Brady
Written by
Brady |
Acquisitions return business to growth |
Trading update |
Software & comp services |
20 July 2016 |
Share price performance
Business description
Next events
Analysts
Brady is a research client of Edison Investment Research Limited |
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In another in-line trading update, Brady has reported that H1 revenues grew by 4%, which includes the impact from acquisitions (energycredit and ScrapRunner) and currency movements. New business was spread across the three divisions, with nine new contracts signed. The trading update reveals that the group is continuing to stabilise in spite of a tough commodities-related backdrop. The outcome for the year will depend on the busy Q4. We are maintaining our forecasts and continue to believe the shares look attractive, trading on c 15x our cash-adjusted FY17e earnings.
Year |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
31.0 |
5.1 |
5.3 |
1.9 |
12.4 |
2.8 |
12/15 |
27.4 |
1.0 |
1.0 |
0.0 |
64.1 |
N/A |
12/16e |
30.5 |
3.5 |
3.5 |
1.7 |
19.1 |
2.6 |
12/17e |
32.2 |
4.1 |
3.9 |
1.9 |
17.0 |
2.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Trading update: Nine contracts signed in H1
Nine new contracts were signed in the period, seven of which were signed in the Americas. Brady’s hosted cloud product is the default solution for new business and seven of the deals were cloud deployed – these were distributed across the group’s three business lines. Cloud deals add to the group’s recurring revenues and Brady says that the ability to offer cloud-deployed solutions is becoming a key differentiator from the competition. While foreign-denominated revenues exceed foreign-denominated costs, the decline of sterling following the Brexit vote was only marginally positive in H1 since the fall in sterling was late in the period.
Market backdrop: Stabilising after a difficult 2015
Brady is the largest Europe-based E/CTRM vendor and the fourth largest globally (c 3% market share), and is increasingly winning business around the world. E/CTRM covers both the energy (ETRM) and commodity (CTRM) markets. Within ETRM, Brady Energy primarily offers solutions to the Nordic electricity markets. Within CTRM, Brady offers software solutions across a broad range of commodities to trading companies, miners, fabricators and recycling companies. Both areas remain challenging and the global CTRM market is expected to grow by a modest 4% in 2016 to $1.65bn (source: ComTech Advisory). Despite challenging conditions, many participants are underinvested in IT and the sector benefits from growth drivers including regulation, compliance and risk-related factors.
Valuation: Well positioned for commodities recovery
Brady trades on c 15x our maintained cash-adjusted FY17e EPS, 1.5x EV/sales and c 10.3x EV/EBITDA. In our view, the group’s strong balance sheet (more than £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 FY16/17.
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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