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Steady performance

TXT e-solutions 9 November 2015 Update

TXT e-solutions

Steady performance

Q3 results

Software & comp services

6 November 2015

Price

€8.34

Market cap

€98m

Net cash (€m) at end Q315

9.4

Shares in issue

11.7m

Free float

43%

Code

TXT

Primary exchange

Borsa Italiana (STAR)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

9.7

(0.1)

13.7

Rel (local)

8.1

7.1

(2.6)

52-week high/low

€9.36

€6.64

Business description

TXT e-solutions has two divisions: TXT Perform provides software solutions for supply chain management in the international retail and consumer-driven industrial sectors; and TXT Next provides IT, consulting and R&D services to Italian aerospace, high-tech manufacturing, banking and finance customers.

Next event

FY15 preliminary revenues

January 2016

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

TXT e-solutions is a research client of Edison Investment Research Limited

TXT reported another strong quarter, with Q3 revenue growth of 12% y-o-y and both businesses contributing to growth. Profitability was higher than we forecast, leading to an upgrade to FY15 EPS; we leave our FY16 forecasts unchanged. The company continues to invest in expansion into Asia Pacific; this combined with progress in the North American business should drive growth in the medium term.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/13

52.6

4.8

0.41

0.23

20.3

2.8

12/14

54.4

4.0

0.28

0.23

29.8

2.8

12/15e

60.6

5.5

0.37

0.24

22.5

2.9

12/16e

63.2

6.7

0.45

0.25

18.5

3.0

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

Q3 results: Both divisions continue to grow

TXT reported Q315 revenue growth of 12.4% y-o-y, with growth of 10% for TXT Perform and 17% for TXT Next. Licences & maintenance revenues grew 15% y-o-y and Services revenues grew 11%. Gross margins were higher than forecast (52.5% vs 51.2%) resulting in EBITDA of €1.6m (11.4% margin), €0.2m ahead of our forecast. Orders received in the nine months to end September totalled €46.9m, up 19% y-o-y. For Q3, order intake was relatively flat y-o-y. The company set up a subsidiary in Singapore in Q3, following on from the subsidiary set up in Hong Kong earlier in the year, as part of its strategy to expand into Asia Pacific and support the Duty Free Stores contract signed last quarter.

Outlook and changes to forecasts

The strong year-to-date order intake leads the company to expect a positive business development in Q4. Based on slightly stronger than expected results in Q3, we have raised our FY15 revenue and EBITDA forecasts by 0.2% and 4.5% respectively. This results in a 5.4% upgrade to normalised EPS. We leave our FY16 forecasts unchanged.

Valuation: International expansion key to upside

The stock trades on a P/E of 22.5x FY15e and 18.5x FY16e normalised EPS. This is at a discount to global supply chain software vendors and at a premium to European IT services companies, which is reasonable considering the split of the business. TXT has a strong cash position and we forecast a dividend yield of at least 2.9% for FY15 and FY16. We view FY15 as an investment year as TXT puts in place the building blocks to support growth in the medium term, with a focus in expansion into Asia Pacific. Key milestones to assess progress will include a growing order backlog in North America, large licence deals for TXT Perform and further international deals for TXT Next. The company continues to assess acquisition targets in both businesses.

Exhibit 1: Financial summary

€000s

2010

2011

2012

2013

2014

2015e

2016e

Year-end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

37,458

40,138

46,499

52,560

54,378

60,614

63,207

Cost of sales

(18,757)

(19,522)

(22,351)

(24,854)

(26,455)

(29,076)

(31,023)

Gross profit

18,701

20,616

24,148

27,706

27,923

31,538

32,184

EBITDA

 

 

2,769

4,397

5,322

6,263

5,292

6,498

7,414

Operating Profit (before amort and except)

 

 

(776)

843

4,283

5,241

4,296

5,688

6,814

Amortisation of acquired intangibles

0

0

0

(285)

(285)

(285)

(285)

Exceptionals and other income

13

(4,581)

939

0

1,500

0

0

Other income

0

0

0

0

0

(300)

(300)

Operating Profit

(763)

(3,738)

5,222

4,956

5,511

5,103

6,229

Net Interest

(198)

72

(37)

(435)

(249)

(150)

(100)

Profit Before Tax (norm)

 

 

(974)

915

4,246

4,806

4,047

5,538

6,714

Profit Before Tax (FRS 3)

 

 

(961)

(3,666)

5,185

4,521

5,262

4,953

6,129

Tax

255

(591)

(188)

121

(1,046)

(991)

(1,226)

Profit After Tax (norm)

(719)

324

4,092

4,927

3,243

4,431

5,371

Profit After Tax (FRS 3)

(706)

(4,257)

4,997

4,642

4,216

3,963

4,903

Average Number of Shares Outstanding (m)

11.3

11.1

11.0

11.5

11.5

11.7

11.7

EPS - normalised (c)

 

 

(6)

3

37

43

28

38

46

EPS - normalised fully diluted (c)

 

 

(6)

3

34

41

28

37

45

EPS - (IFRS) (c)

 

 

2

128

45

40

37

34

42

Dividend per share (c)

0.0

90.9

18.2

22.7

22.7

23.6

24.5

Gross margin (%)

49.9

51.4

51.9

52.7

51.3

52.0

50.9

EBITDA Margin (%)

7.4

11.0

11.4

11.9

9.7

10.7

11.7

Operating Margin (before GW and except) (%)

-2.1

2.1

9.2

10.0

7.9

9.4

10.8

BALANCE SHEET

Fixed Assets

 

 

14,328

7,735

18,570

17,850

18,019

17,543

17,278

Intangible Assets

11,526

6,561

16,621

15,370

15,078

14,583

14,318

Tangible Assets

1,528

819

1,154

1,118

1,249

1,268

1,268

Other

1,274

355

795

1,362

1,692

1,692

1,692

Current Assets

 

 

28,876

32,145

36,769

34,914

34,892

38,216

41,646

Stocks

793

661

1,388

1,451

1,820

2,000

2,100

Debtors

21,453

15,083

19,562

18,642

20,768

23,083

23,897

Cash

6,630

14,181

15,819

14,821

12,304

13,133

15,648

Other

0

2,220

0

0

0

0

0

Current Liabilities

 

 

(17,719)

(14,049)

(20,651)

(17,864)

(17,451)

(17,988)

(18,710)

Creditors

(15,615)

(12,292)

(15,155)

(14,512)

(15,297)

(17,034)

(17,756)

Short term borrowings

(2,104)

(1,757)

(5,496)

(3,352)

(2,154)

(954)

(954)

Long Term Liabilities

 

 

(8,398)

(5,567)

(8,666)

(6,965)

(6,491)

(4,791)

(4,791)

Long term borrowings

(3,870)

(2,155)

(4,301)

(2,896)

(1,685)

15

15

Other long term liabilities

(4,528)

(3,412)

(4,365)

(4,069)

(4,806)

(4,806)

(4,806)

Net Assets

 

 

17,087

20,264

26,022

27,935

28,969

32,981

35,422

CASH FLOW

Operating Cash Flow

 

 

9,967

19,265

2,760

7,630

5,404

5,740

7,222

Net Interest

(198)

166

(37)

(435)

(249)

(150)

(100)

Tax

255

390

64

(1,615)

(1,344)

(991)

(1,226)

Capex

(2,340)

(2,159)

(405)

(483)

(615)

(620)

(620)

Acquisitions/disposals

(137)

2,403

(8,450)

19

0

0

0

Financing

324

(106)

1,690

(755)

(597)

2,349

0

Dividends

0

(10,292)

0

(2,107)

(2,615)

(2,599)

(2,761)

Net Cash Flow

7,871

9,667

(4,378)

2,254

(16)

3,730

2,515

Opening net debt/(cash)

 

 

7,248

(723)

(10,266)

(6,023)

(8,575)

(8,465)

(12,194)

HP finance leases initiated

0

0

0

0

0

0

0

Other

100

(124)

135

298

(94)

(0)

(0)

Closing net debt/(cash)

 

 

(723)

(10,266)

(6,023)

(8,575)

(8,465)

(12,194)

(14,709)

Source: TXT e-solutions, Edison Investment Research

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Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

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