Q3 results win on bottom-line growth

CENIT 10 November 2015 Update

CENIT

Q3 results win on bottom-line growth

Q315 results

Software & comp services

10 November 2015

Price

€20.0

Market cap

€168m

Net cash (€m) at Sept 2015

33

Shares in issue

8.4m

Free float

97%

Code

CSH

Primary exchange

Xetra

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

20.0

18.4

85.5

Rel (local)

12.0

25.8

59.4

52-week high/low

€20.0

€11.0

Business description

CENIT is a leading provider of product lifecycle management (PLM) and enterprise information management (EIM) consultancy services and software. It resells software from Dassault Systèmes, IBM and SAP and is also developing proprietary software to add functionality.

Next events

Stuttgart Small-Cap Forum

17 November 2015

German Equity Forum, Frankfurt

23-24 November 2015

Analysts

Anna Bossong

+44 (0)20 3077 5737

Dan Ridsdale

+44 (0)20 3077 5729

Cenit has reported Q3 results showing 12.8% y-o-y growth in EBIT after a 2.9pp gross margin gain that offset the impact of a 4.5% sales decline. The results support the company’s full-year guidance of stable revenues and an 8-10% increase in EBIT, and have led us to increase our 2016 EBIT forecast by 1.5%. We believe that the recently announced acquisition of Coristo, a SAP product structure management specialist, should add value to the group by strengthening Cenit’s product offering and potentially leading to the creation of new proprietary software.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

EV/EBITDA
(x)

Yield
(%)

12/13

120.1

8.4

0.7

0.4

12.7

2.0

12/14

124.0

9.4

0.8

0.9

11.5

4.5

12/15e

122.6

10.2

0.9

0.5

11.0

2.5

12/16e

128.4

11.1

0.9

0.5

10.2

2.5

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

Operating profit up 12.8% on wider margins

PLM revenues, which make up 81% of total sales, rose 0.8% y-o-y in Q315 but a greater than expected 22% fall-back in EIM revenues resulted in total sales contracting 4.5%, which undershot our revenue estimate by 5.3%. Management’s focus on the bottom line, which has seen it avoid taking on some low-margin business, was reflected in the 2.9pp expansion in the gross margin to 61.5% in Q315, which flowed down to a 1.4pp gain at the EBIT margin.

Coristo acquisition broadens the palette

Cenit recently announced the planned acquisition of Coristo, a small German software house that has expertise in SAP product structure management – broadening Cenit’s product range. The company will bring seven professional staff and Cenit is looking at the potential to develop some of its existing components into proprietary software to expand the group’s existing range.

Order inflows poor, but earnings outlook better

Cenit’s order inflows during the third quarter fell 33% to €21.2m, but the company finished the quarter with a €33.2m order book, down 3.7% y-o-y. We have cut our revenue expectations for this year (3.5%) and next (1.9%) on this slowdown and the likely more difficult German auto sector in 2016. Nevertheless, we have left our 2015 EBIT forecast broadly unchanged and increased the 2016 number by 1.5% on the recent positive margin trends and the Coristo acquisition.

Valuation: Coristo acquisition helps boost case

On a current-year prospective EV/EBITDA multiple of 11.0x, Cenit trades above the median multiple of its sector at 10.0x. Potential upside catalysts are the ongoing growth of own software sales and further potential acquisitions while staff shortages and difficult conditions in the German auto sector are potential downside catalysts.

Q315 results summary

Improving margins offsetting weaker revenues

Cenit has reported a 4.5% y-o-y decline in Q315 revenues on the back of weaker consulting services and third-party software sales. The decline was concentrated in the EIM segment, where revenues fell 21.7%. Although proprietary software remains a bright spot for the business, the third quarter also saw a slowing in revenue growth to 7.8% y-o-y (vs 19.6% for the nine months to September 2015). Helped by a consistent concentration on margin improvements (and similar focus when taking new orders), the group was able to increase the gross margin by 2.9pp resulting in a 0.3% increase in gross profit, which flowed through to an 8.4% increase in EBITDA and a 12.8% increase in EBIT.

In Q3 the group order backlog fell 3.7% y-o-y to €33.2m, reflecting a 2.8% decline in order intake over the first nine months of the year. Third-quarter order inflows were 33% down y-o-y at €21.2m.

Exhibit 1: Cenit Q315 results summary

€000s

9M15

9M14

Change

Change (%)

Q315e

Q315

Q314

Change

Change (%)

Q115

Q215

Consulting services

38505

40422

(1,917)

(4.7)

13,355

13,137

13,490

(353)

(2.6)

12,676

12,692

Third-party software

39695

41360

(1,665)

(4.0)

15,299

13,711

14,999

(1,288)

(8.6)

13,414

12,570

CENIT Software

11027

9220

1,807

19.6

3,264

3,320

3,079

241

7.8

4,264

3,443

Sales*

89,424

91,364

(1,940)

(2.1)

31,918

30,241

31,664

(1,423)

(4.5)

30,426

28,757

Sales (% change)

(2.1)

2.4

0.8

(4.5)

10.1

2.5

(3.4)

PLM revenues

71,962

71,603

359

0.5

25,534

24,419

24,226

193

0.8

24,077

23,466

EIM revenues

17,462

19,761

(2,299)

(11.6)

6,384

5,822

7,438

(1,616)

(21.7)

6,349

5,291

Gross Profit

56,762

55,520

1,242

2.2

19,470

18,608

18,560

48

0.3

19,793

18,361

Gross Margin (%)

63.5

60.8

2.7 pp

61.0

61.5

58.6

2.9 pp

63.5

62.6

Personnel

36,600

36,453

147

0.4

12,703

11,821

11,863

(42)

(0.4)

12,750

12,029

EBITDA

9,203

8,524

679

8.0

3,114

3,299

3,044

255

8.4

2,901

3,003

EBITDA margin (%)

10.3

9.3

1.0 pp

9.8

10.9

9.6

1.3 pp

9.3

10.2

D&A

1,570

1,805

(235)

(13.0)

638

530

589

(59)

(10.0)

499

541

EBIT

7,633

6,719

914

13.6

2,475

2,769

2,455

314

12.8

2,402

2,462

EBIT Margin (%)

8.5

7.4

1.2 pp

7.8

9.2

7.8

1.4 pp

7.7

8.4

EBT

7,661

6,838

823

12.0

2,475

2,771

2,492

279

11.2

2,425

2,465

Net income

5,490

4,748

742

15.6

1,733

1,909

1,700

209

12.3

1,882

1,699

EPS

Basic

0.66

0.57

0.09

15.8

0.21

0.23

0.20

0.03

14.1

0.22

0.20

Diluted

0.66

0.57

0.09

15.8

0.21

0.23

0.20

0.03

14.1

0.22

0.20

Key data

Order intake

87,774

90,261

(2,487)

(2.8)

N/A

21,173

31,440

(10,267)

(32.7)

39,250

27,351

Order book

33,193

34,458

(1,265)

(3.7)

N/A

33,193

34,458

(1,265)

(3.7)

35,884

39,216

Employees at EOP

632

657

(25)

(3.8)

N/A

632

657

(25)

(3.8)

640

629

Investment

1,378

1,449

(71)

(4.9)

N/A

215

255

(40)

(15.7)

252

911

Source: Cenit, Edison Investment Research. Note: *Excludes other income.

Exhibit 2: Segmental revenue trend

Exhibit 3: Order book and quarterly order intake

Source: Cenit

Source: Cenit

Exhibit 2: Segmental revenue trend

Source: Cenit

Exhibit 3: Order book and quarterly order intake

Source: Cenit

North American sales performed strongly in the third quarter, up 46.4% y-o-y, and in Germany Cenit slowed the revenue decline to 7.2% in the third quarter.

Exhibit 4: International sales breakdown

€000s

9M15

9M14

Chg (%)

Q315

Q314

Chg (%)

Germany

67,371

73,935

(8.9)

22,924

24,690

(7.2)

Switzerland

9,003

8,386

7.4

3,006

4,012

(25.1)

North America

10,662

7,644

39.5

3,579

2,445

46.4

Romania

1,241

626

98.2

425

226

88.1

France

344

286

20.3

146

92

58.7

Japan

803

487

64.9

161

200

(19.5)

Total

89,424

91,364

(2.1)

30,241

31,665

(4.5)

Source: Cenit

Forecasts review

We have trimmed our FY15 and FY16 revenue expectations following the relatively weak Q3 revenue numbers and the slowdown in order inflows. We have reduced group revenues by 3.5% and 1.9% for FY15e and FY16e, respectively.

Helped by the stronger margin expectations (in part boosted by the group taking a more margin-oriented approach to new business), we have nevertheless left our 2015 EBIT forecast broadly unchanged. We have increased our 2016 EBIT forecast by 1.5% on the recent positive gross margin trends, lower than expected growth in staff costs and the acquisition of Coristo, a SAP product structure management specialist.

Exhibit 5: Cenit forecast revisions

€000s

2015e old

2015e new

Var

Var (%)

2016e old

2016e new

Var

Var (%)

2014

Consulting services

52,333

51,661

(672)

(1.3)

49,856

52,235

2,380

4.8

53,943

Third-party software

60,751

53,990

(6,761)

(11.1)

65,611

57,230

(8,381)

(12.8)

56,251

CENIT Software

14,001

15,166

1,166

8.3

15,401

16,683

1,282

8.3

12,728

Sales

127,085

121,068

(6,017)

(4.7)

130,868

126,403

(4,464)

(3.4)

123,394

Other income

0

1,523

1,523

0

1,953

1,953

634

Total revenues

127,085

122,591

(4,494)

(3.5)

130,868

128,356

(2,512)

(1.9)

123,939

Gross profit

77,268

76,128

(1,140)

(1.5)

79,567

78,811

(757)

(1.0)

75,200

Personnel

50,365

49,280

(1,085)

(2.2)

40,768

50,342

9,574

23.5

49,129

EBITDA

12,501

12,289

(212)

(1.7)

13,313

13,225

(88)

(0.7)

11,663

D&A

2,334

2,100

(234)

(10.0)

2,451

2,205

(246)

(10.0)

2,334

EBIT

10,167

10,189

22

0.2

10,862

11,020

158

1.5

9,329

EBT

10,195

10,226

32

0.3

10,626

11,058

432

4.1

9,406

Net income

6,932

7,209

276

4.0

7,226

7,519

294

4.1

6,359

EPS

Basic

0.83

0.86

0.86

0.90

0.76

Diluted

0.83

0.86

0.86

0.90

0.76

Source: Cenit, Edison Investment Research

Exhibit 6: Financial summary

€m

2012

2013

2014

2015e

2016e

Year-end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

119.6

120.1

124.0

122.6

128.4

Cost of Sales

(46.0)

(46.9)

(48.8)

(46.5)

(49.5)

Gross Profit

73.6

73.2

75.2

76.1

78.8

EBITDA

 

 

11.0

10.6

11.7

12.3

13.2

Operating Profit (before amort. and except.)

8.0

8.3

9.3

10.2

11.0

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Operating Profit

8.0

8.3

9.3

10.2

11.0

Net Interest

0.1

0.0

0.1

0.0

0.0

Profit Before Tax (norm)

 

 

8.1

8.4

9.4

10.2

11.1

Profit Before Tax (FRS 3)

 

 

8.1

8.4

9.4

10.2

11.1

Tax

(2.7)

(2.5)

(3.0)

(3.0)

(3.5)

Profit After Tax (norm)

5.4

5.9

6.4

7.2

7.5

Profit After Tax (FRS 3)

5.4

5.9

6.4

7.2

7.5

Average Number of Shares Outstanding (m)

8.4

8.4

8.4

8.4

8.4

EPS - normalised (EUR)

 

 

0.65

0.70

0.76

0.86

0.90

EPS - normalised and fully diluted (EUR)

 

0.65

0.70

0.76

0.86

0.90

EPS - (IFRS) (EUR)

 

 

0.65

0.70

0.76

0.86

0.90

Dividend per share (EUR)

0.55

0.35

0.90

0.50

0.50

Gross Margin (%)

61.5

61.0

60.6

62.1

61.4

EBITDA Margin (%)

9.2

8.9

9.4

10.0

10.3

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

6.7

6.9

7.5

8.3

8.6

BALANCE SHEET

Fixed Assets

 

 

9.7

8.7

7.0

6.7

6.8

Intangible Assets

4.1

3.6

3.9

3.7

3.9

Tangible Assets

5.5

5.1

3.0

3.0

3.0

Investments

0.1

0.1

0.1

0.0

0.0

Current Assets

 

 

49.3

51.6

59.9

57.9

62.5

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

20.1

18.4

20.8

18.5

19.4

Cash

23.8

26.6

33.3

33.5

37.2

Other

5.5

6.6

5.9

5.9

5.9

Current Liabilities

 

 

(16.0)

(16.1)

(17.3)

(17.4)

(17.7)

Creditors

(16.0)

(16.1)

(17.3)

(17.4)

(17.7)

Short term borrowings

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(2.3)

(2.3)

(2.9)

(2.7)

(2.8)

Long term borrowings

0.0

0.0

0.0

0.0

0.0

Other long term liabilities

(2.3)

(2.3)

(2.9)

(2.7)

(2.8)

Net Assets

 

 

40.7

42.0

46.7

44.4

48.8

CASH FLOW

Operating Cash Flow

 

 

12.7

12.6

13.0

12.6

13.2

Net Interest

0.1

0.0

0.1

0.0

0.0

Tax

(2.3)

(3.8)

(3.7)

(3.0)

(3.5)

Capex

(2.3)

(1.2)

(1.7)

(1.9)

(1.8)

Acquisitions/disposals

0.0

0.0

(0.6)

0.0

0.0

Financing

0.0

0.0

2.0

(0.0)

0.0

Dividends

(2.5)

(4.6)

(2.9)

(7.5)

(4.2)

Net Cash Flow

5.7

3.0

6.2

0.2

3.7

Opening net debt/(cash)

 

 

(18.1)

(23.8)

(26.6)

(33.3)

(33.5)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

0.0

-0.2

0.4

0.0

0.0

Closing net debt/(cash)

 

 

(23.8)

(26.6)

(33.3)

(33.5)

(37.2)

Source: Cenit, 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 (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). 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 2015 Edison Investment Research Limited. All rights reserved. This report has been commissioned by CENIT 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 2015. “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