Raising €29m (net) funds for growth

SNP Schneider-Neureither 27 June 2016 Update

SNP Schneider-Neureither & Partner

Raising €29m (net) funds for growth

Capital raising

Software & comp services

 

27 June 2016

Price

€27.20

Market cap

€135m

Net debt (€m) as at 31 March 2016

4.8

Shares in issue (assuming a full allocation)

4.98m

Free float

55%

Code

SHF

Primary exchange

Frankfurt (Xetra)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.4)

(11.5)

101.2

Rel (local)

1.7

(8.8)

141.5

52-week high/low

€32.47

€12.66

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

Q2 results

29 July

Q3 results

28 October

German Equity Forum

21-23 November

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 is raising €31m (gross) in a rights issue of new ordinary shares. The new money will fund both organic growth as well as the group’s acquisition strategy. SNP has been experiencing strong demand for its products and services, particularly in the German and US markets, and earlier this year it significantly expanded its operations in Asia, via the acquisitions of Astrums and Hartung Consult. Headcount is expected to rise towards 700 by year end and there is no sign that the activity is slowing. Indeed, on 19 May the group received another major order for transformation software from a German industrial group. Hence, we continue to believe the shares are attractive on c 16x FY18e earnings.

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

0.4

12/15

56.2

3.4

58.8

34.0

46.3

1.1

12/16e

75.2

6.9

106.5

40.0

25.5

1.3

12/17e

88.4

9.6

130.1

50.0

20.9

1.6

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

Capital increase

SNP is issuing one new share at €25 for every three existing shares, and the entitlement rights can be traded. The subscription period runs from 16 June 2016 to 29 June 2016. Management and employees have endeavoured to subscribe to new shares for a total of €4.77m. Shares that have not been subscribed for as part of the offer for subscription are to be offered to selected investors outside of the US. The rights issue has not been underwritten.

Brexit risks are very small

Total group revenues in the UK in FY15 were €1.064m, or 1.9% of revenues, which entirely reflects revenue generated through SNPs system integrator partners. This revenue level is before the Asia acquisitions of Astrums and Hartungs, which we are forecasting will add €10m to group revenues in FY16. Hence on a proforma basis (also considering two minor acquisitions), the sensitivity falls to c 1.4%.

Forecasts: Only adjusted for the rights issue

We have maintained our forecasts but have adjusted EPS for the dilution impact of the rights issue and of the capital raising on the balance sheet. We have not adjusted historical EPS/DPS for the rights issue. While there is dilution, the funds put the group in a much stronger position to exploit growth opportunities.

Valuation: Strong growth play in the ERP space

We have maintained all our forecasts although adjusted EPS for the dilution impact of the rights issue. The stock trades on c 26x our FY16e EPS, falling to c 21x in FY17e and to c 16x in FY18e. We believe the ratings continue to look attractive given the forecast strong growth and continued margin recovery potential.

Forecasts

We have maintained our revenue and profits forecasts. However, our EPS forecasts fall back for the dilution impact of the rights issue, (which we assume is fully subscribed), while the net cash position is boosted by the net funds raised. We have not reduced the interest cost given the low interest rates on deposits, and note that our €775k interest cost forecast largely relates to the outstanding public bond issue (which pays an annual coupon of €625k). Given the comfortable coverage we have maintained our dividend forecasts, despite the dilution.

Exhibit 1: Forecast changes

EBITDA

EPS

Net debt/(cash)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2016e

9.1

9.1

0

124.1

106.5

(14)

3.5

(26.3)

N/A

2017e

11.8

11.8

0

173.2

130.1

(25)

(1.2)

(30.7)

N/A

2018e

14.9

14.9

0

226.2

169.9

(25)

(2.9)

(31.9)

N/A

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

75,179

88,387

100,047

Cost of sales

0

0

0

0

0

0

Gross Profit

23,536

30,480

56,236

75,179

88,387

100,047

EBITDA

 

 

(1,972)

862

5,484

9,077

11,804

14,917

Adjusted Operating Profit

 

 

(2,714)

(66)

4,222

7,724

10,377

13,234

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

7,724

10,377

13,234

Net Interest

(85)

(66)

(828)

(775)

(775)

(775)

Profit Before Tax (norm)

 

 

(2,799)

(132)

3,394

6,949

9,602

12,459

Profit Before Tax (FRS 3)

 

 

(2,799)

1,373

3,747

6,949

9,602

12,459

Tax

477

(344)

(1,195)

(2,085)

(2,880)

(3,738)

Profit After Tax (norm)

(2,322)

(477)

2,198

4,864

6,721

8,721

Profit After Tax (FRS 3)

(2,322)

1,028

2,552

4,864

6,721

8,721

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

4,639

6,474

8,454

Net income (FRS 3)

(2,405)

988

2,552

4,639

6,474

8,454

Average No 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

106.5

130.1

169.9

EPS - normalised & fully diluted (c)

 

 

(64.7)

(13.9)

58.8

106.5

130.1

169.9

EPS - FRS 3 (c)

 

 

(64.7)

26.6

68.3

106.5

130.1

169.9

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

12.1

13.4

14.9

Adjusted Operating Margin (%)

-11.5

-0.2

7.5

10.3

11.7

13.2

BALANCE SHEET

Fixed Assets

 

 

7,759

8,291

15,243

25,394

25,734

26,052

Intangible Assets

5,194

5,190

11,675

21,675

21,675

21,675

Tangible Assets

1,070

1,231

1,999

2,149

2,489

2,807

Other

1,496

1,871

1,570

1,570

1,570

1,570

Current Assets

 

 

16,145

17,882

29,996

62,888

71,054

75,553

Stocks

0

0

0

0

0

0

Debtors

9,105

11,286

16,084

21,502

25,280

28,615

Cash

6,355

5,681

13,769

41,243

45,631

46,796

Current Liabilities

 

 

(5,804)

(9,782)

(13,703)

(18,925)

(22,387)

(25,333)

Creditors

(5,204)

(9,182)

(11,101)

(16,323)

(19,785)

(22,731)

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

49,344

54,388

60,759

CASH FLOW

Operating Cash Flow

 

 

(2,110)

2,579

1,879

8,701

11,362

14,417

Net Interest

4

(66)

(167)

(775)

(775)

(775)

Tax

(1,062)

(1,102)

(554)

(1,946)

(2,688)

(3,488)

Capex

(230)

(701)

(1,779)

(1,504)

(1,768)

(2,001)

Acquisitions/disposals

(2,267)

(500)

(3,228)

(5,500)

0

(4,500)

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)

27,474

4,388

1,164

Opening net debt/(cash)

 

 

(10,152)

(3,505)

(3,431)

1,176

(26,298)

(30,686)

HP finance leases initiated

0

0

0

0

0

0

Other

(10)

51

(275)

0

0

0

Closing net debt/(cash)

 

 

(3,505)

(3,431)

1,176

(26,298)

(30,686)

(31,850)

Source: Company accounts, Edison Investment Research

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

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NSW 2000, Australia

Wellington +64 (0)48 948 555

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Wellington 6011

New Zealand

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