New strategic plan, new sales expected FY20

Brady 26 September 2019 Update
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Brady

New strategic plan, new sales expected FY20

Interim results

Software & comp services

26 September 2019

Price

24p

Market cap

£20m

Net cash (£m) as at 30 June 2019

1.0

Shares in issue

83.4m

Free float

68%

Code

BRY

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(28.4)

(58.1)

(63.8)

Rel (local)

(30.2)

(57.6)

(62.6)

52-week high/low

66.5p

24.0p

Business description

Brady is the largest Europe-based E/CTRM player. It provides a range of transaction and risk management software applications, which help producers, consumers, financial institutions and trading companies manage their commodity transactions through a single, integrated solution.

Next events

Trading update

January 2020

Full year results

March 2020

Analysts

Richard Williamson

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Brady is a research client of Edison Investment Research Limited

Following its August trading update highlighting a slowdown in new sales, Brady’s interim results were in line with our expectations. H119 revenue was £9.5m, a 9% fall vs H118, with an EBITDA loss of £1.8m and a PBT loss of £2.5m. Net cash fell to £1.0m from £4.6m at FY18. Recurring revenues represented 82% of total revenues. The new CEO has completed her strategic review and management is focused on delivering a more scalable, predictable and sustainable business to allow the company to become the leading independent E/CTRM vendor. The commodities sector remains attractive and as and when Brady demonstrates renewed sales momentum, it should become a compelling investment, currently trading on an FY19e EV/sales multiple of 1.1x.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

EV/sales
(x)

DPS
(p)

Yield
(%)

12/17

22.2

(3.0)

(5.7)

1.1

0.0

N/A

12/18

23.2

0.3

0.0

1.0

0.0

N/A

12/19e

19.1

(4.2)

(3.9)

1.1

0.0

N/A

12/20e

20.4

(1.2)

(1.1)

1.0

0.0

N/A

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

Interim results: In line with trading update

Brady announced H119 revenues of £9.5m, 9.5% down on H118 (£10.5m), due to a fall in client project work affecting both services and development revenue and licence revenue. H119 recurring revenue was stable at £7.8m (H118: £7.8m), representing 82% of sales (H118: 74%). Overall gross margin rose to 53% (H118: 51%) due to a reallocation of staff costs, while operating costs increased to £6.2m (H118: £5.8m) largely due to staff role changes. The EBITDA loss was £1.8m (H118: £1.5m) and the loss before tax was £2.5m (H118: £1.7m). Net cash fell to £1.0m from £4.6m at FY18, with £1.6m attributable to the previously disclosed Norwegian tax charge, and H118 benefiting from the proceeds from the sale of the recycling business.

Strategic plan: Leading independent E/CTRM vendor

Having completed its strategic product review, Brady has initiated a comprehensive new customer-centric strategic plan, focused on improving execution fundamentals and expanding the company’s reach. Additional funding to implement this revised strategy, would allow the experienced management team to deliver a more scalable, predictable and sustainable business to secure market leadership and allow the company to become the leading independent E/CTRM vendor.

Valuation: Forecasts revised, EV/sales of 1.1x

Following the results, we maintain our FY19 revenue forecast of £19m. However, we now forecast an EBITDA loss of £3.8m (vs a £3.9m loss previously), with loss before tax and net debt fairly stable at £4.2m and £1.2m, respectively. We reiterate our view that when Brady demonstrates renewed sales momentum and returns to operating profitability, it should become an attractive investment, currently trading on an FY19e EV/sales multiple of 1.1x.

Interim results

Exhibit 1: Half-by-half results analysis

£000s

H118

H218

FY18

H119

H219e

FY19e

Total revenue

10,542

12,615

23,157

9,545

9,517

19,062

Software licence sales

1,105

2,253

3,358

634

285

919

Recurring fees (licence rental & maintenance)

7,800

8,231

16,031

7,790

7,840

15,630

Services fees (consulting and development)

1,637

2,131

3,768

1,121

1,391

2,512

Gross profit

5,396

8,483

13,879

5,075

4,519

9,594

Gross margin (%)

51.2

67.2

59.9

53.2

(2.8)

50.3

Adjusted operating profit

(1,627)

1,945

318

(2,409)

(1,769)

(4,178)

Operating margin

(15.4%)

15.4%

1.4%

(25.2%)

3.3%

(21.9%)

Edison profit before tax (norm)

(1,657)

1,933

276

(2,538)

(1,670)

(4,208)

EBITDA (Edison definition)

(1,460)

2,145

685

(1,811)

(2,017)

(3,828)

EBITDA (Brady definition)

(423)

2,777

2,354

(1,318)

(625)

(1,943)

Source: Brady data, Edison Investment Research. Note: Brady adjusted EBITDA is defined as earnings before interest, tax, share option cost, depreciation and amortisation less property rental costs.

Brady announced H119 revenues of £9.5m, 9.5% down on H118 (£10.5m) due to a fall in client project work affecting both services and development revenue and licence revenue. H119 recurring revenue was stable at £7.8m (H118: £7.8m), representing 82% of sales (H118: 74%). Revenue from licence sales fell to £0.6m (H118: £1.1m), with no revenue from new business anticipated in H219. Revenues from service fees fell to £1.1m (H118: £1.6m), with a lower level of revenue anticipated in H219. There were no new customer installations completed in H119 (H118: two new installations).

Overall gross margin rose to 53% (H118: 51%) due to savings and the reclassification of certain staff costs, while operating costs increased to £6.2m (H118: £5.8m) largely due to the reclassification of certain staff costs following changes in role. £1.0m of R&D costs were capitalised (H118: £1.2m), primarily related to investment in additional functionality within the Fintrade and EDM products. The EBITDA loss was £1.8m (H118: £1.5m) and the PBT loss was £2.5m (H118: £1.7m).

Net cash fell to £1.0m from £4.6m at FY18, with £1.6m of cash outflow attributable to the previously disclosed Norwegian tax charge, and the prior period benefiting from the £2.9m proceeds from the sale of the recycling business. The company confirmed that net debt as at 31 December 2019 will be ‘in line with market expectations’ (Edison forecasts net debt of c £1.2m). In this context, the company has indicated a funding shortfall in November 2019 and is considering financing options to meet short-term liquidity requirements and underpin its strategic plan. The company has received indications of support from its shareholders. We have modelled this funding shortfall by way of debt, as is Edison standard practice.


Revised forecasts reinstated

Following Brady’s August trading update, Edison withdrew its forecasts for FY20 and FY21 pending further clarification. We are now in a position to reinstate our FY20 forecasts, set out in Exhibit 2 below:

Exhibit 2: Revised forecasts (new vs old)

Old

New

Old-New

Old

New

Old-New

£000s

2018

2019

2019

Change

2020

2020

Change

Year end 31 December

IFRS

IFRS

IFRS

%

IFRS

IFRS

%

Revenue

23,157

19,014

19,062

0

25,453

20,393

(20)

Licence revenues

3,358

-

919

2,363

1,218

(48)

Recurring fees (software rental, hosting and support)

16,031

17,458

15,630

(10)

18,837

16,412

(13)

Services and development

3,768

1,556

2,512

61

4,253

2,763

(35)

Cost of Sales

(9,278)

(9,426)

(9,468)

0

(9,415)

(7,568)

(20)

Gross Profit

13,879

9,588

9,594

0

16,038

12,825

(20)

EBITDA

685

(3,923)

(3,828)

(2)

2,419

(704)

N/A

Profit Before Tax (norm)

276

(4,243)

(4,208)

(1)

2,014

(1,204)

N/A

Profit After Tax (norm)

5

(3,310)

(3,283)

(1)

1,531

(915)

N/A

Profit After Tax (IFRS)

(2,079)

(4,993)

(5,492)

10

(252)

(2,898)

1,049

EPS – normalised (p)

0.01

(4.0)

(3.9)

(1)

1.8

(1.1)

N/A

Closing net debt/(cash)

(4,627)

1,202

1,229

2

(3,620)

1,243

N/A

Source: Brady data, Edison Investment Research

The new forecasts reflect IFRS 16 and a number of other minor changes to the basis on which the results are compiled, including a reassessment of the allocation of costs between operating costs and cost of revenues, reflecting specific changes in staff responsibilities and roles.

Forecasts: Underlying assumptions

We have maintained our revenue forecasts for FY19, although we have rebalanced the contributions from the different service lines following the interim results, while reflecting the continuing impact of the identified slowdown in sales and the turnaround in FY20. We see FY20 as a year of consolidation with a low level of new sales, but rebasing off the lower base for FY19 (with some degree of pipeline catch-up) we forecast overall revenue growth of 7%.

Licence fees: includes licence sales (excluding software rentals), along with additional modules and user licences, which typically represent half of this revenue category. We forecast licence revenue to increase from £0.9m in FY19 (affected by the lack of new sales) to £1.2m in FY20, anticipating a degree of carry-over from FY19. Thereafter we forecast licence revenue to decline as the focus shifts to recurring revenues.

Recurring fees: includes annual support and maintenance, software rentals (mainly in the energy business) and cloud revenues. We forecast flat recurring fees in FY19, before delivering 5% trend growth in FY20 as sales momentum rebuilds for Brady’s core offering. This results in recurring revenues as a percentage of total revenues of c 82% in FY19 and c 80% for FY20, dependent on the pick-up in licence fees and services.

Services: includes software implementation, consulting and development revenues. We forecast FY19 revenues of £2.5m, an upward revision to our expectations following the trading statement but still over 30% down on FY18 (£3.8m). For FY20, we forecast 10% growth as the revenue line recovers from a low base, before moving back to trend mid-single-digit growth thereafter.

Costs and margins: we expect little change to Brady’s cost base in FY19, but see a fall for FY20 as management streamlines the business and refocuses on the revised strategy. We forecast an exceptional restructuring charge of c £0.6m, split two-thirds in FY19 and one-third in FY20. We also forecast a reduction in capex, as development is outsourced to third parties. We anticipate a depressed gross margin of c 50% in FY19, rising to a more normalised c 60%+ in FY20.

Taxation: the company benefits from a favourable R&D tax environment. We assume an effective tax rate of 20% in FY19, 22% in FY20 and 24% in FY21. It is worth noting that Brady has appealed the Norwegian tax judgment and, if it is successful, any benefit would likely be seen in FY21 as the authorities are required to reach a final decision within two years. This is not factored into our model.

Valuation

As the company is currently in transition, traditional P/E and EV/EBITDA multiples are not very helpful. The best basis on which to look at the company today is on an EV/sales multiple, where the stock trades on c 1.1x FY19e EV/sales. However, we highlight below a number of reasons why we believe investors should take a longer-term view of Brady:

Recurring revenues: The transition to micro-services and ultimately to the cloud, supported by the shift to a global functional team, significantly improves the predictability, sustainability and scalability of the business.

Client upsell: Management believes that there is a significant opportunity to leverage value from analytical products that utilise the data that flow through the group’s software platforms.

Attractive market: The global E/CTRM (energy/commodity trading and risk management) end-market is an attractive market, valued at c $1.65bn (source: ComTech Advisory 2016) and growing at mid-single digits. Brady has a strong market position, being the top in metals globally, and the leading European energy trading and risk management player, and is well positioned in some of the most attractive areas of the market, including natural gas, power and agriculture.

M&A and consolidation: There has been M&A activity across the financial software space over a number of years. We have also seen consolidation of the E/CTRM space, which should be beneficial to Brady. The sector saw a range of private equity-funded deals executed at high (3-4x) EV/sales multiples in 2011-13, while ION (a holding company backed by Carlyle and TA Associates to consolidate financial technology companies) acquired Triple Point at c 5x sales in 2013. ION has also gone on to acquire Aspect Enterprise Solutions in 2017, OpenLink in 2018 and, most recently, Allegro in April 2019. Separately, MCG acquired Paragon Energy Software in 2017. These deals highlight the continuing attractions of the commodity software space, particularly to private equity, with Brady remaining the only quoted asset in the sector.

Peer comparison: The stock trades on 1.1x our FY19e revenues, a substantial discount to its UK and international financial software peers, trading at an average of 3-4x sales. As Brady implements its revised strategy and earnings growth returns, there is significant scope for a re-rating of the stock both in terms of profitability and increasing multiples.

Exhibit 3: Public market comparators

Name

Current price
(local ccy)

Quoted currency

Market cap (m)

Sales growth 1FY (%)

EV/sales 1FY (x)

EV/sales 2FY (x)

EBITDA margin 1FY (%)

EBITDA margin 2FY (%)

EV/ EBITDA 1FY (x)

EV/ EBITDA 2FY (x)

P/E 1FY (x)

P/E 2FY (x)

Brady PLC

24.0

GBp

20

-18

1.1

1.0

N/A

N/A

N/A

N/A

N/A

N/A

UK financial software

First Derivatives PLC

2330.0

GBp

622

11.3

2.6

2.4

17.8

18.1

14.8

13.3

26.8

24.1

Aptitude Software Group PLC

594.0

GBp

378

10.8

5.4

4.9

20.9

23.2

25.6

21.0

52.6

41.3

StatPro Group PLC

227.0

GBp

150

6.4

3.1

2.9

20.1

20.7

15.4

14.1

27.4

23.8

Gresham Technologies PLC

115.5

GBp

79

29.8

2.9

2.8

13.6

15.4

21.1

17.9

82.5

55.0

Mean

14.6

3.5

3.2

18.1

19.3

19.2

16.6

47.3

36.0

Median

11.0

3.0

2.8

19.0

19.4

18.3

16.0

40.0

32.7

International financial software

Fidelity National Info Services

131.8

USD

80,858

46.4

7.2

6.6

41.5

44.8

17.4

14.6

24.6

20.7

Broadridge Financial Solutions

126.7

USD

14,481

4.5

3.4

3.3

21.7

23.0

15.8

14.3

24.6

22.4

SS&C Technologies

50.2

USD

12,744

34.7

4.4

4.3

39.3

40.2

11.3

10.7

13.8

12.6

Simcorp A/S

616.5

DKK

25,023

17.7

7.4

6.8

30.4

30.3

24.5

22.5

34.4

31.2

Envestnet Inc

60.1

USD

3,136

10.5

4.1

3.5

21.4

22.7

19.1

15.6

28.4

23.5

Flatex AG

27.4

EUR

536

12.1

5.2

4.6

31.6

34.8

16.4

13.2

24.1

18.7

Linedata Services SA

29.6

EUR

213

-1.5

1.7

1.7

25.3

25.3

6.7

6.6

10.9

10.9

GFT Technologies SE

7.0

EUR

184

1.4

0.7

0.7

10.2

10.9

7.3

6.6

12.5

9.7

Tecsys Inc

15.2

CAD

198

27.2

2.1

1.9

7.3

10.3

28.9

18.9

242.4

45.1

Crealogix Holding AG

97.0

CHF

136

13.2

1.2

1.1

9.5

11.0

12.2

10.0

23.3

17.5

Mean

16.6

3.8

3.5

23.8

25.3

16.0

13.3

43.9

21.2

Median

12.7

3.8

3.4

23.5

24.1

16.1

13.7

24.3

19.7

Source: Refinitiv. Note: Data as at 23 September 2019.

Exhibit 4: Financial summary

£000s

2016

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

25,373

22,215

23,157

19,062

20,393

Cost of Sales

(9,804)

(9,852)

(9,278)

(9,468)

(7,568)

Gross Profit

15,569

12,363

13,879

9,594

12,825

EBITDA (Edison definition)

 

 

1,910

(2,643)

685

(3,828)

(704)

Adjusted Operating Profit

 

 

1,290

(2,941)

318

(4,178)

(1,154)

Amortisation of acquired intangibles

(1,618)

(1,618)

(1,559)

(1,283)

(1,283)

Exceptionals items

(2,128)

(2,441)

(274)

(589)

(200)

Share based payments

(90)

(9)

137

(148)

(500)

Operating Profit

(2,546)

(6,950)

(1,102)

(6,198)

(3,137)

Net Interest

3

(22)

(42)

(30)

(50)

Profit Before Tax (norm)

 

 

1,293

(2,963)

276

(4,208)

(1,204)

Profit Before Tax (FRS 3)

 

 

(2,543)

(6,972)

(1,144)

(6,228)

(3,187)

Tax

(188)

127

(664)

926

289

Discontinued items

878

(1,922)

(271)

(189)

0

Profit After Tax (norm)

1,992

(4,721)

5

(3,283)

(915)

Profit After Tax (FRS 3)

(1,853)

(8,767)

(2,079)

(5,492)

(2,898)

Average Number of Shares Outstanding (m)

83.0

83.0

83.3

83.4

83.6

EPS – normalised (p)

 

 

2.4

(5.7)

0.0

(3.9)

(1.1)

EPS – FRS 3 (p)

 

 

(2.2)

(10.5)

(2.5)

(6.6)

(3.5)

Dividend per share (p)

0.00

0.00

0.00

0.00

0.00

EBITDA Margin (%)

7.5

(11.9)

3.0

(20.1)

(3.5)

Adjusted Operating Margin (%)

5.1

(13.2)

1.4

(21.9)

(5.7)

BALANCE SHEET

Fixed Assets

 

 

37,035

27,001

27,285

30,338

27,050

Intangible Assets

35,999

26,091

26,449

25,292

22,354

Tangible Assets

978

487

746

396

46

Deferred tax

58

423

90

90

90

Current Assets

 

 

14,640

14,724

10,756

5,874

6,144

Stocks

0

0

0

0

0

Debtors

7,297

4,787

5,600

4,068

4,352

Cash

7,343

4,089

5,156

1,806

1,792

Other current assets

0

5,848

0

0

0

Current Liabilities

 

 

(12,669)

(14,927)

(12,252)

(11,663)

(12,284)

Creditors

(12,669)

(13,543)

(12,019)

(9,828)

(10,449)

Short-term borrowings

0

0

(233)

(1,835)

(1,835)

Other current liabilities

0

(1,384)

0

0

0

Long-Term Liabilities

 

 

(5,670)

(4,593)

(4,322)

(8,862)

(8,862)

Long-term borrowings

0

0

(296)

(1,200)

(1,200)

Other long-term liabilities

(5,670)

(4,593)

(4,026)

(7,662)

(7,662)

Net Assets

 

 

33,336

22,205

21,467

15,686

12,049

CASH FLOW

Operating Cash Flow

 

 

2,737

(316)

1,002

(2,872)

1,536

Net Interest

3

(22)

(251)

(30)

(50)

Tax

(428)

247

(73)

(1,754)

(1,000)

Capex

(2,167)

(2,806)

(3,289)

(2,200)

(500)

Acquisitions/disposals

(326)

0

2,936

1,000

0

Financing

47

190

0

0

0

Dividends

0

0

0

0

0

Net Cash Flow

(134)

(2,707)

325

(5,856)

(14)

Opening net debt/(cash)

 

 

(6,594)

(7,343)

(4,354)

(4,627)

1,229

Other

883

(282)

(52)

0

0

Closing net debt/(cash)

 

 

(7,343)

(4,354)

(4,627)

1,229

1,243

Source: Company data, Edison Investment Research

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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

This document is prepared and provided by Edison 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.

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.

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

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

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

General disclaimer and copyright

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

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

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

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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