Growth strategy paying off

Claranova 15 May 2019 Update
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Claranova

Growth strategy paying off

Q3 revenue update

Software & comp services

15 May 2019

Price

€0.84

Market cap

€329m

$1.12:€1

Net cash (€m) at end H119

42.8

Shares in issue

392.0m

Free float

91%

Code

CLA

Primary exchange

Euronext Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.0

30.7

(17.2)

Rel (local)

4.2

24.3

(13.2)

52-week high/low

€1.12

€0.52

Business description

Claranova consists of three businesses focused on mobile and internet technologies: PlanetArt (digital photo printing), Avanquest (consumer software) and myDevices (Internet of Things). It is headquartered in Paris with operations in Europe, the US and Canada.

Next events

Q4 revenue update

7 August

FY19 results

1 October

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Claranova is a research client of Edison Investment Research Limited

Claranova has reported another strong quarter, with organic constant currency revenue growth of 33% y-o-y in Q319, maintaining the same rate of growth as in H119. Geographic and product expansion are driving PlanetArt growth, while the recent acquisitions by Avanquest have reinvigorated the division. We have revised our revenue forecasts up to reflect stronger than expected growth, although this has a minimal impact at the EBITDA level.

Year end

Revenue (€m)

EBITDA
(€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

06/17

130.2

(5.0)

(6.6)

(0.02)

0.0

N/A

06/18

161.5

3.9

3.1

0.01

0.0

133.2

06/19e

253.9

18.0

14.6

0.03

0.0

29.0

06/20e

317.9

30.0

26.7

0.05

0.0

17.1

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

Q319: 33% organic revenue growth

Claranova continued to enjoy strong organic growth during Q319. Reported group revenues increased 69% y-o-y; excluding the impact of the Avanquest acquisitions and currency effects, group revenue grew 33% y-o-y. European expansion and the launch of the Photo Tiles product in H119 resulted in reported growth of 49% for the PlanetArt business (41% on a constant currency basis). The new monetisation methods from the acquired businesses in the Avanquest division have benefited both the acquired and existing businesses, driving organic growth of 22% for both parts of the division. At less than 2% of Q3 group revenues, myDevices is not yet making a material contribution but the development of new routes to market, including a recent partnership with Microsoft, provides the foundation for growth.

Upgrading revenue forecasts

On the basis of better than expected growth in PlanetArt and Avanquest revenues in Q3, we have increased our FY19 revenue forecast by 2.0% and FY20 by 3.6%. As some of this upside is due to currency translation and we assume the company has increased marketing spend to acquire more customers, we make minimal changes at the EBITDA and EPS level.

Valuation: Small increase from revenue upside

Reflecting the different business models and minority interests for each division, we continue to use a sum-of-the-parts approach to valuation. Based purely on peer group averages per division, we calculate a fair value of €1.17 per share. However, once multiples are adjusted to reflect our views on the growth and profitability of each division, this increases to €1.31 per share (up from €1.28, driven by higher revenue estimates). Milestones that could provide upside to our forecasts include: successful adoption of FreePrints in India; growth of the acquired Adaware business; and distributors reselling the myDevices platform in the US and China.

Q3 revenue update confirms strong organic growth

Claranova’s Q3 revenue update confirms that PlanetArt and Avanquest are seeing continued strong organic growth, with some benefit from the stronger dollar in the quarter. Group constant currency organic growth of 33% compares to 33% in Q219 and 32% in Q119.

Exhibit 1: Q3 revenues by division

€m

Q319

Q318

y-o-y

y-o-y

y-o-y

reported

organic

organic constant currency

PlanetArt

34.9

23.4

49%

49%

41%

Avanquest

20.4

8.6

136%

22%

20%

myDevices

0.9

1.2

(26%)

(26%)

(31%)

Total

56.2

33.2

69%

39%

33%

Source: Claranova

PlanetArt: Growth from product and geographic expansion

The division saw reported growth of 49% in Q3, with 8% of this due to the weaker euro versus the dollar. Constant currency growth of 41% compares to 37% in Q219 and 44% in Q119. While the division saw growth across the board, the company pointed to strong demand in Europe. The launch of the app in Belgium and Netherlands earlier in the quarter was well received and the Photo Tiles product, which is available in five of the 10 countries in which PlanetArt is present, also contributed to growth.

Avanquest: Reinvigorated by acquired businesses

The original Avanquest business saw 22% growth y-o-y, accelerating from the 16% growth reported in Q219 and 3% in Q119. More business is shifting to subscription rather than upfront licensing, providing recurring revenues and better predictability. The acquired businesses also saw 22% organic growth in the quarter, versus 23% for H119. The company’s strategy has been to increase monetisation of visitors to its sites. The acquired businesses, particularly Adaware, bring new methods of monetisation to the division – with each visitor on average generating more revenue for Avanquest, this provides additional funds for marketing, which in turn attracts new visitors to Avanquest sites.

myDevices: Building out routes to market

myDevices reported a 26% revenue decline compared to Q318; however, in Q318 the division benefited from a one-off payment of $1m from Sprint. Excluding this, the rest of the division grew 129% y-o-y. In February, myDevices signed a partnership with Microsoft to provide IoT data analytics tools to Azure customers. Added to partnerships signed with Sprint, Dr Peng, Alibaba Cloud and Ingram Micro, myDevices now has a variety of routes to market in the US, Europe and China.

Changes to forecasts

We have revised our forecasts to reflect stronger than expected revenue growth in PlanetArt and Avanquest. As some of this was due to currency translation effects and we expect some of the remaining growth will have resulted from higher marketing spend, we have made minimal changes at the EBITDA level. We note that PlanetArt has not yet seen a material contribution to revenues from India, and Avanquest has yet to launch Payaware (a new secure payments solution) – both are potential growth drivers for FY20.

Exhibit 2: Changes to forecasts

€m

FY19e

FY19e

FY20e

FY20e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

248.9

253.9

2.0%

57.2%

306.8

317.9

3.6%

25.2%

EBITDA

18.0

18.0

0.2%

362.6%

29.8

30.0

0.7%

66.3%

EBITDA margin

7.2%

7.1%

-1.7%

4.7%

9.7%

9.4%

-2.9%

2.3%

Normalised operating profit

17.4

17.4

0.2%

412.9%

29.3

29.5

0.7%

69.2%

Normalised operating profit margin

7.0%

6.9%

-0.1%

4.8%

9.6%

9.3%

-0.3%

2.4%

Reported operating profit

12.3

12.3

0.3%

N/A

27.1

27.3

0.7%

121.2%

Reported operating margin

4.9%

4.9%

-0.1%

8.6%

8.8%

8.6%

-0.2%

3.7%

Normalised PBT

14.6

14.6

0.3%

372.3%

26.5

26.7

0.8%

82.1%

Reported PBT

9.5

9.5

0.4%

N/A

24.3

24.5

0.8%

156.4%

Normalised net income

11.5

11.6

0.5%

340.7%

19.5

19.6

0.8%

69.5%

Reported net income

7.6

7.6

0.7%

N/A

17.8

17.9

0.9%

134.4%

Normalised basic EPS (€)

0.03

0.03

0.5%

342.6%

0.05

0.05

0.8%

69.5%

Normalised diluted EPS (€)

0.03

0.03

0.5%

359.5%

0.05

0.05

0.8%

69.5%

Reported basic EPS (€)

0.02

0.02

0.7%

N/A

0.05

0.05

0.9%

134.3%

Net debt/(cash)

(16.6)

(17.2)

4.1%

-54.0%

(43.0)

(44.6)

3.8%

158.7%

Source: Edison Investment Research


Exhibit 3: Financial summary

€m

2015

2016

2017

2018

2019e

2020e

30-June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

93.1

117.4

130.2

161.5

253.9

317.9

EBITDA

 

 

(6.8)

(9.2)

(5.0)

3.9

18.0

30.0

Normalised operating profit

 

 

(11.4)

(16.0)

(5.8)

3.4

17.4

29.5

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

(0.2)

(0.2)

Exceptionals

15.6

(10.0)

0.4

(2.4)

(4.2)

0.0

Share-based payments

(0.0)

(0.1)

(4.8)

(7.1)

(0.7)

(2.0)

Reported operating profit

4.2

(26.1)

(10.1)

(6.1)

12.3

27.3

Net Interest

1.1

(1.7)

(0.9)

(0.3)

(2.8)

(2.8)

Joint ventures & associates (post tax)

0.0

(0.0)

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(10.3)

(17.7)

(6.6)

3.1

14.6

26.7

Profit Before Tax (reported)

 

 

5.3

(27.8)

(11.0)

(6.4)

9.5

24.5

Reported tax

(0.6)

(0.8)

(0.4)

(1.8)

(2.2)

(5.6)

Profit After Tax (norm)

(10.9)

(18.5)

(7.0)

2.4

11.3

20.5

Profit After Tax (reported)

4.7

(28.6)

(11.4)

(8.2)

7.3

18.8

Minority interests

(8.1)

0.0

0.3

0.2

0.3

(0.9)

Discontinued operations

(3.2)

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

(18.9)

(18.5)

(6.7)

2.6

11.6

19.6

Net income (reported)

(6.5)

(28.6)

(11.0)

(7.9)

7.6

17.9

Basic average number of shares outstanding (m)

58

375

375

394

392

392

EPS - basic normalised (€)

 

 

(0.33)

(0.05)

(0.02)

0.01

0.03

0.05

EPS - diluted normalised (€)

 

 

(0.33)

(0.05)

(0.02)

0.01

0.03

0.05

EPS - basic reported (€)

 

 

(0.11)

(0.08)

(0.03)

(0.02)

0.02

0.05

Dividend (€)

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

#DIV/0!

26.1

10.9

24.0

57.2

25.2

EBITDA Margin (%)

-7.3

-7.9

-3.8

2.4

7.1

9.4

Normalised Operating Margin

-12.3

-13.7

-4.4

2.1

6.9

9.3

BALANCE SHEET

Fixed Assets

 

 

15.7

3.0

2.0

1.3

74.6

74.2

Intangible Assets

12.0

1.5

0.9

0.5

73.0

72.6

Tangible Assets

0.6

0.5

0.3

0.2

1.0

1.0

Investments & other

3.1

1.1

0.7

0.6

0.6

0.6

Current Assets

 

 

48.0

25.5

28.1

79.1

65.0

96.3

Stocks

5.9

5.0

3.7

3.7

7.0

8.7

Debtors

4.8

4.7

4.3

4.9

8.3

10.5

Cash & cash equivalents

30.5

11.1

17.1

65.7

44.9

72.3

Other

6.9

4.7

2.9

4.8

4.8

4.8

Current Liabilities

 

 

(32.0)

(25.3)

(28.1)

(37.2)

(47.0)

(57.0)

Creditors

(26.9)

(24.5)

(26.6)

(35.4)

(45.2)

(55.2)

Tax and social security

(0.3)

(0.0)

(0.3)

(1.7)

(1.7)

(1.7)

Short term borrowings

(4.8)

(0.7)

(1.1)

(0.1)

(0.1)

(0.1)

Other

0.0

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(2.4)

(1.1)

(0.7)

(29.0)

(69.7)

(69.7)

Long term borrowings

(1.8)

(0.6)

0.0

(28.1)

(27.6)

(27.6)

Other long term liabilities

(0.7)

(0.5)

(0.7)

(0.9)

(42.1)

(42.1)

Net Assets

 

 

29.3

2.1

1.3

14.2

22.9

43.8

Minority interests

0.0

0.0

(0.1)

(1.8)

(4.1)

(5.0)

Shareholders' equity

 

 

29.3

2.1

1.2

12.5

18.9

38.8

CASH FLOW

Op Cash Flow before WC and tax

(6.8)

(9.2)

(5.0)

3.9

18.0

30.0

Working capital

0.4

2.5

6.8

7.9

3.1

6.1

Exceptional & other

(3.8)

(4.3)

(2.2)

(5.2)

(8.4)

0.0

Tax

0.3

(0.3)

(0.0)

(1.2)

(2.2)

(5.6)

Net operating cash flow

 

 

(9.8)

(11.3)

(0.4)

5.5

10.6

30.5

Capex

(4.4)

(0.9)

(0.2)

(0.1)

(2.3)

(0.3)

Acquisitions/disposals

10.8

(0.4)

3.6

14.2

(23.8)

0.0

Net interest

(0.9)

(0.1)

(0.0)

(0.3)

(2.8)

(2.8)

Equity financing

33.2

(5.1)

1.9

2.0

(1.9)

0.0

Dividends

0.0

2.0

0.0

0.0

0.0

0.0

Other

0.1

0.1

0.1

(1.1)

0.0

0.0

Net Cash Flow

29.0

(15.7)

5.0

20.1

(20.3)

27.4

Opening net debt/(cash)

 

 

18.0

(23.9)

(9.8)

(16.0)

(37.5)

(17.2)

FX

0.1

(0.1)

(0.6)

0.4

0.0

0.0

Other non-cash movements

12.6

1.7

1.8

1.1

0.0

0.0

Closing net debt/(cash)

 

 

(23.9)

(9.8)

(16.0)

(37.5)

(17.2)

(44.6)

Source: Company data, Edison Investment Research

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

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60325 Frankfurt

Germany

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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

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Level 4, Office 1205

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NSW 2000, Australia

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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 Claranova and prepared and issued by Edison, in consideration of a fee payable by Claranova. 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.

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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

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Germany

London +44 (0)20 3077 5700

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United Kingdom

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United States of America

Sydney +61 (0)2 8249 8342

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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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