SNP Schneider-Neureither & Partner |
Record win highlights the effective new strategy |
Contract win |
Software & comp services |
27 September 2016 |
Share price performance
Business description
Next events
Analysts
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SNP has won a record $10m+ contract to combine the IT landscapes of two US chemical companies (we assume Dow Chemical and DuPont) which are merging. The contract comes on the back of the landmark Hewlett-Packard carve-out contract that SNP delivered in record time in H215. The latest win is a further indication that the group’s growth strategy is paying off and underpins our forecasts. SNP has been experiencing strong demand for its products and services, particularly in the German and US markets. Earlier this year it significantly expanded its operations in Asia, and in July it raised €29m (net) via a rights issue. Headcount is expected to rise towards 700 by year end and there is no sign that the activity is slowing. Hence, we believe the shares are attractive on c 17x our cash-adjusted FY18e EPS.
Year |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
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 |
56.1 |
1.0 |
12/16e |
75.2 |
6.9 |
106.5 |
40.0 |
31.0 |
1.2 |
12/17e |
88.4 |
9.6 |
130.1 |
50.0 |
25.4 |
1.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Contract win with Dow-DuPont combination
SNP says it has been “commissioned to combine the SAP system landscapes of two of the world's most significant US-based chemical companies, which are currently in the process of merging”. The contract was won against strong international competition. In December 2015, DuPont and Dow announced that they intended to combine in a merger of equals and, following the merger, intended to separate into three independent publicly traded companies – an agriculture company, a material science company and a speciality products company.
SNP is positioning itself as a specialist implementer of complex IT transformations utilising a software-supported analytical method, which enables optimum project planning and minimises project risk. SNP’s T-B software solution automates the process of combining, upgrading or carving out data from ERP systems and is the only “off-the-shelf” solution on the market. T-B improves the transformation quality and is the only solution that has been accredited by both E&Y and PwC, which means it can significantly reduce auditing costs. ERP landscapes grow more complex over time, partly driven by M&A, and there is an ongoing requirement for companies to improve/upgrade their systems.
Valuation: Strong growth play in the ERP space
The stock trades on c 31x our maintained FY16e EPS, falling to c 25x in FY17e and to c 19x in FY18e. However, following the recent capital-raising, the group is in a net cash position, and we forecast €26.3m net cash at end-FY16 (prior to adjusting for c €4.2m other financial liabilities – mainly acquisition liabilities and a small pension deficit). Adjusted for the net cash, the ratings fall to c 27x in FY16, c 22x in FY17 and c 17x in FY18. We believe the ratings continue to look attractive given the forecast strong growth and continued margin recovery potential.
Exhibit 1: 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 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 |
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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