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Tinexta reported strong Q119 results, with c 10% organic revenue growth, c 32% organic EBITDA growth, 50% EPS growth and improving free cash flow (FCF) generation. All divisions contributed to profit growth and the acquisitions made in FY18 are performing well. Management has reiterated guidance for FY19, which appears conservative even though Q1 is a seasonally less important quarter. We maintain our forecasts for now but will review them later in the year.
Tinexta |
Broad-based strong profit growth |
Q119 results |
Professional services |
16 May 2019 |
Share price performance
Business description
Next events
Analysts
Tinexta is a research client of Edison Investment Research Limited |
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Tinexta reported strong Q119 results, with c 10% organic revenue growth, c 32% organic EBITDA growth, 50% EPS growth and improving free cash flow (FCF) generation. All divisions contributed to profit growth and the acquisitions made in FY18 are performing well. Management has reiterated guidance for FY19, which appears conservative even though Q1 is a seasonally less important quarter. We maintain our forecasts for now but will review them later in the year.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
174.8 |
30.5 |
0.46 |
0.14 |
27.0 |
1.1 |
12/18 |
238.7 |
48.6 |
0.74 |
0.23 |
16.8 |
1.9 |
12/19e |
256.5 |
52.6 |
0.78 |
0.26 |
15.9 |
2.1 |
12/20e |
272.9 |
57.4 |
0.85 |
0.28 |
14.6 |
2.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong Q119 results
Tinexta has reported strong Q119 results, with c 10% organic revenue growth, 32% organic EBITDA growth and 50% EPS growth. M&A added a further c 6% to revenue and EBITDA. Revenue growth and margins were driven by the two most important divisions: Digital Trust and Innovation & Marketing Services, 35% and 34% of group EBITDA before central costs, respectively. Digital Trust’s organic revenue and EBITDA growth was 9.5% and 10.1% respectively, and Innovation & Marketing Services was 32.9% and 98.3% respectively. Despite reporting a three percent decline in organic revenue, successful cost management by Credit Information and Management resulted in organic EBITDA growth of 15.6%.
Management’s FY19 guidance looks conservative
Management has reiterated FY19 guidance for revenue of greater than €250m (+4%) and EBITDA of €68–70m (at least c 3% growth). Our forecasts, with revenue ahead of guidance and EBITDA roughly in line, remain essentially unchanged for now. However given that Q1 revenue growth rates in Digital Trust and Innovation & Marketing Services were ahead of our FY19 estimates we see scope to revisit these later in the year. The adoption of IFRS 16 could, we estimate, add €3–4m to EBITDA, although management has yet to issue firm guidance on this.
Valuation: Scope for expansion
Pre the adoption of IFRS 16, Tinexta’s EV/EBITDA multiples of 9.9x for FY19e and 9.2x for FY20e look low versus peers given our possibly conservative forecast of c 6% average organic growth for EBITDA in FY19–21. The FCF yield is 6% in FY19. Our discounted cash flow (DCF) valuation remains at €14.2 per share.
Q119: Broad-based EBITDA growth
Group overview
Q119 results were strong, with organic revenue growth of 10.2%, organic EBITDA growth of 31.7% and EPS growth of 50%. Organic revenue growth was better than expected in Digital Trust and Innovation & Marketing Services. The reported group EBITDA margin increased from 19.8% in Q118 to 22.8% in Q119, before the adoption of IFRS 16, which added a further 1.4% to give a total of 24.2%. Management is yet to issue guidance on the impact of the adoption of IFRS 16 for FY19, but we estimate that this could add €3–4m to our forecast 2019 EBITDA of €70m. Free cash flow generation was strong, with growth of 67.8%, driven by the EBITDA margin improvement above and working capital.
Digital Trust (42% of revenue and 35% of EBITDA)
In what is typically a lower growth quarter for the business unit, Digital Trust reported 9.5% organic revenue growth, ahead of our forecast 9% for FY19. This compares with growth rates of 5.9% in Q117 and 3.1% in Q118. The quarter benefited from unexpected strength in certified electronic mail, as well as the expected and continued strong growth in Enterprise Solutions. Looking forward, management is confident of continuing to report high single-digit/low double-digit organic revenue growth, which, per management, could fluctuate between 8% and 12% on a quarterly basis. The underlying clean EBITDA margin, before the adoption of IFRS 16, fell slightly from 22.5% in Q118 to 22.2% in Q119, but this just reflects a seasonally less important quarter and includes upfront costs at the start of new contracts; we believe margin progression should resume through the year.
Credit Information & Management (32% of revenue and 31% of EBITDA)
Having returned to organic growth in FY18 (2.3%), after declines in FY16 (-3%) and FY17 (-6%), Credit Information & Management reported a decline in organic revenue in Q119 of 3.1%. This reflects tougher conditions, with competitive pricing pressure in the core credit information business, Innolva, and lower growth (c 2–3%) in the real estate valuation business, ReValuta, which had a strong FY18. Acquisitions made in FY18 added 8% to revenue growth. To counter the revenue declines, management continues to control costs well, such that clean EBITDA margin increased from 22.1% in Q118 to 26.3% in Q119, before the adoption of IFRS16, which added one percentage point to the business unit’s margin. At this stage, our FY19 forecast for organic revenue growth of 3% appears high, but the FY18 acquisitions are performing better than expected and management’s EBITDA margin target for FY19 of 23–24% is ahead of our 22.3%. Therefore, net-net there is no need to materially change the absolute forecasts. Comfort is provided by the fact that in Q119 the business unit has booked c 30% of our FY19 EBITDA forecast compared to c 26% of FY18 reported EBITDA in Q118.
Innovation & Marketing Services (25% of revenue and 34% of clean EBITDA)
Innovation & Marketing Services’ organic revenue increased by 32.9% in Q119 (+43.8% Q418). Growth was entirely driven by Warrant Hub, the innovation consultancy where demand continues to outstrip the company’s capacity. Co.Mark, the export consultancy, is described as ‘stable’, as the new CEO formulates a new strategy for the business. We expect growth to moderate through FY19 given the capacity constraints at Warrant Hub. We continue to forecast 3% organic revenue growth in FY19.
Exhibit 1: Financial summary
€'000s |
2017 |
2018 |
2019e |
2020e |
2021e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
174,790 |
238,701 |
256,470 |
272,913 |
290,650 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
174,790 |
238,701 |
256,470 |
272,913 |
290,650 |
||
EBITDA |
|
|
40,630 |
65,959 |
70,224 |
75,490 |
81,137 |
Normalised operating profit |
|
|
28,959 |
50,999 |
54,588 |
59,311 |
64,353 |
Amortisation of acquired intangibles |
(1,861) |
(2,849) |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Share-based payments |
0 |
0 |
0 |
0 |
0 |
||
Reported operating profit |
27,098 |
48,150 |
54,588 |
59,311 |
64,353 |
||
Net Interest |
1,523 |
(2,520) |
(2,737) |
(2,802) |
(2,577) |
||
Joint ventures & associates (post tax) |
4 |
106 |
770 |
847 |
1,016 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
30,486 |
48,585 |
52,621 |
57,356 |
62,792 |
Profit Before Tax (reported) |
|
|
28,625 |
45,736 |
52,621 |
57,356 |
62,792 |
Reported tax |
(8,420) |
(12,629) |
(15,260) |
(16,633) |
(18,210) |
||
Profit After Tax (norm) |
21,519 |
35,169 |
37,361 |
40,723 |
44,582 |
||
Profit After Tax (reported) |
20,205 |
33,107 |
37,361 |
40,723 |
44,582 |
||
Minority interests |
(78) |
(588) |
(664) |
(723) |
(792) |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
21,441 |
34,581 |
36,697 |
40,000 |
43,792 |
||
Net income (reported) |
20,127 |
32,519 |
36,697 |
39,999 |
43,790 |
||
Basic average number of shares outstanding (m) |
46 |
47 |
47 |
47 |
47 |
||
EPS - basic normalised (€) |
|
|
0.46 |
0.74 |
0.78 |
0.85 |
0.93 |
EPS - diluted normalised (€) |
|
|
0.46 |
0.74 |
0.78 |
0.85 |
0.93 |
EPS - basic reported (€) |
|
|
0.43 |
0.70 |
0.78 |
0.85 |
0.93 |
Dividend (€) |
0.14 |
0.23 |
0.26 |
0.28 |
0.30 |
||
Revenue growth (%) |
19.0 |
36.6 |
7.4 |
6.4 |
6.5 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
||
EBITDA Margin (%) |
23.2 |
27.6 |
27.4 |
27.7 |
27.9 |
||
Normalised Operating Margin |
16.6 |
21.4 |
21.3 |
21.7 |
22.1 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
275,773 |
305,579 |
302,943 |
298,765 |
292,981 |
Intangible Assets |
260,630 |
270,536 |
267,899 |
263,721 |
257,937 |
||
Tangible Assets |
8,287 |
8,232 |
8,233 |
8,233 |
8,233 |
||
Investments & other |
6,856 |
26,811 |
26,811 |
26,811 |
26,811 |
||
Current Assets |
|
|
125,844 |
143,406 |
176,600 |
212,893 |
253,849 |
Stocks |
2,072 |
1,344 |
1,444 |
1,537 |
1,637 |
||
Debtors |
80,285 |
86,321 |
92,747 |
98,693 |
105,107 |
||
Cash & cash equivalents |
36,987 |
35,136 |
61,805 |
92,059 |
126,500 |
||
Other financial assets |
4,311 |
8,186 |
8,186 |
8,186 |
8,186 |
||
Other |
2,189 |
12,419 |
12,419 |
12,419 |
12,419 |
||
Current Liabilities |
|
|
(102,868) |
(194,356) |
(198,221) |
(201,652) |
(205,365) |
Creditors |
(47,725) |
(93,905) |
(97,770) |
(101,201) |
(104,914) |
||
Tax and social security |
(6,125) |
(704) |
(704) |
(704) |
(704) |
||
Short term borrowings |
(21,723) |
(97,380) |
(97,380) |
(97,380) |
(97,380) |
||
Other |
(27,295) |
(2,367) |
(2,367) |
(2,367) |
(2,367) |
||
Long Term Liabilities |
|
|
(155,535) |
(109,085) |
(109,085) |
(109,085) |
(109,085) |
Long term borrowings |
(123,800) |
(70,667) |
(70,667) |
(70,667) |
(70,667) |
||
Other long term liabilities |
(31,735) |
(38,418) |
(38,418) |
(38,418) |
(38,418) |
||
Net Assets |
|
|
143,214 |
145,544 |
172,238 |
200,921 |
232,380 |
Minority interests |
537 |
3,757 |
4,421 |
5,144 |
5,936 |
||
Shareholders' equity |
|
|
143,751 |
149,301 |
176,658 |
206,064 |
238,315 |
CASH FLOW |
|||||||
Net operating cash flow |
|
|
32,151 |
43,405 |
53,073 |
57,097 |
61,142 |
Capex |
(6,486) |
(13,095) |
(13,000) |
(12,000) |
(11,000) |
||
Acquisitions/disposals |
(61,072) |
(33,182) |
0 |
0 |
0 |
||
Net interest |
(1,526) |
(1,441) |
(2,737) |
(2,802) |
(2,577) |
||
Equity financing |
1,078 |
1,080 |
0 |
0 |
0 |
||
Dividends |
(6,977) |
(12,067) |
(10,669) |
(12,040) |
(13,123) |
||
Other |
4,219 |
(3,866) |
0 |
0 |
0 |
||
Net Cash Flow |
(38,613) |
(19,166) |
26,667 |
30,254 |
34,441 |
||
Opening net debt/(cash) |
|
|
71,003 |
104,225 |
124,726 |
98,059 |
67,805 |
FX |
0 |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
5,391 |
(1,335) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
104,225 |
124,726 |
98,059 |
67,805 |
33,364 |
Source: Company accounts, Edison Investment Research
|
|
2018 was a year of dynamic growth for Globalworth (GWI), and this has continued into 2019. Since reporting FY18 results, it has completed the issue of 55m new shares, valued at c €500m, directed at funding continued portfolio investment and the acquisition of the outstanding minority in its Polish subsidiary. Further acquisitions with a value of c €283m have been reported, and the group has a new core shareholder.