Indicators are pointing in the right direction

SCISYS 9 June 2016 Update

SCISYS

Indicators are pointing in the right direction

AGM trading statement

Software & comp services

9 June 2016

Price

72p

Market cap

£21m

Net debt (£m) at end FY15

1.0

Shares in issue

29.0m

Free float

63%

Code

SSY

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.6

3.6

11.6

Rel (local)

0.7

0.6

19.4

52-week high/low

75p

58.5p

Business description

SCISYS provides a range of professional services in support of the planning, development and use of computer systems in the space, media/broadcast and defence sectors, as well as to other public and private sector enterprises.

Next events

Trading update

July 2016

Interim results

22 September 2016

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

SCISYS is a research client of Edison Investment Research Limited

SCISYS’s trading update indicates that last year’s problems continue to drift into the distance, as the group returns to its strong project disciplines of the past and indicators continue to point in the right direction. Q1 trading was in line and, supported by a healthy order book, management anticipates a similar good performance in the traditionally stronger H2. Cash flow was particularly robust in Q1, with the group swinging around from a £1m net debt position at end-FY15 to £0.3m net cash at the end of April. Given the confident outlook, in combination with a strong balance sheet, we believe the stock looks attractive on c 10x our FY17e earnings.

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14

40.4

3.2

8.2

1.61

8.8

2.2

12/15

36.1

0.6

1.3

1.78

55.4

2.5

12/16e

38.0

2.3

6.2

1.90

11.6

2.6

12/17e

39.9

2.7

7.0

2.10

10.3

2.9

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

AGM trading statement

SCISYS says it has made an encouraging start to FY16 both in terms of order intake and timely performance on existing contracts across all its three divisions. Further, it says it is well on track to meet full year market expectations. The order book stood at £35.5m at end-April, up 21% over 12 months and just 5% below the record position at the end of December. Of particular note, the Media & Broadcast division has won two new contracts, with one new and one existing client, worth over £3.5m. Encouragingly, this includes the division’s largest order outside its traditional UK/European markets with the South African Broadcast Corporation. Additionally, the Space division has secured over £3.2m of new contracts, mainly from existing programmes, including the European satellite navigation system, Galileo, and the European Space Agency’s rover mission to Mars, ExoMars. The group has an active pipeline of potential acquisitions. Nevertheless, management stresses that any acquisition would need to be a compelling opportunity.

Sustained management guidance

Management is maintaining the guidance, as outlined in the annual report. The goal is to generate organic revenue growth of at least 3% pa over the next five years, and to return the business to generating operating margins of c 8%. We note that management’s performance-related remuneration has more demanding targets.

Forecasts and valuation: Just above 69p book value

We have maintained all our forecasts. The stock trades on c 0.55x our FY17e revenues and c 5.9x EBITDA – attractive given seven consecutive years (FY08-14) of margin improvements and a strong cash flow discipline. The group retains a strong balance sheet that includes the freehold on the group’s HQ, which was sold in 2007 for £9m and repurchased in 2011 for £5m.

Exhibit 1: Financial summary

£'000s

2013

2014

2015

2016e

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

42,598

40,359

36,106

38,004

39,860

40,970

Cost of Sales

0

0

0

0

0

0

Gross Profit

42,598

40,359

36,106

38,004

39,860

40,970

EBITDA

 

 

4,179

4,156

1,548

3,292

3,695

3,833

Adjusted operating profit

 

 

3,221

3,361

818

2,502

2,871

2,990

Amort'n of acq'd intangibles

(283)

0

0

0

0

0

Exceptionals

(1,191)

(135)

0

0

0

0

Share based payments

(35)

(42)

(11)

(50)

(50)

(50)

Operating Profit

1,712

3,184

807

2,452

2,821

2,940

Net Interest

(217)

(177)

(196)

(210)

(190)

(170)

Associates

0

0

3

0

0

0

Profit Before Tax (norm)

 

 

3,004

3,184

625

2,292

2,681

2,820

Profit Before Tax (FRS 3)

 

 

1,495

3,007

614

2,242

2,631

2,770

Tax

(153)

(766)

(241)

(471)

(579)

(609)

Profit After Tax (norm)

2,701

2,394

381

1,821

2,102

2,210

Profit After Tax (FRS 3)

1,342

2,241

373

1,771

2,052

2,160

Average Number of Shares Outstanding (m)

29.0

29.0

29.0

29.3

29.9

30.5

EPS - normalised (p)

 

 

9.3

8.2

1.3

6.2

7.0

7.2

EPS - FRS 3 (p)

 

 

4.6

7.7

1.3

6.0

6.9

7.1

Dividend per share (p)

1.46

1.61

1.78

1.90

2.10

2.30

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

9.8

10.3

4.3

8.7

9.3

9.4

Operating Margin (%)

7.6

8.3

2.3

6.6

7.2

7.3

BALANCE SHEET

Fixed Assets

 

 

16,164

17,155

16,553

16,523

16,497

16,473

Intangible Assets

7,006

8,233

7,831

7,831

7,831

7,831

Tangible Assets

9,137

8,899

8,635

8,605

8,579

8,555

Deferred tax asset & associates

21

23

87

87

87

87

Current Assets

 

 

19,270

18,886

17,839

19,320

21,052

22,462

Stocks

344

325

211

222

233

239

Debtors

13,829

12,334

12,299

12,957

13,600

13,990

Cash

3,969

5,798

4,352

5,165

6,242

7,256

Current Liabilities

 

 

(12,261)

(10,561)

(12,003)

(12,291)

(12,555)

(12,532)

Creditors

(9,508)

(9,686)

(8,699)

(9,237)

(9,751)

(9,978)

Short term borrowings

(2,753)

(875)

(3,304)

(3,054)

(2,804)

(2,554)

Long Term Liabilities

 

 

(4,090)

(5,023)

(2,333)

(2,122)

(1,911)

(1,700)

Long term borrowings

(3,888)

(4,595)

(2,007)

(1,796)

(1,585)

(1,374)

Other long term liabilities

(202)

(428)

(326)

(326)

(326)

(326)

Net Assets

 

 

19,083

20,457

20,056

21,430

23,083

24,703

CASH FLOW

Operating Cash Flow

 

 

(1,379)

4,774

1,570

3,102

3,496

3,629

Net Interest

(217)

(177)

(196)

(210)

(190)

(170)

Tax

(1,325)

100

(583)

(341)

(413)

(536)

Capex

(666)

(618)

(619)

(760)

(797)

(819)

Acquisitions/disposals

0

(358)

(889)

0

0

0

Financing

(16)

(61)

(14)

0

0

0

Dividends

(381)

(435)

(340)

(517)

(557)

(628)

Net Cash Flow

(3,984)

3,225

(1,071)

1,274

1,539

1,475

Opening net debt/(cash)

 

 

(1,241)

2,672

(328)

959

(315)

(1,853)

HP finance leases initiated

0

0

0

0

0

0

Other

71

(225)

(216)

0

0

(0)

Closing net debt/(cash)

 

 

2,672

(328)

959

(315)

(1,853)

(3,328)

Source: SCISYS accounts, Edison Investment Research

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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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