Harlex acquisition boosts SNP’s presence in UK

SNP Schneider-Neureither & Partner 4 October 2016 Update

SNP Schneider-Neureither & Partner

Harlex acquisition boosts SNP’s presence in UK

Acquisition

Software & comp services

4 October 2016

Price

€37.47

Market cap

€186m

Net debt (€m) as at 30 June 2016
(pre-rights issue)

6.4

Shares in issue

4.98m

Free float

55%

Code

SHF

Primary exchange

Frankfurt (Xetra)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

27.1

26.4

175.0

Rel (local)

27.0

18.9

153.2

52-week high/low

€36.9

€13.2

Business description

SNP Schneider-Neureither & Partner (SNP) is a software and consulting business focused on supporting customers in implementing change, and rapidly and economically tailoring IT landscapes to new situations. It has developed a proprietary software product called SNP Transformation Backbone with SAP Landscape Transformation software (T-B).

Next events

Q3 results

28 October 2016

German Equity Forum

21-23 November 2016

Analysts

Richard Jeans

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

SNP Schneider-Neureither & Partner is a research client of Edison Investment Research Limited

SNP has acquired an initial 90% shareholding in Harlex Management, which owns 100% of Harlex Consulting, based in London, UK. Harlex specialises in SAP data migration (essentially transformation) projects. The acquisition gives SNP a physical presence in the UK, and hence a stronger position to target and deliver new business in the UK. Activity remains very brisk at SNP and in September it won a record $10m+ contract to combine the IT landscapes of two US chemical companies (we assume Dow Chemical and DuPont) that are merging. Given SNP’s strong market position in software-based transformation projects, we believe the shares are attractive on c 19x our cash-adjusted FY18e EPS.

Year
end

Revenue
(€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

30.5

(0.1)

(13.9)

13.0

N/A

0.3

12/15

56.2

3.4

58.8

34.0

63.7

0.9

12/16e

77.0

7.3

111.4

40.0

33.6

1.1

12/17e

95.9

10.9

148.2

50.0

25.3

1.3

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

Acquisition of Harlex Consulting

Founded in 2010, Harlex specialises in SAP data migration (or transformation) projects and related process consulting (including setting up SAP systems). Harlex is a gold service partner of SAP in the UK and was named in the 2016 Sunday Times Hiscox Tech Track 100 listing of Britain's fastest-growing private technology companies. The business has grown from two to 25 full-time employees in five years, including 22 consultants, and it also uses outside consultants. Its 25 customers include blue-chip names such as Sony Music, Thomson Reuters, Henderson and BAE. Harlex does not use a software methodology and in future its consultants will use SNP’s T-B. Previously, SNP has delivered UK projects from its offices in Germany, eg a Rolls-Royce carve out, and SNP also has UK partners (ie resellers). Harlex generated revenues of £4.83m (c €5.6m) in the year to September 2015. It is comfortably profitable with EBIT of £0.79m (for an EBIT margin of 16%). We estimate that SNP is paying around 1.1-1.2x revenues for Harlex.

Forecasts

We have increased our revenue forecasts by 2% in FY16 (three-month acquisition period) and by 8% in FY17 and FY18. Our EPS rises by 5%, 14% and 9% in the corresponding years. We now forecast the group to end FY16 with net cash of €20.5m (previously €26.3m); there are also other financial liabilities which we estimate at c €4.9m (mainly acquisition liabilities and a small pension deficit).

Valuation: Strong growth play in the ERP space

The stock trades on c 34x our FY16e EPS, falling to c 25x in FY17e and to c 20x in FY18e. Adjusted for the net cash, the ratings fall to c 31x in FY16e, c 24x in FY17e and c 19x in FY18e. We believe the ratings continue to look attractive given the forecast strong growth and continued margin recovery potential.

Forecasts

We forecast Harlex will generate revenues of €1.8m in FY16 (for the three-month period), €7.5m for the first full year in FY17 (ie, £6.5m) and €8.4m in FY18. We have assumed this is all in the professional services segment, but acknowledge it is likely there will be software sales as well going forward.

In all, our group revenue forecasts rise by 2% to €77.0m in FY16 (three-month acquisition period), by 8% to €95.9m in FY17 and by 8% to €108.5m in FY18. Our EPS forecasts rise by 4.6% in FY16, 13.9% in FY17 and 9.2% in FY18. SNP states that the cost for the 90% shareholding was in the “mid-single-digit million range” and we have assumed an initial payment of €6m, with another €0.7m payable on 1 October 2018. We note that sterling has fallen by c 13% against the euro since the Brexit vote, which was likely to have reduced the purchase price in euro terms. Hence, we forecast the group to end FY16 with net cash of €20.5m (previously €26.3m); this is prior to adjusting for c €4.9m of other financial liabilities (mainly acquisition liabilities and a small pension deficit).

Exhibit 1: Forecast changes

Old

New

Old

New

Old

New

(€000s)

2016e

2016e

% change

2017e

2017e

% change

2018e

2018e

% change

Revenue

 

 

 

 

 

 

 

 

 

Professional services

64,316

66,116

3

76,019

83,494

10

86,442

94,889

10

Software licences

8,062

8,062

0

8,868

8,868

0

9,755

9,755

0

Software maintenance

2,800

2,800

0

3,500

3,500

0

3,850

3,850

0

Total software

10,862

10,862

0

12,368

12,368

0

13,605

13,605

0

Group revenue

75,179

76,979

2

88,387

95,862

8

100,047

108,494

8

Growth (%)

33.7

36.9

 

17.6

24.5

 

13.2

13.2

 

Professional services contribution

6,432

6,918

8

7,982

10,019

26

9,725

11,624

20

Software contribution

4,888

4,888

0

6,184

6,184

0

7,483

7,483

0

Non-segment-related expenses

(4,275)

(4,455)

4

(4,506)

(5,253)

17

(4,725)

(5,509)

17

Other operating income & other taxes

680

680

0

716

716

0

751

751

0

Operating expenses

(67,454)

(68,948)

2

(78,011)

(84,196)

8

(86,813)

(94,145)

8

Adjusted operating profit

7,724

8,030

4

10,377

11,666

12

13,234

14,349

8

Operating profit margin (%)

10.3

10.4

 

11.7

12.2

 

13.2

13.2

 

Growth (%)

83.0

90.2

 

34.3

45.3

 

27.5

23.0

 

Net interest

(775)

(775)

0

(775)

(775)

0

(775)

(775)

0

Profit before tax norm

6,949

7,255

4

9,602

10,891

13

12,459

13,574

9

Profit before tax

6,949

7,255

4

9,602

10,891

13

12,459

13,574

9

Taxation

(2,085)

(2,177)

4

(2,880)

(3,267)

13

(3,738)

(4,072)

9

Non-controlling interests

(225)

(225)

0

(248)

(248)

0

(267)

(267)

0

FRS 3 net income

4,639

4,854

5

6,474

7,376

14

8,454

9,235

9

Adjusted EPS (c)

106.5

111.4

4.6

130.1

148.2

13.9

169.9

185.6

9.2

P/E – Adjusted EPS (x)

 

33.6

 

 

25.3

 

 

20.2

 

Source: Edison Investment Research


Exhibit 2: Financial summary

€000s

2013

2014

2015

2016e

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

23,536

30,480

56,236

76,979

95,862

108,494

Cost of sales

0

0

0

0

0

0

Gross Profit

23,536

30,480

56,236

76,979

95,862

108,494

EBITDA

 

 

(1,972)

862

5,484

9,383

13,106

16,094

Adjusted Operating Profit

 

 

(2,714)

(66)

4,222

8,030

11,666

14,349

Amortisation of acquired intangibles

0

0

0

0

0

0

Exceptionals

0

1,505

356

0

0

0

Associates

0

0

(3)

0

0

0

Operating Profit

(2,714)

1,439

4,575

8,030

11,666

14,349

Net Interest

(85)

(66)

(828)

(775)

(775)

(775)

Profit Before Tax (norm)

 

 

(2,799)

(132)

3,394

7,255

10,891

13,574

Profit Before Tax (FRS 3)

 

 

(2,799)

1,373

3,747

7,255

10,891

13,574

Tax

477

(344)

(1,195)

(2,177)

(3,267)

(4,072)

Profit After Tax (norm)

(2,322)

(477)

2,198

5,079

7,624

9,502

Profit After Tax (FRS 3)

(2,322)

1,028

2,552

5,079

7,624

9,502

Minority interest

(84)

(40)

0

(225)

(248)

(267)

Adjustments for normalised earnings

0

0

0

0

0

0

Net income (norm)

(2,405)

(517)

2,198

4,854

7,376

9,235

Net income (FRS 3)

(2,405)

988

2,552

4,854

7,376

9,235

Average Number of Shares Outstanding (m)

3.7

3.7

3.7

4.4

5.0

5.0

EPS - normalised (c)

 

 

(64.7)

(13.9)

58.8

111.4

148.2

185.6

EPS - normalised & fully diluted (c)

 

 

(64.7)

(13.9)

58.8

111.4

148.2

185.6

EPS - FRS 3 (c)

 

 

(64.7)

26.6

68.3

111.4

148.2

185.6

Dividend per share (c)

8.00

13.00

34.00

40.00

50.00

60.00

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

-8.4

2.8

9.8

12.2

13.7

14.8

Adjusted Operating Margin (%)

-11.5

-0.2

7.5

10.4

12.2

13.2

BALANCE SHEET

Fixed Assets

 

 

7,759

8,291

15,243

25,430

25,907

26,332

Intangible Assets

5,194

5,190

11,675

21,675

21,675

21,675

Tangible Assets

1,070

1,231

1,999

2,185

2,663

3,087

Other

1,496

1,871

1,570

1,570

1,570

1,570

Current Assets

 

 

16,145

17,882

29,996

57,579

68,121

72,852

Stocks

0

0

0

0

0

0

Debtors

9,105

11,286

16,084

22,017

27,418

31,031

Cash

6,355

5,681

13,769

35,419

40,561

41,679

Current Liabilities

 

 

(5,804)

(9,782)

(13,703)

(19,448)

(24,550)

(27,741)

Creditors

(5,204)

(9,182)

(11,101)

(16,847)

(21,948)

(25,140)

Short term borrowings

(600)

(600)

(2,602)

(2,602)

(2,602)

(2,602)

Long Term Liabilities

 

 

(4,338)

(2,501)

(15,513)

(20,013)

(20,013)

(15,513)

Long term borrowings

(2,250)

(1,650)

(12,344)

(12,344)

(12,344)

(12,344)

Other long term liabilities

(2,088)

(851)

(3,169)

(7,669)

(7,669)

(3,169)

Net Assets

 

 

13,762

13,890

16,024

43,547

49,466

55,930

CASH FLOW

Operating Cash Flow

 

 

(2,110)

2,579

1,879

8,998

12,626

15,552

Net Interest

4

(66)

(167)

(775)

(775)

(775)

Tax

(1,062)

(1,102)

(554)

(2,031)

(3,050)

(3,801)

Capex

(230)

(701)

(1,779)

(1,540)

(1,917)

(2,170)

Acquisitions/disposals

(2,267)

(500)

(3,228)

(11,500)

0

(5,200)

Shares issued

(35)

0

0

29,768

0

0

Dividends

(937)

(335)

(483)

(1,271)

(1,743)

(2,488)

Net Cash Flow

(6,638)

(124)

(4,332)

21,649

5,142

1,118

Opening net debt/(cash)

 

 

(10,152)

(3,505)

(3,431)

1,176

(20,474)

(25,615)

HP finance leases initiated

0

0

0

0

0

0

Other

(10)

51

(275)

0

0

()

Closing net debt/(cash)

 

 

(3,505)

(3,431)

1,176

(20,474)

(25,615)

(26,733)

Source: Company accounts, 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 SNP Schneider-Neureither & Partner 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 SNP Schneider-Neureither & Partner 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

Share this with friends and colleagues

You may be interested in