Brady
Written by
Brady |
Steady as she goes |
AGM trading update |
Software & comp services |
13 May 2016 |
Share price performance
Business description
Next events
Analysts
Brady is a research client of Edison Investment Research Limited |
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In an in-line trading update, Brady says each of the group’s three divisions have signed deals in the year to date. This includes the first new business from energycredit, which the group acquired in January. The brief trading update indicates that the group is stabilising after the difficult FY15, which saw business being deferred in the wake of the turmoil in the commodities space. Nevertheless, the outcome for the year will depend on the busier Q2 and Q4. We are maintaining our forecasts and continue to believe the shares look attractive, trading on c 14x our cash-adjusted FY17e earnings.
Year |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
31.0 |
5.1 |
5.3 |
1.9 |
11.7 |
3.1 |
12/15 |
27.4 |
1.0 |
1.0 |
0.0 |
62.0 |
N/A |
12/16e |
30.5 |
3.5 |
3.5 |
1.7 |
17.7 |
2.7 |
12/17e |
32.2 |
4.1 |
3.9 |
1.9 |
15.9 |
3.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Trading update: Four new contracts year to date
Brady says that it “has continued to make progress in the year to date and the first quarter’s results were in line with management’s expectations. The Recycling Division has signed a deal with SA Recycling to manage its acquisition of Newell Industries. This has increased the number of recycling facilities supported by Brady’s software by 17 to a total of 70 sites. The Energy Division has signed a cloud-based deal with a major US renewables company and a significant credit risk service contract with one of the world’s best-known oil companies. The Commodities Division signed a significant service deal with a major Chinese trading company to support its global cotton trading business”.
We note that Q1 is typically the quietest quarter, followed by Q3 and Q2, while Q4 is typically the busiest. Q4 and Q2 are boosted as some customers use up their remaining IT budgets in purchasing additional modules and user licences.
Paul Fullagar is retiring as chairman after nine years and the process to appoint a new chairman is well advanced.
Valuation: Well positioned for commodities recovery
Brady trades on c 14x our maintained cash-adjusted FY17e EPS, 1.4x EV/sales and c 9.6x EV/EBITDA. In our view, the group’s strong balance sheet (£6.6m cash and no debt) and streamlined cost base position Brady well for recovery. We note that Brady bounced back in FY14 from a disappointing FY13, and the shares now look undervalued if it can stage a similar recovery in FY16/FY17.
Exhibit 1: Financial summary
£'000s |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
28,136 |
29,355 |
31,015 |
27,374 |
30,527 |
32,170 |
Cost of Sales |
(10,063) |
(11,119) |
(10,977) |
(10,867) |
(10,957) |
(11,547) |
||
Gross Profit |
18,073 |
18,236 |
20,038 |
16,507 |
19,570 |
20,623 |
||
EBITDA |
|
|
5,440 |
3,122 |
5,592 |
1,506 |
4,038 |
4,640 |
Adjusted Operating Profit |
|
|
4,924 |
2,470 |
5,019 |
924 |
3,434 |
4,003 |
Amortisation of acquired intangibles |
(1,276) |
(1,613) |
(1,613) |
(1,640) |
(1,640) |
(1,640) |
||
Exceptionals items |
(2,563) |
355 |
(2,143) |
(469) |
0 |
0 |
||
Share based payments |
(345) |
(313) |
(232) |
(243) |
(263) |
(275) |
||
Operating Profit |
740 |
899 |
1,031 |
(1,428) |
1,532 |
2,088 |
||
Net Interest |
64 |
29 |
58 |
31 |
50 |
60 |
||
Profit Before Tax (norm) |
|
|
4,988 |
2,499 |
5,077 |
955 |
3,484 |
4,063 |
Profit Before Tax (FRS 3) |
|
|
804 |
928 |
1,089 |
(1,397) |
1,582 |
2,148 |
Tax |
(345) |
189 |
(630) |
(329) |
(610) |
(813) |
||
Profit After Tax (norm) |
4,643 |
2,249 |
4,315 |
813 |
2,874 |
3,250 |
||
Profit After Tax (FRS 3) |
459 |
1,117 |
459 |
(1,726) |
972 |
1,335 |
||
Average Number of Shares Outstanding (m) |
75.6 |
80.9 |
81.3 |
82.7 |
83.2 |
83.6 |
||
EPS – normalised (p) |
|
|
6.1 |
2.8 |
5.3 |
1.0 |
3.5 |
3.9 |
EPS – FRS 3 (p) |
|
|
0.6 |
1.4 |
0.6 |
(2.1) |
1.2 |
1.6 |
Dividend per share (p) |
1.60 |
1.70 |
1.85 |
0.00 |
1.70 |
1.90 |
||
Gross Margin (%) |
64.2 |
62.1 |
64.6 |
60.3 |
64.1 |
64.1 |
||
EBITDA Margin (%) |
19.3 |
10.6 |
18.0 |
5.5 |
13.2 |
14.4 |
||
Adjusted Operating Margin (%) |
17.5 |
8.4 |
16.2 |
3.4 |
11.2 |
12.4 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
42,851 |
39,137 |
32,614 |
31,461 |
30,229 |
28,598 |
Intangible Assets |
40,999 |
37,519 |
30,996 |
29,831 |
28,532 |
26,830 |
||
Tangible Assets |
1,158 |
983 |
1,076 |
1,147 |
1,214 |
1,285 |
||
Deferred tax |
694 |
635 |
542 |
483 |
483 |
483 |
||
Current Assets |
|
|
16,874 |
15,420 |
16,948 |
13,633 |
14,846 |
16,800 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
9,036 |
8,198 |
7,368 |
7,039 |
7,850 |
8,272 |
||
Cash |
7,838 |
7,222 |
9,580 |
6,594 |
6,996 |
8,528 |
||
Current Liabilities |
|
|
(11,401) |
(11,200) |
(10,545) |
(10,804) |
(10,423) |
(10,504) |
Creditors |
(11,401) |
(11,200) |
(10,545) |
(10,804) |
(10,423) |
(10,504) |
||
Short-term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long-Term Liabilities |
|
|
(6,717) |
(4,467) |
(4,651) |
(4,814) |
(4,814) |
(4,814) |
Long-term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other long-term liabilities |
(6,717) |
(4,467) |
(4,651) |
(4,814) |
(4,814) |
(4,814) |
||
Net Assets |
|
|
41,607 |
38,890 |
34,366 |
29,476 |
29,838 |
30,080 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
1,459 |
4,277 |
6,209 |
2,363 |
3,717 |
6,179 |
Net Interest |
64 |
29 |
58 |
31 |
50 |
60 |
||
Tax |
(168) |
(378) |
(420) |
(416) |
(488) |
(650) |
||
Capex |
(2,374) |
(2,442) |
(2,419) |
(2,591) |
(2,312) |
(2,506) |
||
Acquisitions/disposals |
(17,983) |
(751) |
0 |
(1,186) |
(566) |
(66) |
||
Financing |
17,780 |
125 |
338 |
469 |
0 |
0 |
||
Dividends |
(1,206) |
(1,296) |
(1,378) |
(1,524) |
0 |
(1,485) |
||
Net Cash Flow |
(2,428) |
(436) |
2,388 |
(2,854) |
402 |
1,532 |
||
Opening net debt/(cash) |
|
|
(10,304) |
(7,838) |
(7,222) |
(9,580) |
(6,594) |
(6,996) |
Other |
(38) |
(180) |
(30) |
(132) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(7,838) |
(7,222) |
(9,580) |
(6,594) |
(6,996) |
(8,528) |
Source: Brady (historicals), Edison Investment Research (forecasts)
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