Underlying FY16 guidance edges up

SNP Schneider-Neureither 3 February 2016 Update

SNP Schneider-Neureither & Partner

Underlying FY16 guidance edges up

Provisional results

Software & comp services
 

3 February 2016

Price

€26.38

Market cap

€98m

Net debt (€m) at 30 September 2015

1.1

Shares in issue

3.7m

Free float

58.4%

Code

SHF

Primary exchange

Frankfurt (Xetra)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(8.6)

49.5

94.6

Rel (local)

2.5

70.9

119.9

52-week high/low

€29.24

€12.27

Business description

SNP Schneider-Neureither & Partner (SNP) is a software and consulting business focused on supporting customers in implementing change, and rapidly and economically tailoring IT landscapes to new situations. It has developed a proprietary software product called SNP Transformation Backbone with SAP Landscape Transformation Software (T-B).

Next events

Annual report

30 March 2016

Q1 results

29 April 2016

AGM

12 May 2016

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

SNP Schneider-Neureither & Partner is a research client of Edison Investment Research Limited

Provisional FY15 revenues and profit are in line while the new FY16 guidance suggests a small upgrade. FY15 was a year of strong growth for SNP, helped by a prestigious contract to carve out the ERP systems of the demerging Hewlett-Packard. The group has benefitted from a greater number of projects while margins rose on the back of increased project complexity. Our new FY16 forecasts include the two recent acquisitions, along with a 1.6% underlying revenue increase to put our FY16 revenue at the mid-point of the new guidance. Employee numbers have doubled over the year to c 600 and as there is no sign that the activity is slowing. Hence, we continue to believe the shares are attractive on c 16x FY17e earnings.

Year end

Revenue (€m)

PBT* (€m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

12/13

23.5

(2.8)

(64.7)

8.0

N/A

0.3

12/14

30.5

(0.1)

(13.9)

13.0

N/A

0.5

12/15e

56.3

3.7

69.4

20.0

38.0

0.8

12/16e

75.0

6.9

123.8

30.0

21.3

1.1

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

Trading update and new guidance

SNP says it expects to report FY15 revenues of c €56.3m when it releases its full year audited results. FY15 EBIT (or adjusted operating profit) is expected to be c €4.5m to give a margin of c 8%. Activity remains very busy in early 2016 and SNP now expects FY16 revenue of €72-78m but it has not yet provided EBIT guidance.

Acquisition of Astrums and Hartung Consult

In January 2016, SNP completed the acquisition of two separate businesses which gives the group a strong foothold in the Asian markets. We have now incorporated these acquisitions into our forecasts and have assumed they cost €10m to acquire, split into initial and deferred instalments. See our previous note for more details.

Forecasts: Acquisitions are incorporated

We forecast revenue to rise 33% to €75.0m in FY16 (previously €64.0m), including €10m from the acquisitions and c 15% organic growth. We forecast a further 15% organic growth in FY17 to €85.9m (€73.3m). We have maintained similar margin assumptions and EPS jump since the transaction is being funded by the group’s existing cash resources (€14.2m cash on the balance sheet as at 30 September) and so does not add to financing costs. Hence our EPS forecasts go up by 16% in FY16 and 14% in FY17. We forecast the group to end FY15 with €2.5m net cash, which dips to €0.5m net cash at end FY16 before recovering to €5.1m in FY17.

Valuation: Strong growth play in the ERP space

The stock trades on c 38x our FY15e EPS, falling to c 21x in FY16e and to c 16x in FY17e. We believe the ratings continue to look attractive given the forecast strong growth and margin recovery potential.

Forecasts: The two acquisitions are incorporated

We have edged up our FY15 revenue and adjusted operating forecasts to be in line with the guidance given in the provisional results. We now forecast revenue to rise 33% to €75.0m in FY16 (previously €64.0m), including €10m from the acquisitions (within the Professional services segment) along with c 15% organic growth. We forecast a further 15% organic revenue growth in FY17 to €85.9m (€73.3m). We have maintained similar margin assumptions and have maintained our interest cost assumptions since the transaction is being funded from the group’s existing cash resources (the group had €14.2m cash on its balance sheet as at 30 September). We have included non-controlling interests for the remaining 30% of Astrums that SNP does not intend to acquire. In all our EPS forecasts go up by 16% in FY16 and 14% in FY17.

In January, SNP completed the acquisitions of Astrums and Hartung Consult, both for undisclosed terms. SNP is buying an initial 51% of each company and will buy the balance of Hartung Consult along with a further 20% of Astrums in January 2018. We have assumed a total deal value of €10m for the two acquisitions, based on sector deals, including a €5-6m initial component and a €4-5m deferred component. We forecast the group to end FY15 with €2.5m net cash, which slips to €0.5m net debt at end FY16 after paying for the acquisitions and rises to net cash of €5.1m at the end of FY17. Additionally, we estimate there are €7.3m of outstanding acquisition liabilities, which along with the initial Astrums/Hartung Consult acquisitions costs take the proforma FY15 year-end adjusted net debt to €10.3m. These acquisition liabilities include €2.8m relating the RSP and our estimates of €4.5m of acquisition liabilities that relate to Astrums and Hartung Consult.

Exhibit 1: Forecasts

2015e

2016e

2017e

(€'000s)

New

Old

Change

New

Old

Change

New

Old

Change

Revenue

 

 

 

 

 

 

 

 

 

Professional services

47,259

46,969

1

64,138

53,461

20

73,677

61,399

20

Software

9,041

9,041

0

10,862

10,545

3

12,207

11,865

3

Group revenue

56,300

56,010

1

75,000

64,006

17

85,884

73,264

17

Growth (%)

84.7

83.8

1

33.2

14.3

133

14.5

14.5

0

Professional services contribution

4,727

4,697

1

6,414

5,346

20

7,736

6,447

20

Software contribution

3,164

3,164

0

4,888

4,745

3

6,104

5,932

3

Non-segment-related expenses

(4,033)

(4,033)

0

(4,275)

(4,275)

0

(4,506)

(4,506)

0

Other operating inc & other taxes

641

641

0

680

680

0

716

716

0

Adjusted operating profit

4,500

4,469

1

7,706

6,496

19

10,050

8,590

17

Operating profit margin (%)

8.0

8.0

0

10.3

10.1

1

11.7

11.7

(0)

Growth (%)

N/A

N/A

1

71.3

45.3

57

30.4

32.2

(6)

Net interest

(796)

(796)

0

(775)

(775)

0

(775)

(775)

0

Profit before tax norm

3,704

3,674

1

6,931

5,721

21

9,275

7,815

19

Exceptional items

356

356

 

0

0

 

0

0

 

Profit before tax

4,060

4,030

1

6,931

5,721

21

9,275

7,815

19

Taxation

(1,111)

(1,102)

1

(2,079)

(1,716)

21

(2,783)

(2,344)

19

Non-controlling interests

0

0

 

(225)

0

 

(248)

0

 

FRS 3 net income

2,949

2,928

1

4,627

4,005

16

6,245

5,470

14

Adjusted EPS (c)

69.4

68.8

1

123.8

107.1

16

167.1

146.3

14

P/E - Adjusted EPS

38.0

 

 

21.3

 

 

15.8

 

 

Source: Edison Investment Research

Exhibit 2: Financial summary

€'000s

2012

2013

2014

2015e

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

27,157

23,536

30,480

56,300

75,000

85,884

Cost of sales

0

0

0

0

0

0

Gross Profit

27,157

23,536

30,480

56,300

75,000

85,884

EBITDA

 

 

3,714

(1,972)

862

5,615

8,842

11,259

Adjusted Operating Profit

 

 

2,951

(2,714)

(66)

4,500

7,706

10,050

Amortisation of acquired intangibles

0

0

0

0

0

0

Exceptionals

0

0

1,505

356

0

0

Associates

(107)

0

0

0

0

0

Operating Profit

2,845

(2,714)

1,439

4,856

7,706

10,050

Net Interest

20

(85)

(66)

(796)

(775)

(775)

Profit Before Tax (norm)

 

 

2,972

(2,799)

(132)

3,704

6,931

9,275

Profit Before Tax (FRS 3)

 

 

2,865

(2,799)

1,373

4,060

6,931

9,275

Tax

(947)

477

(344)

(1,111)

(2,079)

(2,783)

Profit After Tax (norm)

2,025

(2,322)

(477)

2,593

4,852

6,493

Profit After Tax (FRS 3)

1,918

(2,322)

1,028

2,949

4,852

6,493

Minority interest

(127)

(84)

(40)

0

(225)

(248)

Adjustments for normalised earnings

0

0

0

0

0

0

Net income (norm)

1,897

(2,405)

(517)

2,593

4,627

6,245

Net income (FRS 3)

1,791

(2,405)

988

2,949

4,627

6,245

Average No of Shares Outstanding (m)

3.4

3.7

3.7

3.7

3.7

3.7

EPS - normalised (c)

 

 

55.7

(64.7)

(13.9)

69.4

123.8

167.1

EPS - normalised & fully diluted (c)

 

 

55.7

(64.7)

(13.9)

69.4

123.8

167.1

EPS - FRS 3 (c)

 

 

52.5

(64.7)

26.6

78.9

123.8

167.1

Dividend per share (c)

24.00

8.00

13.00

20.00

30.00

40.00

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

13.7

-8.4

2.8

10.0

11.8

13.1

Adjusted Operating Margin (%)

10.9

-11.5

-0.2

8.0

10.3

11.7

BALANCE SHEET

Fixed Assets

 

 

4,236

7,759

8,291

14,263

24,627

25,136

Intangible Assets

2,327

5,194

5,190

11,151

21,151

21,151

Tangible Assets

1,486

1,070

1,231

1,241

1,606

2,115

Other

422

1,496

1,871

1,871

1,871

1,871

Current Assets

 

 

18,316

16,145

17,882

36,487

41,415

50,063

Stocks

0

0

0

0

0

0

Debtors

7,309

9,105

11,286

20,847

27,771

31,801

Cash

10,152

6,355

5,681

14,725

12,729

17,348

Current Liabilities

 

 

(4,781)

(5,804)

(9,782)

(20,028)

(27,278)

(31,287)

Creditors

(4,781)

(5,204)

(9,182)

(19,428)

(26,678)

(30,687)

Short term borrowings

0

(600)

(600)

(600)

(600)

(600)

Long Term Liabilities

 

 

(772)

(4,338)

(2,501)

(12,501)

(17,001)

(17,001)

Long term borrowings

0

(2,250)

(1,650)

(11,650)

(11,650)

(11,650)

Other long term liabilities

(772)

(2,088)

(851)

(851)

(5,351)

(5,351)

Net Assets

 

 

16,998

13,762

13,890

18,221

21,763

26,912

CASH FLOW

Operating Cash Flow

 

 

3,022

(2,110)

2,579

5,690

8,467

10,830

Net Interest

42

4

(66)

(796)

(775)

(775)

Tax

(1,826)

(1,062)

(1,102)

(1,037)

(1,941)

(2,597)

Capex

(465)

(230)

(701)

(1,126)

(1,500)

(1,718)

Acquisitions/disposals

(107)

(2,267)

(500)

(3,203)

(5,500)

0

Shares issued

4,839

(35)

0

0

0

0

Dividends

(2,048)

(937)

(335)

(483)

(748)

(1,121)

Net Cash Flow

3,457

(6,638)

(124)

(956)

(1,996)

4,618

Opening net debt/(cash)

 

 

(6,695)

(10,152)

(3,505)

(3,431)

(2,475)

(479)

HP finance leases initiated

0

0

0

0

0

0

Other

0

(10)

51

()

0

0

Closing net debt/(cash)

 

 

(10,152)

(3,505)

(3,431)

(2,475)

(479)

(5,098)

Source: Company accounts, Edison Investment Research

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