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Blancco Technology Group — Cleaning house

Blancco Technology Group — Cleaning house

Blancco expects to report FY17 revenue growth of 40%, in line with our forecast. After providing for a previously flagged late payer, adjusted operating profit is expected to be c £5.5m. We have revised our forecasts to reflect the bad debt provision and slightly higher operating expenses, as well as reflecting the recent fund raise. We reduce our FY17e normalised EPS by 42% and FY18e and FY19e by 12%. We forecast net cash of £1.5m at the end of FY17.

Written by

Katherine Thompson

Director

Blancco Technology Group

Cleaning house

Trading update

Software & comp services

10 July 2017

Price

116.5p

Market cap

£75m

Net debt (£m) at end H117

5.9

Shares in issue

64.0m

Free float

95.6%

Code

BLTG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(27.6)

(47.4)

(32.3)

Rel (local)

(26.5)

(47.5)

(40.8)

52-week high/low

308p

116.5p

Business description

Blancco Technology Group develops and sells data erasure and mobile diagnostics software. It is headquartered in the US and has sales offices in 15 countries around the world.

Next events

FY17 results

3 October 2017

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Bridie Barrett

+44 (0)20 3077 5700

Blannco Technology Group is a research client of Edison Investment Research Limited

Blancco expects to report FY17 revenue growth of 40%, in line with our forecast. After providing for a previously flagged late payer, adjusted operating profit is expected to be c £5.5m. We have revised our forecasts to reflect the bad debt provision and slightly higher operating expenses, as well as reflecting the recent fund raise. We reduce our FY17e normalised EPS by 42% and FY18e and FY19e by 12%. We forecast net cash of £1.5m at the end of FY17.

Year end

Revenue (£m)

Adjusted operating profit* (£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/15

15.0

4.0

2.84

5.00

41.0

4.3

06/16

22.4

6.1

5.63

2.00

20.7

1.7

06/17e

31.4

5.5**

4.89**

2.10

23.8

1.8

06/18e

37.9

9.6

9.73

2.21

12.0

1.9

Note: *Adjusted operating profit and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **After £2.2m bad debt provision.

FY17 revenues in line; bad debt provision hits profit

Blancco expects to report FY17 revenue growth of c 40% (+30% constant currency), which is in Iine with our forecast. The company has decided to provide against a large debtor (previously flagged as overdue). Of the £3.5m receivable, £2.2m had been recognised as revenue and the remainder was in deferred income. Taking into account the £2.2m cost of the provision, the company expects to report adjusted operating profit (AOP) of at least £5.5m and EBITDA of at least £7.0m.

Revising forecasts to reflect trading and fundraise

We have revised our forecasts to reflect the £2.2m provision cost. We have also increased our operating expense forecast by £0.2m to arrive at the £5.5m AOP – this also flows through to slightly higher expenses in FY18 and FY19. We factor in the net cash proceeds of £9.5m from the May placing of 5.8m shares at 169p per share. Overall, this reduces our normalised EPS forecasts by 42% in FY17, 12% in FY18 and 12% in FY19. Taking into account the fund raise and the outstanding receivable, we forecast a net cash position of £1.5m at the end of FY17.

Valuation: Rebuilding confidence in growth prospects

The stock has declined 46% since the cash shortfall was announced in April. Blancco now trades at a discount to its UK-based, high-growth software peer group and its global cybersecurity software peer group, despite earnings growth forecasts from FY18 at the top end of the range. The recent fund raise has strengthened the balance sheet and provided breathing space while the company deals with overdue receivables. Over the next six months, events that should improve investor confidence include the appointment of a new chairman, an update on the underlying growth trends for each business line and any repayment of overdue receivables. In the longer term, evidence that the wider market accepts the need for secure data erasure should provide support to our growth forecasts and position the company for a multi-year growth phase.

Exhibit 1: Financial summary

£'m

2015

2016

2017e

2018e

2019e

30-June

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

15.0

22.4

31.4

37.9

43.8

Cost of Sales

(0.5)

(1.5)

(1.8)

(2.7)

(3.1)

Gross Profit

14.6

20.8

29.6

35.2

40.8

EBITDA

 

 

4.2

6.9

7.1

11.4

13.8

Normalised operating profit

 

 

4.0

6.1

5.5

9.6

11.6

Amortisation of acquired intangibles

(2.0)

(2.5)

(2.8)

(2.8)

(2.8)

Exceptionals

(2.5)

(2.7)

(2.2)

0.0

0.0

Share-based payments

(0.4)

(1.2)

(1.7)

(2.0)

(2.2)

Reported operating profit

(0.9)

(0.2)

(1.2)

4.8

6.6

Net Interest

(0.5)

(0.3)

(0.7)

(0.6)

(0.6)

Joint ventures & associates (post tax)

(0.7)

(0.2)

0.0

0.0

0.0

Exceptionals

(0.3)

(0.6)

(0.3)

(0.3)

(0.3)

Profit Before Tax (norm)

 

 

2.8

5.6

4.9

9.0

11.0

Profit Before Tax (reported)

 

 

(2.4)

(1.3)

(2.1)

3.9

5.7

Reported tax

(0.9)

(0.6)

(0.9)

(1.0)

(1.4)

Profit After Tax (norm)

1.9

4.7

4.1

7.6

9.3

Profit After Tax (reported)

(3.3)

(2.0)

(3.1)

2.9

4.3

Minority interests

0.3

(0.7)

(1.0)

(1.1)

(1.2)

Discontinued operations

8.4

(22.2)

(2.4)

0.0

0.0

Net income (normalised)

2.2

4.0

3.2

6.6

8.1

Net income (reported)

5.4

(24.8)

(6.4)

1.8

3.0

Basic average number of shares outstanding (m)

78

72

59

62

62

EPS - basic normalised (p)

 

 

2.84

5.63

5.35

10.61

13.12

EPS - diluted normalised (p)

 

 

2.84

5.63

4.89

9.73

12.03

EPS - basic reported (p)

 

 

6.97

(34.72)

(10.84)

2.97

4.91

Dividend (p)

5.00

2.00

2.10

2.21

2.32

Revenue growth (%)

49.1

40.3

20.6

15.6

Gross Margin (%)

96.9

93.1

94.4

93.0

93.0

EBITDA Margin (%)

28.3

30.7

22.7

30.1

31.6

Normalised Operating Margin

26.8

27.2

17.6

25.2

26.4

BALANCE SHEET

Fixed Assets

 

 

119.1

67.3

65.8

63.9

61.6

Intangible Assets

110.2

66.9

65.3

63.4

61.1

Tangible Assets

6.4

0.4

0.5

0.5

0.5

Investments & other

2.5

0.0

0.0

0.0

0.0

Current Assets

 

 

56.2

18.6

20.3

22.3

26.6

Stocks

9.5

0.1

0.2

0.2

0.2

Debtors

34.6

8.9

11.9

14.3

16.6

Cash & cash equivalents

12.1

4.8

8.2

7.7

9.8

Other

0.0

4.8

0.0

0.0

0.0

Current Liabilities

 

 

(43.2)

(23.3)

(20.9)

(22.7)

(22.3)

Creditors

(40.5)

(14.2)

(15.0)

(16.3)

(18.5)

Tax and social security

(0.6)

(2.3)

(2.3)

(2.3)

(2.3)

Short term borrowings

0.0

0.0

0.0

0.0

0.0

Other

(2.1)

(6.8)

(3.7)

(4.1)

(1.6)

Long Term Liabilities

 

 

(9.4)

(13.5)

(15.8)

(10.3)

(7.3)

Long term borrowings

(4.4)

(3.7)

(6.7)

(3.7)

(0.7)

Other long term liabilities

(5.0)

(9.8)

(9.1)

(6.6)

(6.6)

Net Assets

 

 

122.7

49.1

49.4

53.2

58.5

Minority interests

(0.2)

(1.0)

(0.1)

(1.2)

(2.4)

Shareholders' equity

 

 

122.4

48.1

49.2

52.0

56.1

CASH FLOW

Op Cash Flow before WC and tax

4.2

6.9

7.1

11.4

13.8

Working capital

0.8

(0.6)

(3.6)

(1.1)

(0.1)

Exceptional & other

2.8

(12.2)

(4.1)

0.0

0.0

Tax

(0.6)

(0.6)

(0.9)

(1.0)

(1.4)

Net operating cash flow

 

 

7.3

(6.6)

(1.5)

9.3

12.3

Capex

(1.8)

(2.5)

(2.9)

(2.8)

(2.8)

Acquisitions/disposals

(2.5)

(7.5)

(1.1)

(1.0)

(2.5)

Net interest

(0.4)

(0.2)

(0.7)

(0.6)

(0.6)

Equity financing

(3.6)

(50.7)

9.5

0.0

0.0

Dividends

(3.4)

(3.1)

(1.5)

(1.4)

(1.4)

Other

(6.5)

65.1

(1.4)

(1.1)

0.0

Net Cash Flow

(10.8)

(5.6)

0.48

2.5

5.0

Opening net debt/(cash)

 

 

(20.6)

(7.8)

(1.0)

(1.5)

(4.0)

FX

(1.9)

(1.2)

0.0

0.0

0.0

Other non-cash movements

(0.1)

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(7.8)

(1.0)

(1.5)

(4.0)

(9.1)

Source: Blancco, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Blancco Technology Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Blancco Technology Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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