Seeing through the SaaS transition

CREALOGIX Group 16 October 2019 Outlook
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CREALOGIX Group

Seeing through the SaaS transition

FY19 results

Software & comp services

16 October 2019

Price

CHF96.4

Market cap

CHF135m

Net debt (CHFm) at 30 June 2019

2.1

Shares in issue

1.4m

Free float

37%

Code

CLXN

Primary exchange

Switzerland

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.6

(2.6)

(34.0)

Rel (local)

2.5

(5.0)

(43.1)

52-week high/low

CHF146

CHF90

Business description

The CREALOGIX Group is a Swiss Fintech 100 company and is among the global market leaders in digital banking, providing front-end digital banking technology solutions to banks, wealth managers and other financial services companies.

Next events

AGM

28 October 2019

Half-year results

17 March 2020

Analysts

Richard Williamson

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

CREALOGIX Group is a research client of Edison Investment Research Limited

CREALOGIX is a leading, global, digital banking engagement platform provider. Despite 17% revenue growth, FY19 EBITDA was slightly below our expectations at CHF1.9m as the company moves to a SaaS model faster than expected. The SaaS transition is expected to drag on results until FY21, before delivering a full year of benefit in FY22. We have lowered our forecasts and now anticipate 4% and 5% revenue growth in FY20 and FY21, with EBITDA of CHF2.6m and CHF4.7m respectively. Management also announced a transformation programme to position CREALOGIX for future growth, funded by a convertible bond refinancing (details on page 8) to secure additional headroom for working capital and M&A.

Year end

Revenue (CHFm)

PBT*
(CHFm)

EPS*
(CHF)

DPS
(CHF)

P/E
(x)

Yield
(%)

06/18

87.1

5.0

2.39

0.25

40.3

0.3

06/19

101.9

(1.7)

(0.94)

0.00

N/A

0.0

06/20e

105.5

(0.7)

(0.34)

0.00

N/A

0.0

06/21e

111.1

1.4

0.74

0.25

130.3

0.3

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

FY19 results: Strong growth, profitability affected

FY19 revenues increased 17% to CHF101.9m, while EBITDA fell to CHF1.9m, markedly down on FY18 (CHF7.0m) due to the revenue and profit deferral implicit in the transition to a SaaS model. FY19 net losses amounted to CHF6.3m (FY18: CHF0.7m net profit). Looking at H1 vs H2, H219 revenues were broadly flat at CHF50.9m, while H219 EBITDA fell to a CHF1.4m loss from a CHF3.3m profit in H119. As well as the SaaS transition, CREALOGIX noted that market uncertainty around Brexit had a pronounced negative impact on its UK business.

Transformation programme

In parallel with its results, CREALOGIX announced a transformation programme with three key elements: acceleration of its change to a SaaS model; investment in modularising and scaling its Digital Banking Hub; and broadening its implementation partnerships to support international growth. Management has indicated that the drag from the transition to SaaS is likely to affect FY20 and FY21. However, despite the short-term pain this entails, we believe it is a necessary and beneficial step for the business to take and that the higher level of recurring revenues, increased visibility, higher margins and better client retention will improve the quality of business and earnings in the medium term.

Valuation: Upside potential post-transition

Looking at CREALOGIX’s trading peers suggests that a valuation of c 2.5–3.0x revenues and c 15–20x EBITDA is achievable following a successful SaaS transition in line with management targets. Based on our FY22 estimates, this would suggest that an EV of CHF250m+ is achievable (a 100% premium to today’s share price). For investors willing to take a medium-term view, CREALOGIX’s valuation of 1.3x FY20e sales is attractive, particularly when compared to its closest peers. However, we would note that restricted share trading liquidity continues to limit exit opportunities.

Investment summary

Global digital banking enabler

CREALOGIX is an international leader in digital banking solutions. Based in Zurich, it was founded in 1996 by Bruno Richle, Richard Dratva, Daniel Hiltebrand and Peter Süsstrunk. Messrs Richle, Dratva and Süsstrunk continue to work with the company and together own c 36% of the share capital. With more than 700 employees, CREALOGIX provides front-end banking software solutions that operate across multiple mobile and PC channels. It has implemented projects for more than 550 customers, ranging from comprehensive online banking and Robo Advisory to mobile-only solutions. The company ranks in IDC’s global fintech top 100, having improved its position every year since its initial inclusion in 2016.

The company has a leading position in the Swiss market, where 19 of the 30 largest Swiss banks are using its digital online/mobile applications. It has offices in Germany, Austria, Spain, the UK and Singapore, with plans to extend operations further in Asia and the Middle East. In FY19, 64% of sales were international (ie outside Switzerland), which it expects to rise to 70% or more in the medium term.

The total addressable global market for digital banking software is estimated to be worth $23bn (source: Temenos, August 2019), of which the US represents c $9bn. The digital banking software market remains a fragmented competitive landscape, with competition varying by country and region, including incumbent banking software vendors, specialist front office providers and leading fintech companies.

Financials: SaaS transition to bear fruit in FY21/22

CREALOGIX is now deep in the middle of the SaaS transition. FY19 revenues increased 17% to CHF101.9m, while FY19 EBITDA fell to CHF1.9m, markedly down on FY18 (CHF7.0m) due to the revenue and profit deferral implicit in the transition to a SaaS model, coupled with a deferral of decision making by potential clients. FY19 net losses amounted to CHF6.3m (FY18: CHF0.7m net profit), including CHF5.1m of amortised goodwill (FY18: CHF2.9m). Looking at H1 vs H2, H219 revenues were broadly flat at CHF50.9m, while H219 EBITDA fell to a loss of CHF1.4m from a CHF3.3m profit in H119.

As well as the SaaS transition, the company noted that uncertainty around Brexit has also had a pronounced negative impact on its UK business, although the UK deal pipeline remains strong. On a positive note, CREALOGIX stated that it is near to closing a number of major international deals which, although they are still live, have not progressed at the speed with which management initially anticipated. Given the transition against an uncertain financial market backdrop (slowing global growth, US/China trade war, Brexit etc), management has withdrawn its explicit forecasts for the business, although it has reiterated that it expects to achieve double-digit EBITDA margins in the medium term.

Despite the short-term pain the SaaS transition entails, we believe it is a necessary and beneficial step for the business to take and that the recurring revenues, increased visibility, higher margins and better client retention will improve the quality of CREALOGIX’s business and earnings in the medium term.

Despite the difficulty in predicting the timing of major contract wins, CREALOGIX anticipates a positive revenue outlook for FY20 (we now forecast 4% revenue growth) with continuing strong underlying market demand and expected major new customer wins in the international banking sector. The SaaS transition will continue to drag on margins and we forecast EBITDA of CHF2.6m and CHF4.7m in FY20 and FY21, before CREALOGIX is able to realise its target of double-digit EBITDA margins in FY22.

The mechanics of the SaaS transition

Historically, CREALOGIX has offered a range of revenue models to its customers, predominantly a perpetual licence model, with additional annual support and maintenance fees, as well as services income. The new default delivery will be a hosted cloud or rental offering, which involves a recurring annual subscription fee. Clients upgrading their contracts are being encouraged to switch to rental although there will always be some clients that continue to prefer the perpetual licence model.

While this transition results in a temporary negative impact on revenues and profitability, the financial benefit, increased visibility, higher margins and better client retention will improve the quality of earnings in the medium term. In the transition period from licences to SaaS, the company will forego the up-front recognition of licence fees (CHF1m) for a recurring fee spread over the initial contract period (eg CHF0.3m pa). In this respect, although the revenues over the initial contract term are similar or higher, there is an interim period (of around four years) where there is a revenue shortfall versus the traditional licence model. Similarly, under current accounting rules, profit recognition (ie EBITDA) will be spread evenly over the life of the contract, whereas under the licence model, this was largely recognised upfront. Once the ‘breakeven’ point has been reached, the revenue – and therefore also the profitability – of the rental model is substantially higher than under a traditional maintenance fee model.

Management indicated that the initial impact from the SaaS transition was seen in FY18, with revenues and EBITDA CHF4m lower (part-year effect) than under a licence/maintenance model. The impact increased to approximately CHF7m in FY19 and, assuming a three-year transition period, we forecast a drag of CHF7m and CHF4m (part-year effect) in FY20 and FY21 respectively, before a full year benefit in FY22.

Valuation: Emphasis on FY22 multiples

The stock trades on 1.30x EV/Sales in FY20e, falling to 1.18x in FY22e with an FY22e EV/EBITDA multiple of 10.5x and a FY22e P/E of 15.9x. For patient investors prepared to consider a medium-term time horizon, CREALOGIX offers an attractive valuation proposition as it emerges from the SaaS transition, as highlighted by the valuations of its quoted peer group (closest peers, Temenos and Q2 Software). In terms of valuation, looking at CREALOGIX’s trading peers (see Exhibit 11) suggests that a valuation of c 2.5–3.0x revenues and c 15–20x EBITDA could be achievable once the SaaS transition has been successfully negotiated, although we recognise the wide variations in business models and valuation multiples across the peer selection.

Sensitivities: Competitive and economic environments

As has been highlighted in previous notes, economic and regulatory uncertainties, including Brexit, have the potential to affect decision-making by CREALOGIX’s customers. There is also a competitive risk that fintechs and challenger banks could make significant inroads into the traditional banking sector, leading to consolidation that would reduce CREALOGIX’s addressable customer base. Major back-end software vendors and ERP software providers could become more active in the front end, while specialist direct competitors could develop stronger solutions (eg Temenos/Kony) or more attractive business models. CREALOGIX’s acquisition strategy carries execution risk and increasing currency exposure as the company expands abroad. CREALOGIX has announced (but not yet completed) a fully underwritten convertible bond issue to redeem its maturing convertible bonds as well as to provide sufficient working capital to see the company through its short-term transitional phase.

Company description: Digital banking enabler

CREALOGIX develops and implements software solutions that enable digital banking for ‘the digital bank of tomorrow’. This market is dynamic and fast changing, and the group’s solutions are typically used by traditional banks to enable their journey to digitalisation through the provision of a sophisticated, modern, omni-channel offering to their clients.

The group’s products are front-end solutions that integrate with the customer’s back-end systems, such as a core banking system from Temenos, Avaloq or Infosys.

CREALOGIX’s primary target customers are traditional retail, private and commercial banks, as well as wealth managers that need to upgrade their legacy in-house systems. These see the benefits of modular, customisable, single-platform solutions, offering lower maintenance and development costs, better content management and stronger security in a constantly evolving (swiftly digitalising) marketplace. CREALOGIX has a customer-centric focus to optimise the user experience across the areas of mobility, security, personalised advice and education.

CREALOGIX sees itself as a pioneer in digital banking, having launched the first internet banking solution in Switzerland with Credit Suisse in 1997. It has offices in Germany, Austria, Spain, the UK and Singapore, with plans to extend operations further, mainly through implementation partnerships. Despite a market-leading position in Switzerland, 64% of FY19 sales were outside Switzerland and its medium-term target is to raise international revenues to 70%. CREALOGIX also intends to raise its recurring revenues (SaaS and maintenance) from 42% of revenues in FY19 to 60% of overall revenues by FY22.

As well as being recognised in IDC’s fintech top 100 in 2016–19, CREALOGIX’s technology continues to win awards. The group was recognised with two awards at the 2019 Systems in the City Financial Technology Awards, including Best Wealth Management User Interface for its innovative digital wealth management products. CREALOGIX is now a three-time Best of Show winner at FinovateEurope, with its TimeWarp, Gravity and The ARCs products.

CREALOGIX’S transformation programme

To ensure CREALOGIX can sustain its market-leading position, management announced a transformation programme alongside its FY19 results.

This programme involves three key elements:

1. Accelerating transition to a SaaS model – driven by the full acquisition of ELAXY Business Solution & Services (BS&S) in July 2018 (a digital banking advisory business with a German data centre), CREALOGIX is now working with a range of customers, particularly in Switzerland and Germany, as the international banking sector switches to a rental/SaaS model.

2. Increased R&D to support scaling – CREALOGIX continues to invest in its Digital Banking Hub, to make it more modular (eg open banking, user experience, APIs, AI and security) and easier to deploy, with a reduced time to market. Banks will then be able to tailor a suite of functional modules, using a mix of CREALOGIX, in-house and third-party technology to create their own unique solution. This technology investment should help drive sales growth in the medium to long term.

3. Strengthening its global partner network – as part of its go-to-market strategy, CREALOGIX is building a comprehensive partner ecosystem to allow it to work with customers around the world. Implementation partners have already been executing customer projects in the Asia-Pacific region, freeing up CREALOGIX to concentrate on its core business, the development and sale of digital banking software products.

Exhibit 1: Building blocks in place – clear direction of travel

Source: CREALOGIX

Outlook

In its FY19 outlook in September, CREALOGIX confirmed that, despite delays, the sales pipeline continues to look healthy. Europe continues to offer further opportunities for the group, and management identified a specific opportunity in South-East Asia, involving the roll-out of a solution for the entire digital wealth management business for a tier one bank. Management has indicated that other major contracts are also pending.

In FY20, CREALOGIX will continue to focus on the transition to a SaaS model, investing in its Digital Banking Hub and expanding its partner network globally. Management expects the transformation programme to have a positive impact on profitability in the medium term, driving double-digit EBITDA margins and strengthened cash flow once complete.

FY19 trading update

FY19 results: Strong revenue growth, profitability affected

FY19 revenues increased 17% to CHF101.9m, while FY19 EBITDA fell to CHF1.9m, markedly down on FY18 (CHF7.0m) due to the revenue and profit deferral implicit in the transition to a SaaS model. FY19 net losses amounted to CHF6.3m (FY18: CHF0.7m net profit), including CHF5.1m of amortised goodwill (FY18: CHF2.9m). Looking at H1 vs H2, H219 revenues were broadly flat at CHF50.9m, while H219 EBITDA fell to a CHF1.4m loss from a CHF3.3m profit in H119. As well as the SaaS transition, the company noted that market uncertainty around Brexit had a pronounced negative impact on its UK business.

CREALOGIX suggests a positive outlook for FY20, with anticipated major new customer wins in the international banking sector and high market demand. The SaaS transition will continue to drag on margins in FY20, although the company is confident that the transition will lead to a positive benefit from FY21 onwards, delivering strong cash flow and double-digit EBITDA margins from FY22.

Slowdown in new contract wins and Brexit impact

There were delays in new contract wins in FY19 which, according to management, reflected the significantly increased deal sizes that CREALOGIX is signing and the longer sales cycles associated with these deals. Meanwhile, uncertainly over Brexit has led to a deferral of corporate decision making in the UK. Despite these issues, CREALOGIX has a strong deal pipeline but there are uncertainties over the timing and form (SaaS or traditional) of new deals. CREALOGIX is in negotiations with tier one banks and optimistic that it will close several deals in H120.

Exhibit 2: Revenue by category

Exhibit 3: FY19 revenue by category

Source: CREALOGIX, Edison Investment Research

Source: CREALOGIX, Edison Investment Research

Exhibit 2: Revenue by category

Source: CREALOGIX, Edison Investment Research

Exhibit 3: FY19 revenue by category

Source: CREALOGIX, Edison Investment Research

Outlook: Drag from SaaS transition likely to affect FY20/21

Management has indicated that the initial impact from the SaaS transition was seen in FY18, with revenues and EBITDA CHF4m lower (part-year effect) than under a licence/maintenance model. The impact on revenue and EBITDA increased to CHF7m in FY19 and, assuming a typical three-year transition period, we forecast a drag of CHF7m in FY20 and CHF4m in FY21 (part-year effect), before a full year under the SaaS model in FY22.

Despite the slowdown in corporate decision making noted above, with a strong deal pipeline, management still expects double-digit EBITDA margins and strong cash flow generation in the medium term. However, until the outlook becomes clearer, it has withdrawn its explicit medium-term guidance.

Contracts and recent newsflow

Despite the challenges of FY19, CREALOGIX continued to win its share of new customers, with notable wins in H219 (the majority of which were SaaS contracts or involved elements of SaaS) summarised below:

August 2019 – CREALOGIX wins first Italian customer: CREALOGIX announced its first major contract with an Italian client, providing CREALOGIX Financial Advisory Workbench to Raiffeisen Landesbank Südtirol and 39 Raiffeisen banks in South Tyrol for their retail and private banking consulting services. Approximately 450 advisors are expected to use CREALOGIX Financial Advisory Workbench.

July 2019 – MeDirect selects CREALOGIX for its digital investment platform: CREALOGIX confirmed that a fast-growing European savings bank and wealth manager, MeDirect Group (formerly Mediterranean Bank), headquartered in Malta, selected CREALOGIX to launch a new digital platform. MeDirect is using CREALOGIX Invest for its end customer user experience and for investment management systems, to add self-service consumer savings and investments to its existing digital banking systems. The new solution allowed MeDirect to cost-effectively on-board new customers, supporting its launch in Belgium.

June 2019 – wealth management mobile app and client portal for LGT Vestra: LGT Vestra manages over £12.7bn in assets, offering investment management and wealth planning services. The firm is using CREALOGIX to offer new mobile functionality to enhance digital services for its high-net-worth clients. The app will enable LGT Vestra clients to access their account and portfolio information, providing an efficient and secure digital experience that will enhance client engagement.

June 2019 – CREALOGIX adds support for Google Pay for mobile payments: CREALOGIX added support for the activation of credit cards for the Google Pay mobile payment system in banking apps. This enables banks to offer their customers an easy way to connect credit cards with Google Pay, enabling smartphone or smartwatch contactless payments.

May 2019 – go-live for the VZ Depotbank Mobile Application Platform: VZ Depotbank’s customers can now access the full features of VZ’s financial portal via a mobile banking app, using the CREALOGIX Mobile Application Platform. VZ Depotbank serves customers in both Switzerland and Germany, working across two core banking systems and this implementation centralises mobile banking, asset management, stock exchange trading and current financial news on a single platform.

March 2019 – Hampden & Co chooses CREALOGIX Digital Banking Hub for its high-net-worth mobile banking services: Hampden & Co, a newly launched UK private bank headquartered in Edinburgh, has launched a mobile-optimised solution to extend its digital private banking services. The company plans to implement further mobile banking updates as part of an ongoing roadmap to digitally augment its personal banking services.

Revised business plan and refinancing

CREALOGIX has established a strong track record of delivering software solutions to the banking industry in Switzerland and over the past few years has focused on expanding its international footprint. To achieve this, the group has invested heavily in the development of its software platform to address the competitive challenges to the banking sector, spending 21% of sales on R&D in FY17 and FY18 and 20% in FY19 (costs expensed). We expect these heightened (by historical standards) levels of R&D to continue in FY20 and FY21 as CREALOGIX continues to invest in its Digital Banking Hub, in line with its transformation programme. This should ensure market-leading speed to market and scalability to position CREALOGIX for strong sales growth in the medium to long term.

Historically, operational investment has been supplemented by strategic acquisitions, with Elaxy in FY16 (outstanding shares acquired in FY18) and Innofis in 2018. Elaxy significantly boosted the group’s position in the important German market and added capabilities, notably on the wealth management side with its Digital Financial Advisory solution. Innofis enhanced the group’s product portfolio and expertise in Islamic banking and established the group in the Middle East, paving the way to new opportunities in Asia, eg Malaysia. The group intends to continue to make selective acquisitions and has indicated that part of the proceeds from the CHF20–25m convertible bond refinancing may be used for future M&A.

The company intends to scale its platform across a much larger international customer base, and to be at the forefront in providing solutions to meet the needs of the dynamic and fast-changing digital banking markets.

Internationalisation: 70%+ international revenues

64% of CREALOGIX sales in FY19 (57% in FY18, 50% in FY17) were outside Switzerland (see Exhibit 4), with the group targeting 70%+ in the medium term. Currently, clients are served mainly from offices in its core hub, Switzerland, as well as from the UK, Germany, Spain, Austria and Singapore. Management has reported that it is close to major project wins in Asia but, for the moment at least, the competitive North American market is not a priority.

As part of its go-to-market strategy, CREALOGIX is building a comprehensive partner ecosystem to allow it to serve customers around the world. This approach will help free up resources to allow CREALOGIX to concentrate on its core business, the development and sale of digital banking software products.

Exhibit 4: CREALOGIX remains focused on increasing its geographic footprint

Source: CREALOGIX

Convertible bond refinancing

On 6 November 2015, CREALOGIX issued CHF25m of convertible bonds, offering a coupon of 2.375% with a four-year term. The remainder of these bonds (CHF8.5m) mature in November 2019. CREALOGIX has announced a fully underwritten convertible bond issue to redeem the outstanding 2015 convertible bonds, to provide sufficient working capital to see the company through the SaaS transition as well as potentially to fund further bolt-on acquisition opportunities.

The 2019 convertible issue has a nominal value of CHF20m, with an option, subject to demand, to increase the issue size to CHF25m. It will have a term of five years and is expected to offer a coupon of 1.5–2.0%, with an expected conversion premium of between 25–33% over the relevant share price.

Exhibit 5: Indicative capital structure post refinancing based on a CHF20m issue

CHF000s

30/06/17

30/06/18

30/06/19

30/06/20e*

Cash & Short-term securities

(33,775)

(20,692)

(12,844)

(17,340)

Short-term borrowings

-

-

13,441

-

Of which, convertible bonds

-

-

8,441

-

Long-term borrowings

-

-

1,459

20,000

Of which, convertible bonds

23,154

9,291

-

-

Net (cash)/debt

(10,621)

(11,401)

2,056

2,660

Net assets

29,515

71,053

59,249

53,872

Source: CREALOGIX accounts, Edison Investment Research assumptions. Note: *30 June 2020 is provisional estimate based on the assumption that the full amount of the convertible bond is issued.

Final terms for the issue will be confirmed on 30 October 2019 (size of issue, coupon and conversion price), with the convertible bonds due to be listed from 6 November 2019. We have not yet incorporated the announced convertible bond in our model.

Market environment

CREALOGIX is recognised in IDC’s top 100 global fintech list and a leader in the digital banking space, in particular for mobile banking software solutions.

An Economist Intelligence Unit (EIU) survey highlighted some of the major factors affecting digital banking today as well as the major trends expected over the next few years; with new technologies, changing consumer expectations, increasing competition, regulatory considerations and the macro-economic cycle all driving change in the market.

Digital banking: A global growth story

The total addressable global market for digital banking software is estimated to be worth $23bn (source: Temenos, August 2019), of which the US represents c $9bn.

Digital banking continues its major growth, with increasing use of smartphone and mobile devices around the world. Investment in digital banking has overtaken compliance as the priority area for banking sector IT budgets as customer expectations and increasing competition, as well as regulatory change (eg PSD2) put pressure on banks to upgrade their front-end systems. The transformation process to digital banking remains in its early stages, with traditional banks still dominating despite the proliferation of specialist digital banks now emerging.

In a white paper published by CREALOGIX, the company cites a Visa Digital Payment study, which shows that the number of Europeans who regularly use a mobile device (eg a smartphone, tablet or wearable device) to make payments tripled in 2017 to 54% of respondents compared with 18% in 2016. Smartphones are expected to take 80% of the online banking market by 2020 (source: AT Kearney).

According to Deloitte, the EMEA retail banking market shows a range of digital maturity, highly correlated with internet penetration in each territory. However, feedback from its EMEA Digital Banking Maturity Study revealed that the real driver of digital banking maturity in different jurisdictions was from market pressure – both from customers (ie expectations regarding service levels) and from competitors (ie a banking digital ‘arms race’).

The changing backdrop is driving increasing spend by banks and financial providers on front-end systems and Gartner forecasts that front-end system spend will rise to c 50% of banks’ total IT spend by 2020, from c 10% in 2010. The front-end solutions in this space need to be more agile than the back-end core banking systems and must offer a seamless experience. Innovation is clearly much more prevalent in the front end than at the back end.

Competitive environment

In our research, we have identified five primary areas of competition for front-end solutions provided to the financial services industry, with many of CREALOGIX’s closest competitors either privately owned, or part of larger software groups.

In-house IT departments of banks, a declining proportion of the market, as they suffer cost and flexibility disadvantages against SaaS software vendors.

Specialist software providers, eg Backbase (Dutch private company), Finastra (UK private company), Intelligent Environments (UK private company) and Sopra Banking Software (part of Sopra Steria, EPA:SOP).

Core banking software providers, eg Temenos (recently acquired Kony, SWX:TEMN), FIS Global (NYSE:FIS), Infosys (owner of EdgeVerve, Mumbai listed, NSE:INFY) and Avaloq (Swiss private), which are focused on back-end systems and typically have a small presence in front-end systems or less sophisticated solutions.

ERP giants SAP (ETR:SAP) or Oracle (NYSE:ORCL) can offer solutions; and

Systems integrators such as IBM (NYSE:IBM) that work on a time and materials basis and typically partner with specialist software vendors.

Specialist software providers like CREALOGIX have a particular advantage with front-end systems (as opposed to non-consumer facing software). Differentiation in digital is through superior design of the customer experience, understanding the user journey through continuous customer feedback loops, and applying design thinking and intensive research of demographic shifts. Solutions need to be very client-centric and winning propositions are based on building the best user interface, tailored to each client.

In our view, CREALOGIX has a number of advantages over other specialist software providers, including the breadth of its platform, its focus on front-end solutions, its track record and proven position in the Swiss market, its growing international footprint and the transparency associated with being a public company.

Continuing pressure on the banking sector

The global banking sector is facing unprecedented challenges. Increased regulation in the wake of the global financial crisis means banks must hold increasingly higher levels of capital against their assets, putting pressure on profitability. The implementation of MiFID II and PSD2 in January 2018 has added further complexity. Under PSD2, EU banks are required to provide legitimate third parties with access to their customers’ account data, enabling them to aggregate data and initiate payments.

Open banking APIs are enabling an array of market opportunities, encouraging new business models, innovation, new financial services ecosystems and digital customer connectivity.

Exhibit 6: The Open Banking API

Source: CREALOGIX

This means that credit institutions and banks will need to have the requisite IT interfaces in the form of APIs (as provided by CREALOGIX software solutions). At the same time, their customer bases are being targeted by challenger banks, as well as a range new fintechs offering alternative products (such as peer-to-peer lending, crowd funding, bitcoin and other alternative investment solutions). To maintain competitiveness, traditional banks regularly need to update their propositions. While the large global banks have the financial resources to develop their own solutions in house, smaller institutions have no choice but to purchase technology.

This investment requirement has polarised markets, with the consolidation of banks holding unproductive assets, or unwilling or unable to maintain this high level of investment. This can be seen in the number of banks in long-term structural decline across the globe eg in Switzerland, according to a recent report by EY, the number of banks fell by 33% between 2000 and 2017, while the number of branches was down by 23% and the number of employees down by 12%. Traditional banks have costly branch networks that can be streamlined with the help of digital banking.

A 2017 report from Autonomous pointed out that Germany has over 32,000 bank branches compared with 7,370 supermarkets, and this number is expected to fall dramatically in the coming years. Data compiled by the consumer charity Which?, show that the UK has lost nearly two-thirds of its bank and building society branches over the past 30 years, with the number of branches falling from 20,583 in 1988 to 7,586 in 2018.

CREALOGIX’s Digital Banking Hub

Following a period of significant investment, the group launched its Digital Banking Hub in 2015, with subsequent ongoing development and refinement to reflect changing customer requirements. The hub gives small and mid-sized banks the opportunity to offer highly competitive digital banking offerings. The hub is a modular system that has been tailored for customers, having been developed in conjunction with them. It has a modern interface and APIs, and includes pre-built, out-of-the box modules with certain key characteristics offering a comprehensive platform for online banking across all channels (Exhibit 7). The APIs enable it to integrate fintechs, third-party modules and in-house widgets.

Exhibit 7: Characteristics of the Digital Banking Hub

Source: CREALOGIX

The hub enables financial institutions to integrate specific product offerings from fintechs into their complex IT landscape and connect them with existing solutions. Consequently, financial institutions can achieve significant improvements in the banking experience for their customers. An example for this is Gravity, which won the Best of Show at FinovateEurope 2018. Gravity reveals the flexibility that can be provided to banks through the use of APIs. Meanwhile, The ARCs modern virtual reality application combines emotion, creativity and logic in a playful manner, and allows customers to experience their daily banking in a new way – in 3D. This application has the potential to become reality if 3D devices become mainstream.

The platform’s primary verticals are Transaction & API Banking, Mobile Banking and Digital Payment. Customers will take both the flagship online Transaction & API Banking and Mobile Banking solutions to create a multi-channel offering. Additionally, CREALOGIX offers a range of online and mobile security products, and has a strategic alliance with Entersekt, a provider of advanced transaction authentication and mobile app security software.

The Digital Banking Hub is open and can be integrated into all systems; a user-friendly navigation concept can link from various CREALOGIX modules to third-party applications. The product is white-labelled, with each client bank adapting the style to suit its existing design. It is cost-effective, because the system is based on a lean and open architecture and is perfectly compatible with all standard devices. The group uses Java and HTML5 programme languages, with Java in the back end and HTML5 upfront. The product uses modern concepts including responsive design (resizes with different devices) and zero footprint (no software installation required on the device). The product offering has a six-month upgrade cycle.

Digital Banking is the group’s broadest offering and, along with related modules, generated the majority of group revenues in FY19, while Digital Learning generated c 10%. The Digital Learning module is an LMS (learning management system), used by the group’s banking customers to train their clients and employees (typically young professionals) in financial literacy. It replaces paper-based systems, so helps reduce risk.

Additionally, CREALOGIX has the Nova multibanking platform, which is designed for the corporate end-market, to enable customers to aggregate accounts across multiple banks.

The implementation of the group’s solutions helps IT departments of banks shift their focus from development to supporting the business, and this is an attractive proposition for the business end of a bank. This is because banks need greater flexibility to cope with regulatory changes and position themselves strategically to deal with fintechs. They also need the latest technology to help them in the fight to win new customers.

Financials

Business model: Perpetual licences, as well as SaaS

Despite the increasing take-up of the SaaS model, CREALOGIX offers a range of revenue models to its customers. The group’s traditional Swiss client base still strongly prefers the perpetual licence model plus implementation, along with annual support and maintenance fees (in the range of 18–21% depending on the overall solution). Many banks in continental Europe prefer an onsite solution, due to attitudes towards security risks as well as regulation. However, attitudes towards SaaS are now starting to change in Europe and most new customers are signing up to SaaS solutions.

The group’s UK clients (c 30 customers acquired via MBA Systems) operate on a hosted SaaS basis, initially committing for five years before moving on to annual rolling contracts. CREALOGIX also offers a SaaS licence for five to seven years, while onsite rental remains an option. CREALOGIX regularly receives change requests from clients (eg adding functionality, acquiring a hub or other changes), which generates additional licence and services revenues.

CREALOGIX also uses systems integration resellers as a route to market, which enables it to cover the entire value chain, through consultancy, conceptualisation, integration and operation. CREALOGIX’s systems integrator partners include Hewlett-Packard Enterprise (NYSE:HPE), CGI (TSE:GIB.A), Cognizant (NASDAQ:CTSH) and Adesso (ETR:ADN1). The systems integrators provide any services required.

The company sells to both the business side and the IT department. However, the position of chief digital officer is becoming much more common in banks and is usually the best point of contact. The sales cycle is normally six to 18 months, with 12 months on average. CREALOGIX will typically be required to develop a proof of concept, but the scale of this will depend on the customer’s requirements. For example, the customer might simply be concerned with the look or feel of the solution for the end-customer. Alternatively, clients may wish to integrate third-party software or in-house widgets, or customise the hub so that it looks and functions like the customer’s other corporate websites. Ultimately, the customer needs to make the decision on whether to invest in-house or in new front-end software.

A focus on recurring revenues

Recurring revenues consist of support and maintenance (CHF28.1m or 28% of FY19 revenues vs 31% in FY18), along with hosting SaaS services, which have more than doubled from CHF5.9m in FY18 to CHF14.7m in FY19 (FY18: 7% of revenues, FY19: 14% of revenues). In total, these represented 42% of FY19 revenues (vs 37% in FY18), but we expect the proportion to continue to rise on the back of hosted/SaaS growth, with management targeting recurring revenues representing 60% of total revenues by FY23, with 30% SaaS.

Exhibit 8: Evolution to a SaaS/recurring revenue model

Source: CREALOGIX, Edison Investment Research.

Forecasts: Downward revision, reflects SaaS transition

Following the FY19 results, we have taken the opportunity to reassess the impact of CREALOGIX’s transition to a SaaS-led business model, and revised our forecasts accordingly.

It is also worth highlighting that although we have made reference to CREALOGIX’s recent announcement of its intention to raise CHF20m (with an option to raise CHF25m, subject to shareholder demand) to refinance its outstanding 2015 convertible bonds (due to mature in November), as well as raising additional funding, we have not yet factored this into our model pending successful completion of the bond issue. However, we do assume that CREALOGIX has access to short-term funding in the interim period.

On the basis of the SaaS transition and management’s assessment of its impact noted above, we have reduced our FY20 and FY21 revenue forecasts by approximately 9% to CHF105.5m and CHF111.1m, implying y-o-y growth of 4% and 5%, respectively.

Underlying the top-line revenue numbers, we expect growth to be led by the maintenance and hosting/SaaS segments, with recurring revenues constituting 46% of total revenues in FY20 and 52% in FY21 (FY19: 42%). Meanwhile, goods and licensing revenues decline materially, both in absolute and relative terms, with services revenues seeing a more gradual decline as the focus shifts to building the recurring revenue base.

Exhibit 9: Summary of changes to Edison forecasts

2019

2020e

2021e

2022e

CHF000s

Old

New

Old/new

change

2021e

2021e

Old/new

change

Swiss GAAP

Revenue

101,913

115,379

105,542

-9%

122,009

111,051

-9%

115,922

Gross Profit

77,161

88,701

81,078

-9%

94,247

87,396

-7%

94,230

EBITDA

1,860

11,013

2,576

-77%

13,408

4,657

-65%

13,050

Operating Profit (before amort. and except.)

(806)

8,413

(90)

10,908

1,991

-82%

10,188

Operating Profit

(5,915)

3,013

(5,199)

5,508

(3,118)

N/A

5,079

Profit Before Tax (norm)

(1,651)

8,113

(661)

10,808

1,420

-87%

9,617

Profit Before Tax (Statutory)

(6,760)

2,713

(5,770)

5,408

(3,689)

N/A

4,508

Profit After Tax (norm)

(1,215)

5,841

(476)

7,782

1,023

-87%

8,355

Average Number of Shares Outstanding (m)

1.38

1.39

1.38

1.39

1.38

1.38

EPS - normalised (CHF)

(0.94)

4.16

(0.34)

5.55

0.74

-87%

6.05

EPS - Statutory (CHF)

(4.65)

0.27

(4.04)

1.66

(2.96)

2.35

Dividend per share (CHF)

0.00

1.25

0.00

1.75

0.25

-86%

1.00

Source: Edison Investment Research

Together, this has the impact of reducing EBITDA to CHF2.6m in FY20e and CHF4.7m in FY21e. On the expectation of a typical three-year transition period, we expect to see signs of material margin growth in H221, with a full year of margin contribution (once SaaS revenue and EBITDA recognition catches up with recognition under the licence model) leading to EBITDA of CHF13.1m in FY22. In terms of margin, we expect EBITDA margin of 2.4% in FY20 (vs 1.8% in FY19), rising to 4.2% in FY21 and 11.3% in FY22 as the SaaS transition unwinds and the group moves towards its goal of sustainable double-digit EBITDA margin in the medium term.

In line with its transformation programme, we anticipate capex of CHF3m in each of FY20 and FY21 (ahead of an office relocation in FY21), before it starts to normalise in FY22.

Exhibit 10: Forecast growth in revenue and operating margin

Source: Edison Investment Research

As noted above, we have not yet factored the convertible bond refinancing into our model pending successful completion of the issue. As such, net interest includes the coupon on the CHF8.5m convertible bonds outstanding, which amounts to c CHF202k per year. We have maintained our tax rate assumptions of 28% going forward.

We forecast operating cash flow before interest and tax of CHF2.5m in FY20, building to c CHF4.6m in FY21. We have forecast no dividends being paid in FY20 or FY21. Thereafter, absent any significant acquisitions, we expect CREALOGIX to show strongly increasing cash generation in line with management’s revised medium-term guidance (double-digit EBITDA margins, strong cash flow generation), with CHF13.0m in FY22.

Valuation: Unique play in digital banking engagement

Despite the consequential margin impact from the SaaS transition, the group remains a leading international digital banking engagement platform provider, operating in a swiftly evolving digital banking market. We believe there are a number of reasons why revenues will continue to grow and margins will recover over the medium term:

Together with changing consumer expectations, regulatory requirements such as MiFID II and PSD2 are driving increasing spend on front-end systems (the critical customer interface) from which CREALOGIX is ideally positioned to benefit.

The group is focused exclusively on the financial services sector and has defined its service offering around its Digital Banking Engagement Platform.

With a broader solution suite (eg multiple vertical modules for retail banking, wealth management and corporate banking), there are increased opportunities for cross-selling.

CREALOGIX’s solution suite consists of a greater proportion of off-the-shelf modular solutions, offering the potential for higher margins, with high-margin product expected to represent an increasing percentage of revenues.

The benefits from economies of scale and diversification created by acquisitions.

CREALOGIX is making greater use of cost-effective near/far-shore sites for R&D and delivery.

The implementation partnership model represents a pragmatic and cost-effective way to support a growing international client base.

In terms of valuation, looking at CREALOGIX’s trading peers (Exhibit 11 below) suggests that a valuation of c 2.5–3.0x revenues and c 15–20x EBITDA could be achievable post successful SaaS transition, although we recognise the wide variations in business models and valuation multiples across the selection. Applied to our FY22 estimates, which assume continued strong revenue growth and margin recovering to a double-digit level, this would suggest an EV (and equity) of CHF250m+, a premium of around 100% to today’s share price. For investors willing to take a medium-term view, CREALOGIX’s valuation at 1.3x FY20e sales is compelling, particularly when compared to its closest peers. However, we would note that restricted liquidity continues to limit exit opportunities.

Peer group

When considering CREALOGIX’s peer group, we note that it is hard to identify truly comparable quoted companies. There is a range of pure SaaS businesses listed in the US, where the SaaS rental model is most advanced, but in the UK, where the SaaS rental model is increasingly the norm, and Europe (where eg German companies are switching to rental, and Switzerland, which has been slower to switch), there are no pure SaaS businesses listed. On this basis, we focus on financial software providers which, like CREALOGIX, have a partial but increasing exposure to SaaS revenues.

In our view, Temenos (Swiss) – particularly after its acquisition of Kony – and Q2 Software (US) come closest as comparables, although both these companies are substantially larger and more highly rated than CREALOGIX. Of the other two identified digital banking engagement platform providers, Backbase (NL) is a private company and EdgeVerve (India) is part of the Infosys group.

We include a number of larger software companies that have a digital banking engagement platform as part of their offering, while there is also a rationale to look at UK/European financial software businesses of a similar size to CREALOGIX. Finally, we include a number of North American SaaS businesses which highlight the potential valuation to which CREALOGIX can aspire as it transitions to SaaS.

Based on our universe (Exhibit 11), at a high level it is noteworthy that the SaaS business model is more mature and more established in the US than it is in Europe. As such, the North American peer group is valued more highly than its European peers, with higher sales growth (c 25% vs 10%), higher sales multiples (4–5x vs 2.5–3.0x) and EV/EBITDA (15–20x vs 12–15x). This valuation disparity reduces as you move down the P&L, with European peers trading at P/E multiples of c 20–24x FY2 earnings and North American peers at 22–26x.

Exhibit 11: Peer analysis

Year
end

Current price (local ccy)

Local Ccy

EV
($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)

CREALOGIX Group

Jun-20

96.4

CHF

136.8

3.6

1.3

1.2

2.4

4.2

53.1

29.4

N/A

130

UK/European (non-US) Software

Temenos AG

Dec-19

171.1

CHF

13,034

20.2

12.9

10.5

39.2

38.1

32.9

27.7

48.2

41.2

Sopra Steria Group SA

Dec-19

115.7

EUR

3,681

8.1

0.8

0.7

10.5

11.2

7.2

6.4

12.2

9.9

Flatex AG

Dec-19

23.9

EUR

723

11.9

4.7

4.1

32.2

34.5

14.5

12.0

20.9

16.7

First Derivatives PLC

Feb-20

2165.0

GBp

752

11.2

2.5

2.2

17.9

18.0

13.8

12.3

24.9

22.3

Intellect Design Arena Ltd

Mar-20

180.6

INR

343

14.7

1.5

1.2

12.0

14.6

12.2

8.6

20.5

13.7

GFT Technologies SE

Dec-19

7.4

EUR

357

1.4

0.8

0.7

10.2

10.9

7.6

6.8

13.3

10.3

StatPro Group PLC

Dec-19

228.0

GBp

230

6.4

3.1

2.9

19.4

20.1

16.1

14.6

27.5

23.9

Gresham Technologies

Dec-19

108.0

GBp

84

29.8

2.7

2.6

13.6

15.4

19.6

16.7

77.1

51.4

Brady PLC

Dec-19

6.6

GBp

12

-17.8

0.5

0.5

-4.7

12.2

NM

3.7

NM

NM

Mean

9.5

3.3

2.8

16.7

19.4

15.5

12.1

30.6

23.7

Median

11.2

2.5

2.2

13.6

15.4

14.1

12.0

22.9

19.5

North American Software

Fidelity Nat Info Services

Dec-19

132.0

USD

88,948

22.2

8.6

6.6

40.6

44.8

21.3

14.7

21.3

20.8

Broadridge Fin Solutions

Jun-20

124.3

USD

15,428

4.7

3.4

3.2

21.2

22.2

15.9

14.5

24.1

22.0

SS&C Technologies

Dec-19

50.7

USD

20,579

34.6

4.5

4.3

39.1

40.2

11.4

10.8

13.9

12.9

Q2 Holdings

Dec-19

77.0

USD

3,465

30.3

11.0

9.0

6.4

9.9

NM

NM

NM

NM

Envestnet

Dec-19

60.3

USD

3,683

10.5

4.1

3.6

21.4

22.7

19.2

15.7

28.5

23.6

Tecsys

Apr-20

16.2

CAD

166

26.9

2.3

2.1

7.5

10.1

30.4

20.6

NM

50.2

Mean

21.5

5.6

4.8

22.7

25.0

19.7

15.2

22.0

25.9

Median

24.6

4.3

4.0

21.3

22.5

19.2

14.7

22.7

22.0

Source: Refinitiv consensus data (except CREALOGIX). Note: Prices at 14 October 2019.

Temenos/Kony case study

In August 2019, Temenos, the Switzerland-based banking software company, announced the strategic acquisition of Kony for a total consideration of $580m. In terms of multiples, the deal represents an FY20e revenue multiple of 5x or an 8.4x FY20e recurring revenues, in line with the US public market trading valuations in Exhibit 11.

While CREALOGIX has no immediate intention to expand into the US, Temenos’s acquisition of Kony is noteworthy in that it creates a close competitor for CREALOGIX and provides an additional valuation benchmark.

Kony has a global client base of more than 100 banks across the US, Europe, Middle East and Asia, with 50 US clients including major banks and credit unions. It is expected to generate total revenues of c US$115m in 2020, with over 60% recurring revenue, the majority of which is SaaS revenue with a low mid-single digit attrition rate.

Kony is a leading digital banking SaaS provider in the US. The stated rationale for the deal was to help Temenos build its presence and capabilities in the US to create a market-leading digital banking product, enabling Temenos to accelerate its growth in the digital front office space and become a global leader in digital banking.

According to the release, Kony has been growing rapidly among top tier and mid-market banks in the US and is connected to most third-party cores, offering a suite of mobile banking apps that support conversation, artificial intelligence, augmented reality and wearable technologies.


Sensitivities

In assessing the investment case for CREALOGIX, we would highlight the following sensitivities:

SaaS transition: CREALOGIX is partway through its transition from a traditional licence-based business model to a recurring revenue SaaS model. This is expected to offer greater revenue and profit visibility in the medium term but requires increased investment and will affect profitability in the short term.

Convertible refinancing: the company’s outstanding 2015 convertible bonds (c CHF8.5m) expire in November 2019. On 14 October 2019, CREALOGIX announced a fully underwritten CHF2025m convertible bond issue (including a CHF5m option to increase the issue size, subject to shareholder demand) to refinance these outstanding bonds as well as to secure additional finance for working capital and other corporate purposes. Final terms for the issue are expected to be confirmed on 30 October 2019.

Economic slowdown: economic and regulatory uncertainties, including a global economic slowdown, a US/China trade war and Brexit, could encourage CREALOGIX’S potential customers to defer decision-making, slowing new customer growth.

Competitive environment: there is a risk that fintechs and challenger banks could make increasing inroads into the traditional banking sector over the longer term. This could lead to consolidation, reducing the addressable customer base in the traditional banking sector. Major back-end software vendors and ERP providers could take a more active approach in front-end solutions, while specialist direct competitors could enhance existing solutions (eg Temenos/Kony) or develop more attractive business models.

Customer/currency concentration: the group has a high exposure to Switzerland-based banks (36% of FY19 revenues) and the Swiss franc. However, this exposure is reducing as the group broadens its customer base internationally. Other than this, CREALOGIX is not overly exposed to any one client or single jurisdiction.

Acquisition risk: there is implementation/integration risk in CREALOGIX’s acquisition strategy.

Restricted free float: CREALOGIX’s free float is c 39%, which means there is liquidity risk for investors, making it difficult to invest and exit at size close to the market price.

Exhibit 12: Financial summary

CHF'000s

2017

2018

2019

2020e

2021e

2022e

Year end 30 June

Swiss GAAP

Swiss GAAP

Swiss GAAP

Swiss GAAP

Swiss GAAP

Swiss GAAP

PROFIT & LOSS

Revenue

 

 

74,858

87,144

101,913

105,542

111,051

115,922

Gross Profit

59,695

67,277

77,161

81,078

87,396

94,230

EBITDA

 

 

7,304

7,031

1,860

2,576

4,657

13,050

Operating Profit (before amort. and except.)

 

5,916

5,441

(806)

(90)

1,991

10,188

Amortisation of acquired intangibles

(1,799)

(2,944)

(5,109)

(5,109)

(5,109)

(5,109)

Exceptionals

0

0

0

0

0

0

Operating Profit

4,117

2,497

(5,915)

(5,199)

(3,118)

5,079

Associates

(21)

(20)

(274)

0

0

0

Net Interest

(936)

(429)

(571)

(571)

(571)

(571)

Profit Before Tax (norm)

 

 

4,959

4,992

(1,651)

(661)

1,420

9,617

Profit Before Tax (Statutory)

 

 

3,160

2,048

(6,760)

(5,770)

(3,689)

4,508

Tax

(1,751)

(1,350)

436

185

(398)

(1,262)

Profit After Tax (norm)

3,208

3,642

(1,215)

(476)

1,023

8,355

Profit After Tax (Statutory)

1,409

698

(6,324)

(5,585)

(4,086)

3,246

Minority interest

(360)

(681)

(73)

0

0

0

Net income (norm)

2,758

2,944

(1,288)

(476)

1,023

8,355

Net income (Statutory)

1,049

17

(6,397)

(5,585)

(4,086)

3,246

Average Number of Shares Outstanding (m)

1.06

1.23

1.38

1.38

1.38

1.38

EPS - normalised (CHF)

 

 

2.59

2.39

(0.94)

(0.34)

0.74

6.05

EPS - Statutory (CHF)

 

 

0.99

0.01

(4.65)

(4.04)

(2.96)

2.35

Dividend per share (CHF)

0.50

0.25

0.00

0.00

0.25

1.00

Gross Margin (%)

79.74

77.20

75.71

76.82

78.70

81.29

EBITDA Margin (%)

9.76

8.07

1.83

2.44

4.19

11.26

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

7.90

6.24

(0.79)

(0.09)

1.79

8.79

BALANCE SHEET

Fixed Assets

 

 

26,430

62,506

62,373

57,598

52,823

52,512

Intangible assets and deferred tax

18,119

54,330

58,465

53,356

48,247

48,247

Tangible Assets

1,385

1,363

2,351

2,685

3,019

2,708

Investments & pensions

6,926

6,813

1,557

1,557

1,557

1,557

Current Assets

 

 

52,495

49,576

42,452

42,903

45,686

56,228

Stocks

3,419

5,950

3,580

3,707

3,901

4,072

Debtors

15,301

22,934

26,028

26,955

28,362

29,606

Cash

33,775

20,692

12,844

12,240

13,423

22,550

Current Liabilities

 

 

(24,219)

(29,704)

(43,012)

(44,065)

(45,664)

(47,077)

Creditors

(24,219)

(29,704)

(29,571)

(30,624)

(32,223)

(33,636)

Short term borrowings

0

0

(13,441)

(13,441)

(13,441)

(13,441)

Long Term Liabilities

 

 

(25,191)

(11,325)

(2,564)

(2,564)

(2,564)

(2,564)

Long term borrowings

(23,154)

(9,291)

(1,459)

(1,459)

(1,459)

(1,459)

Other long term liabilities

(2,037)

(2,034)

(1,105)

(1,105)

(1,105)

(1,105)

Net Assets

 

 

29,515

71,053

59,249

53,872

50,281

59,099

CASH FLOW

Operating Cash Flow

 

 

9,735

3,388

499

2,522

4,575

12,977

Net Interest

(616)

(455)

(431)

(571)

(571)

(571)

Tax

(1,273)

(421)

(28)

446

179

(383)

Capex

(862)

(1,117)

(2,584)

(3,000)

(3,000)

(2,550)

Acquisitions/disposals

(346)

(11,814)

(8,892)

0

0

0

Financing

(215)

(2,447)

(273)

0

0

0

Dividends

0

(559)

(342)

0

0

(345)

Net Cash Flow

6,423

(13,425)

(12,051)

(604)

1,183

9,127

Opening net debt/(cash)

 

 

(3,354)

(10,621)

(11,401)

2,056

2,660

1,477

Other

844

14,205

(1,406)

0

0

0

Closing net debt/(cash)

 

 

(10,621)

(11,401)

2,056

2,660

1,477

(7,650)

Source: CREALOGIX, Edison Investment Research

Contact details

Revenue by geography

Badenerstrasse 694
8048 Zurich
Switzerland
+41 58 404 8000
www.crealogix.com

Contact details

Badenerstrasse 694
8048 Zurich
Switzerland
+41 58 404 8000
www.crealogix.com

Revenue by geography

Management team

CEO: Thomas Avedik

Chief Strategy Officer: Richard Dratva

Mr Avedik joined the group as CEO of CREALOGIX E-Banking in mid-2007 and took on the role of CEO at the beginning of 2016. He began his professional career at UBS, where he managed the digital transformation for 16 years, broadly involving the development and expansion of e-banking. Other projects included the launch of the UBS market data system, the design and implementation of an e-banking security solution as well as the development of the global e-banking strategy for UBS.

Mr Dratva is a founding member of CREALOGIX. Prior to CREALOGIX, he worked as a consultant with Teleinform. From 1992 to 1994, he was engaged as a research associate at the Institute of Information Management at the University of St Gallen. From 1987 to 1991 Mr Dratva was employed as an internal consultant with the Swiss Bank Corporation (now UBS).

CFO: Daniel Bader

Chairman: Bruno Richle

Mr Bader joined CREALOGIX as CFO in August 2019, with a career spanning more than 20 years in finance and business processes. Daniel worked for the audit teams at Ernst & Young and PricewaterhouseCoopers for eight years, before joining the logistics business, Swisslog Group. He held a number of senior finance roles at Swisslog from 2007, before becoming CFO in 2015. As an experienced financial specialist, he helped integrate companies after complex mergers and acquisitions (M&A), successfully transformed business models and streamlined processes to improve business performance. He was also responsible for the implementation of financial controlling tools.

Mr Richle was a founding member of CREALOGIX in 1996 and led the group though its IPO on the Swiss Exchange SWX in 2000. He retired as CEO at the end of 2015. From 1990 to 1996, he was a member of the executive management and technical director with Teleinform, which at that time was the leading Swiss telematics company. From 1985 to 1989, he worked for Bührle Group, and from 1986 was head of the department of electronic engineering at Oerlikon Aerospace (then part of Bührle Group) in Montreal, Canada. He is also a director of Yachtwerft Portier and Elektrizitätswerk Jona-Rapperswil. He holds board mandates at Foundation FUTUR and Innovation Foundation of the Bank of Canton Schwyz, and is a member of the Hochschulrat der Hochschule für Technik in Rapperswil (HSR).

Management team

CEO: Thomas Avedik

Mr Avedik joined the group as CEO of CREALOGIX E-Banking in mid-2007 and took on the role of CEO at the beginning of 2016. He began his professional career at UBS, where he managed the digital transformation for 16 years, broadly involving the development and expansion of e-banking. Other projects included the launch of the UBS market data system, the design and implementation of an e-banking security solution as well as the development of the global e-banking strategy for UBS.

Chief Strategy Officer: Richard Dratva

Mr Dratva is a founding member of CREALOGIX. Prior to CREALOGIX, he worked as a consultant with Teleinform. From 1992 to 1994, he was engaged as a research associate at the Institute of Information Management at the University of St Gallen. From 1987 to 1991 Mr Dratva was employed as an internal consultant with the Swiss Bank Corporation (now UBS).

CFO: Daniel Bader

Mr Bader joined CREALOGIX as CFO in August 2019, with a career spanning more than 20 years in finance and business processes. Daniel worked for the audit teams at Ernst & Young and PricewaterhouseCoopers for eight years, before joining the logistics business, Swisslog Group. He held a number of senior finance roles at Swisslog from 2007, before becoming CFO in 2015. As an experienced financial specialist, he helped integrate companies after complex mergers and acquisitions (M&A), successfully transformed business models and streamlined processes to improve business performance. He was also responsible for the implementation of financial controlling tools.

Chairman: Bruno Richle

Mr Richle was a founding member of CREALOGIX in 1996 and led the group though its IPO on the Swiss Exchange SWX in 2000. He retired as CEO at the end of 2015. From 1990 to 1996, he was a member of the executive management and technical director with Teleinform, which at that time was the leading Swiss telematics company. From 1985 to 1989, he worked for Bührle Group, and from 1986 was head of the department of electronic engineering at Oerlikon Aerospace (then part of Bührle Group) in Montreal, Canada. He is also a director of Yachtwerft Portier and Elektrizitätswerk Jona-Rapperswil. He holds board mandates at Foundation FUTUR and Innovation Foundation of the Bank of Canton Schwyz, and is a member of the Hochschulrat der Hochschule für Technik in Rapperswil (HSR).

Principal shareholders

(%)

Richard Dratva

17.68

Bruno Richle

16.35

David Moreno

11.81

Daniel Hiltebrand

9.89

Noser Management

3.02

Peter Süsstrunk

2.02

Companies named in this report

Adesso, Avaloq, CGI, Cognizant, Finastra, FIS Global, Hewlett-Packard Enterprise, IBM, Infosys, Oracle, SAP, Sopra Steria, Temenos.


General disclaimer and copyright

This report has been commissioned by CREALOGIX Group and prepared and issued by Edison, in consideration of a fee payable by CREALOGIX Group. 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.

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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 CREALOGIX Group and prepared and issued by Edison, in consideration of a fee payable by CREALOGIX Group. 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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