Brady
Written by
Brady |
FY15 profits in line, cash comfortably ahead |
Trading update |
Software & comp services |
22 January 2016 |
Share price performance
Business description
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Analysts
Brady is a research client of Edison Investment Research Limited |
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FY15 trading was in line with expectations, which were revised downwards in late November due to lengthening sales cycles, relating to the deteriorating market conditions in the commodity sector. The group retains a strong balance sheet with year-end cash comfortably ahead of expectations at £6.5m (we forecast £5.0m). The shares have made a partial recovery in recent weeks on the back of four licence wins and an interesting small acquisition. The licence wins show Brady can still win new business despite the ongoing turmoil in the commodity markets, as participants require the modern software for their business processes.
Year |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/13 |
29.4 |
2.5 |
2.8 |
1.7 |
19.9 |
3.1 |
12/14 |
31.0 |
5.1 |
5.3 |
1.9 |
10.4 |
3.3 |
12/15e |
27.4 |
0.9 |
1.0 |
2.0 |
57.7 |
3.5 |
12/16e |
29.0 |
3.4 |
3.3 |
2.1 |
16.7 |
3.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Trading update: Four licence wins since last update
Brady says FY15 results are expected to be in line with market forecasts. Cash was ahead of expectations mainly due to several customers paying ahead of what had been anticipated. Four new term licence deals have been announced since the November trading update – they are broadly of average size and all were recognised as revenue in FY15. The new deals provide trading and risk solutions across a range of asset classes – metals & concentrates, cotton and energy, and include a cloud-based deal for a recently founded Switzerland-based company. In November, Brady said it would cut its annual costs by £1.7m (we assumed restructuring costs of £0.5m) - these cost initiatives have already been completed.
Acquisition of energycredit
In early January Brady announced the acquisition of energycredit, a provider of credit risk management solutions for the energy and commodity markets, from Temenos for an undisclosed sum. We believe it is an interesting time to buy a credit risk management solutions business given the current turmoil in the commodity markets and there is an opportunity to extend the solution to other asset classes.
Forecasts: P&L maintained, cash increased
We have adjusted our end-of-year cash forecasts up by £1.5m for both FY15 and FY16, and have maintained all other forecasts.
Valuation: Well positioned for commodities recovery
Brady trades on c 15x our cash-adjusted FY16 EPS, 1.3x EV/sales and c 10.2x EV/EBITDA. While our forecasts do not assume any particular recovery in the commodities market, the group’s strong balance sheet (£6.5m cash and no debt) and streamlined cost base positions Brady well for the eventual recovery.
Exhibit 1: Financial summary
£000s |
2011 |
2012 |
2013 |
2014 |
2015e |
2016e |
||
Year-end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
19,155 |
28,136 |
29,355 |
31,015 |
27,408 |
29,016 |
Cost of Sales |
(9,323) |
(10,063) |
(11,119) |
(10,977) |
(9,837) |
(10,560) |
||
Gross Profit |
9,832 |
18,073 |
18,236 |
20,038 |
17,570 |
18,456 |
||
EBITDA |
|
|
3,653 |
5,440 |
3,122 |
5,592 |
1,433 |
3,852 |
Adjusted Operating Profit |
|
|
3,241 |
4,924 |
2,470 |
5,019 |
890 |
3,277 |
Amortisation of acquired intangibles |
(616) |
(1,276) |
(1,613) |
(1,613) |
(1,613) |
(1,613) |
||
Exceptionals items |
(326) |
(2,563) |
355 |
(2,143) |
(500) |
0 |
||
Share based payments |
(269) |
(345) |
(313) |
(232) |
(250) |
(275) |
||
Operating Profit |
2,030 |
740 |
899 |
1,031 |
(1,473) |
1,389 |
||
Net Interest |
68 |
64 |
29 |
58 |
40 |
80 |
||
Profit Before Tax (norm) |
|
|
3,309 |
4,988 |
2,499 |
5,077 |
930 |
3,357 |
Profit Before Tax (FRS 3) |
|
|
2,098 |
804 |
928 |
1,089 |
(1,433) |
1,469 |
Tax |
(162) |
(345) |
189 |
(630) |
(139) |
(587) |
||
Profit After Tax (norm) |
3,147 |
4,643 |
2,249 |
4,315 |
790 |
2,770 |
||
Profit After Tax (FRS 3) |
1,936 |
459 |
1,117 |
459 |
(1,573) |
882 |
||
Average Number of Shares Outstanding (m) |
54.2 |
75.6 |
80.9 |
81.3 |
82.5 |
83.6 |
||
EPS – normalised (p) |
|
|
5.8 |
6.1 |
2.8 |
5.3 |
1.0 |
3.3 |
EPS – FRS 3 (p) |
|
|
3.6 |
0.6 |
1.4 |
0.6 |
(1.9) |
1.1 |
Dividend per share (p) |
1.50 |
1.60 |
1.70 |
1.85 |
1.95 |
2.10 |
||
Gross Margin (%) |
51.3 |
64.2 |
62.1 |
64.6 |
64.1 |
63.6 |
||
EBITDA Margin (%) |
19.1 |
19.3 |
10.6 |
18.0 |
5.2 |
13.3 |
||
Adjusted Operating Margin (%) |
16.9 |
17.5 |
8.4 |
16.2 |
3.2 |
11.3 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
16,859 |
42,851 |
39,137 |
32,614 |
34,304 |
34,583 |
Intangible Assets |
16,002 |
40,999 |
37,519 |
30,996 |
31,626 |
30,741 |
||
Tangible Assets |
857 |
1,158 |
983 |
1,076 |
2,136 |
3,300 |
||
Deferred tax |
0 |
694 |
635 |
542 |
542 |
542 |
||
Current Assets |
|
|
15,513 |
16,874 |
15,420 |
16,948 |
12,876 |
13,089 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
5,209 |
9,036 |
8,198 |
7,368 |
6,376 |
6,750 |
||
Cash |
10,304 |
7,838 |
7,222 |
9,580 |
6,500 |
6,339 |
||
Current Liabilities |
|
|
(6,283) |
(11,401) |
(11,200) |
(10,545) |
(9,450) |
(9,801) |
Creditors |
(6,283) |
(11,401) |
(11,200) |
(10,545) |
(9,450) |
(9,801) |
||
Short-term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long-Term Liabilities |
|
|
(2,138) |
(6,717) |
(4,467) |
(4,651) |
(4,651) |
(4,651) |
Long-term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other long-term liabilities |
(2,138) |
(6,717) |
(4,467) |
(4,651) |
(4,651) |
(4,651) |
||
Net Assets |
|
|
23,951 |
41,607 |
38,890 |
34,366 |
33,079 |
33,220 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
3,000 |
1,459 |
4,277 |
6,209 |
2,278 |
4,451 |
Net Interest |
68 |
64 |
29 |
58 |
40 |
80 |
||
Tax |
(161) |
(168) |
(378) |
(420) |
(600) |
(470) |
||
Capex |
(1,695) |
(2,374) |
(2,442) |
(2,419) |
(2,535) |
(2,466) |
||
Acquisitions/disposals |
(1,853) |
(17,983) |
(751) |
0 |
(1,180) |
(66) |
||
Financing |
188 |
17,780 |
125 |
338 |
441 |
0 |
||
Dividends |
(759) |
(1,206) |
(1,296) |
(1,378) |
(1,525) |
(1,690) |
||
Net Cash Flow |
(1,212) |
(2,428) |
(436) |
2,388 |
(3,080) |
(161) |
||
Opening net debt/(cash) |
|
|
(11,614) |
(10,304) |
(7,838) |
(7,222) |
(9,580) |
(6,500) |
Other |
(98) |
(38) |
(180) |
(30) |
0 |
() |
||
Closing net debt/(cash) |
|
|
(10,304) |
(7,838) |
(7,222) |
(9,580) |
(6,500) |
(6,339) |
Source: Brady (historicals), Edison Investment Research (forecasts)
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