew Hayward, who joined eServGlobal in October.

Valuation: HomeSend to drive upside

Based on a sum-of-the-parts valuation, we calculate a per share value of 10.6p. We value the core business at a discount to mobile software peers to reflect its profitability profile. We assume that the HomeSend JV is successful in reaching break-even in FY17, growing its share of the international remittance market to 2% by FY25. For the value of the JV to be reflected in the share price, investors will need to see regular operational updates tracking new hub members, live corridors, volumes transacted and progress towards profitability.

Exhibit 1: Financial summary

A$'000s

2011

2012

2013

2014

2015

2016e

Year end 31 October

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

7,017

28,070

31,003

31,261

25,866

21,409

Cost of Sales

(4,234)

(12,267)

(11,789)

(13,359)

(20,608)

(15,085)

Gross Profit

2,783

15,803

19,214

17,902

5,258

6,324

EBITDA

 

 

(6,694)

(1,936)

1,683

2,571

(10,449)

(7,842)

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

(8,601)

(7,277)

(660)

1,987

(12,469)

(10,942)

Amortisation of acquired intangibles

0

0

0

0

0

0

Exceptionals

0

(6,485)

5,997

28,735

(12,539)

(5,738)

Share-based payments

(261)

(624)

(456)

(438)

(54)

(100)

Operating Profit

(8,862)

(14,386)

4,881

30,284

(25,062)

(16,780)

Income from associate

0

0

0

(2,275)

(3,831)

(4,605)

Net Interest

164

(1,016)

(386)

(254)

(1,356)

(2,620)

Profit Before Tax (norm)

 

 

(8,437)

(8,293)

(1,046)

(542)

(17,656)

(18,167)

Profit Before Tax (FRS 3)

 

 

(8,698)

(15,402)

4,495

27,755

(30,249)

(24,005)

Tax

(560)

(187)

5,879

(13,515)

(2,125)

4,801

Profit After Tax (norm)

(8,997)

(5,805)

(732)

(379)

(14,125)

(14,534)

Profit After Tax (FRS3)

(9,258)

(15,589)

10,374

14,240

(32,374)

(19,204)

Average Number of Shares Outstanding (m)

196.8

196.8

241.1

253.1

264.0

366.6

EPS - normalised (c)

 

 

(4.59)

(3.01)

(0.36)

(0.20)

(5.41)

(4.00)

EPS - FRS 3 (c)

 

 

(4.73)

(7.98)

4.25

5.57

(12.33)

(5.27)

DPS (c)

0.00

0.00

0.00

0.00

0.00

0.00

Gross Margin (%)

39.7%

56.3%

62.0%

57.3%

20.3%

29.5%

EBITDA Margin (%)

(95.4%)

(6.9%)

5.4%

8.2%

(40.4%)

(36.6%)

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

(122.6%)

(25.9%)

(2.1%)

6.4%

(48.2%)

(51.1%)

BALANCE SHEET

Fixed Assets

 

 

20,090

16,303

14,330

43,431

42,928

32,867

Intangible Assets

13,190

9,386

3,523

9,011

6,939

4,939

Tangible Assets

1,541

912

482

3

84

84

Other Fixed Assets

5,359

6,005

10,325

34,417

35,905

27,844

Current Assets

 

 

50,814

18,136

38,855

30,761

34,895

30,747

Stock

 

 

170

158

74

173

66

100

Debtors

 

 

40,425

14,094

21,846

26,811

24,403

20,823

Cash

 

 

10,129

3,794

4,909

3,679

4,976

9,508

Other

 

 

90

90

12,026

98

5,450

317

Current Liabilities

 

 

(40,856)

(12,934)

(15,082)

(18,033)

(25,520)

(19,615)

Creditors

(19,952)

(11,665)

(11,932)

(13,010)

(22,285)

(19,380)

Taxation & social security

(6,904)

(69)

(150)

(2,023)

(235)

(235)

Short term borrowings

(14,000)

(1,200)

(3,000)

(3,000)

(3,000)

0

Long Term Liabilities

 

 

(1,175)

(6,431)

(749)

(865)

(19,532)

(13,806)

Long term borrowings

0

(6,000)

0

0

(16,531)

(12,863)

Other long term liabilities

(1,175)

(431)

(749)

(865)

(3,001)

(943)

Net Assets

 

 

28,803

14,989

37,154

55,070

32,359

29,652

CASH FLOW

Operating Cash Flow

 

 

(8,060)

(11,901)

(7,207)

(5,810)

(12,130)

(3,296)

Net Interest

1,486

(974)

(580)

(271)

(423)

(200)

Tax

(448)

(7,813)

(1,088)

2,018

(3,148)

(300)

Capex

(529)

(1,966)

(1,950)

(6,403)

(2,921)

(1,100)

Acquisitions/disposals

0

23,307

0

5,418

0

5,133

Financing

(33,230)

(77)

16,140

3,964

4,365

14,479

Dividends

(23,910)

(111)

0

(146)

0

0

Net Cash Flow

(64,691)

465

5,315

(1,230)

(14,257)

14,716

Opening net debt/(cash)

 

 

(60,820)

3,871

3,406

(1,909)

(679)

14,555

HP finance leases initiated

0

0

0

0

0

0

Other

0

0

0

0

977

3,516

Closing net debt/(cash)

 

 

3,871

3,406

(1,909)

(679)

14,555

3,355

Source: eServGlobal, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by eServGlobal and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by eServGlobal and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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