eServGlobal has announced that due to order slippage in the core business, it does not expect to reach operational break-even in FY18, with revenues expected of €7-7.5m versus a break-even cost base of €11-11.5m. We have reduced our forecasts to reflect the revised revenue outlook and increased EBITDA loss. We estimate that eServGlobal’s cash balance is more than enough to cover core business working capital requirements as well as expected investment in HomeSend capital raises.
eServGlobal |
Core business order shortfall |
Trading update |
Software & comp services |
20 December 2018 |
Share price performance
Business description
Next events
Analysts
eServGlobal is a research client of Edison Investment Research Limited |
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eServGlobal has announced that due to order slippage in the core business, it does not expect to reach operational break-even in FY18, with revenues expected of €7-7.5m versus a break-even cost base of €11-11.5m. We have reduced our forecasts to reflect the revised revenue outlook and increased EBITDA loss. We estimate that eServGlobal’s cash balance is more than enough to cover core business working capital requirements as well as expected investment in HomeSend capital raises.
Year end |
Revenue (A$m) |
EBITDA* |
EPS* |
DPS |
P/E |
Yield |
10/16 |
21.6 |
(7.0) |
(3.88) |
0.0 |
N/A |
N/A |
10/17 |
10.8 |
(11.7) |
(3.53) |
0.0 |
N/A |
N/A |
12/17** |
12.2 |
(15.2) |
(4.17) |
0.0 |
N/A |
N/A |
12/18e |
11.3 |
(6.2) |
(1.57) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **14-month period.
Order slippage reduces FY18 revenues
When the company reported H118 results in September, it was confident of reaching operational break-even for FY18, which with an expected cost base of €11-11.5m implied FY18 revenues of at least A$17.4m. It now expects to report revenues of €7-7.5m/A$11.1-11.9m, which implies H218 revenues flat to slightly higher than the A$5.6m reported in H118. The company entered FY18 with €5.7m in recurring and deferred revenue; based on order intake to date and revenues recognised in FY18e, it expects this to increase to €7.5m by the start of FY19. It also expects to reduce costs to a break-even level of €10m by the start of FY19.
Forecasts reflect lower H2 orders and HomeSend investment
We have reduced our FY18 revenue forecast to A$11.3m, which results in a widening of the EBITDA loss from A$0.3m to A$6.2m and a reduction in normalised EPS from -A$0.96 to -A$1.57. The business continues to explore the sale of the core business. At the end of November, eServGlobal contributed to HomeSend’s €6.1m capital raise in proportion to its 35.68% stake. We forecast the company will have net cash of A$29m by the end of FY18 and we expect HomeSend to request more funds later in FY19 (its plan is to raise €47m in total), of which we expect eServGlobal to have to contribute up to €14.6m/A$23.1m to maintain its stake.
Valuation: HomeSend the main driver
We believe that most of the company’s value is provided by its stake in the HomeSend joint venture. We estimate that in addition to the well-established use of HomeSend for remittance volumes, the share price is factoring in adoption of HomeSend by banking customers for cross-border payments. Evidence of recent bank signings transferring cross-border payments over to the HomeSend platform will be key to supporting and driving the current share price. Contract wins in the core business could also have a more limited impact on the share price.
Changes to forecasts
Exhibit 1: Changes to estimates
A$'000 |
FY18e |
FY18e |
Change |
Old |
New |
||
Revenues |
18,978 |
11,278 |
-40.6% |
Gross profit |
6,149 |
2,448 |
-60.2% |
Gross margin |
32.4% |
21.7% |
-10.7% |
Normalised gross profit |
6,149 |
2,448 |
-60.2% |
Normalised gross margin |
32.4% |
21.7% |
-10.7% |
Normalised EBITDA |
(277) |
(6,228) |
2148.4% |
Normalised EBITDA margin |
(1.5%) |
(55.2%) |
-53.8% |
Normalised EBIT |
(3,647) |
(9,598) |
163.2% |
Normalised EBIT margin |
(19.2%) |
(85.1%) |
-65.9% |
Reported EBIT |
(4,119) |
(10,070) |
144.5% |
Normalised PBT |
(8,088) |
(14,039) |
73.6% |
Reported PBT |
(8,560) |
(14,511) |
69.5% |
Normalised net income |
(9,420) |
(15,398) |
63.5% |
Reported net income |
(9,958) |
(15,909) |
59.8% |
Normalised EPS |
(0.96) |
(1.57) |
63.5% |
Net debt/(cash) |
(35,137) |
(28,977) |
-17.5% |
Source: Edison Investment Research
Exhibit 2: Financial summary
A$'000s |
2014 |
2015 |
2016 |
2017 |
2017* |
2018e |
||
Year end 31 October/31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
31,261 |
25,866 |
21,577 |
10,791 |
12,240 |
11,278 |
Cost of Sales |
(13,359) |
(20,608) |
(15,490) |
(13,509) |
(16,729) |
(8,830) |
||
Gross Profit |
17,902 |
5,258 |
6,087 |
(2,718) |
(4,489) |
2,448 |
||
EBITDA |
|
|
2,571 |
(10,449) |
(6,982) |
(11,709) |
(15,204) |
(6,228) |
Operating Profit (before amort acq intang, SBP and except.) |
1,987 |
(12,469) |
(10,039) |
(15,391) |
(19,959) |
(9,598) |
||
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
28,735 |
(12,539) |
(3,533) |
(7,905) |
(8,649) |
(107) |
||
Share-based payments |
(438) |
(54) |
(75) |
(160) |
(297) |
(365) |
||
Operating Profit |
30,284 |
(25,062) |
(13,647) |
(23,456) |
(28,905) |
(10,070) |
||
Income from associate |
(2,275) |
(3,831) |
(4,638) |
(4,478) |
(5,491) |
(4,435) |
||
Net Interest |
(254) |
(1,356) |
(2,861) |
(2,302) |
(2,090) |
(6) |
||
Profit Before Tax (norm) |
|
|
(542) |
(17,656) |
(17,538) |
(22,171) |
(27,540) |
(14,039) |
Profit Before Tax (FRS 3) |
|
|
27,755 |
(30,249) |
(21,146) |
(30,236) |
(36,486) |
(14,511) |
Tax |
(13,515) |
(2,125) |
(596) |
(592) |
(681) |
(1,198) |
||
Profit After Tax (norm) |
(379) |
(14,125) |
(14,030) |
(22,605) |
(28,054) |
(15,198) |
||
Profit After Tax (FRS3) |
14,240 |
(32,374) |
(21,742) |
(30,828) |
(37,167) |
(15,709) |
||
Minority interest |
(138) |
(166) |
(196) |
(12) |
(134) |
(200) |
||
Net Income (norm) |
(517) |
(14,291) |
(14,226) |
(22,617) |
(28,188) |
(15,398) |
||
Net Income (FRS3) |
14,102 |
(32,540) |
(21,938) |
(30,840) |
(37,301) |
(15,909) |
||
Average Number of Shares Outstanding (m) |
253.1 |
264.0 |
366.6 |
640.2 |
676.4 |
982.9 |
||
EPS - normalised (c) |
|
|
(0.20) |
(5.41) |
(3.88) |
(3.53) |
(4.17) |
(1.57) |
EPS - FRS 3 (c) |
|
|
5.57 |
(12.33) |
(5.98) |
(4.82) |
(5.51) |
(1.62) |
DPS (c) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Gross Margin (%) |
57.3% |
20.3% |
28.2% |
(25.2%) |
(36.7%) |
21.7% |
||
EBITDA Margin (%) |
8.2% |
(40.4%) |
(32.4%) |
(108.5%) |
(124.2%) |
(55.2%) |
||
Operating Margin (before am and except.) (%) |
6.4% |
(48.2%) |
(46.5%) |
(142.6%) |
(163.1%) |
(85.1%) |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
43,431 |
42,928 |
33,274 |
27,567 |
31,373 |
29,832 |
Intangible Assets |
9,011 |
6,939 |
5,598 |
4,411 |
3,856 |
3,356 |
||
Tangible Assets |
3 |
84 |
32 |
136 |
127 |
147 |
||
Other Fixed Assets |
34,417 |
35,905 |
27,644 |
23,020 |
27,390 |
26,329 |
||
Current Assets |
|
|
30,761 |
34,895 |
28,240 |
40,361 |
16,499 |
35,128 |
Stock |
|
|
173 |
66 |
72 |
110 |
139 |
139 |
Debtors |
|
|
26,811 |
24,403 |
17,976 |
6,870 |
4,181 |
4,635 |
Cash |
|
|
3,679 |
4,976 |
9,375 |
33,255 |
10,801 |
28,977 |
Other |
|
|
98 |
5,450 |
817 |
126 |
1,378 |
1,378 |
Current Liabilities |
|
|
(18,033) |
(25,520) |
(14,469) |
(11,812) |
(10,810) |
(10,053) |
Creditors |
(13,010) |
(22,285) |
(14,189) |
(11,812) |
(10,757) |
(10,000) |
||
Taxation & social security |
(2,023) |
(235) |
(280) |
0 |
(53) |
(53) |
||
Short term borrowings |
(3,000) |
(3,000) |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(865) |
(19,532) |
(12,649) |
(20,392) |
(777) |
(777) |
Long term borrowings |
0 |
(16,531) |
(11,759) |
(19,075) |
0 |
0 |
||
Other long term liabilities |
(865) |
(3,001) |
(890) |
(1,317) |
(777) |
(777) |
||
Net Assets |
|
|
55,070 |
32,359 |
33,823 |
35,718 |
36,158 |
53,945 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
(5,810) |
(12,130) |
(10,712) |
(9,492) |
(12,630) |
(7,439) |
Net Interest |
(271) |
(423) |
(175) |
0 |
(2,735) |
0 |
||
Tax |
2,018 |
(3,148) |
(1,159) |
(719) |
(132) |
(650) |
||
Capex |
(6,403) |
(2,921) |
(1,583) |
(2,351) |
(2,821) |
(2,890) |
||
Acquisitions/disposals |
5,418 |
0 |
5,133 |
0 |
0 |
0 |
||
Financing |
3,964 |
4,365 |
15,929 |
32,007 |
32,286 |
29,296 |
||
Dividends |
(146) |
0 |
0 |
(579) |
(581) |
(142) |
||
Net Cash Flow |
(1,230) |
(14,257) |
7,433 |
18,866 |
13,387 |
18,176 |
||
Opening net debt/(cash) |
|
|
(1,909) |
(679) |
14,555 |
2,384 |
2,384 |
(10,801) |
HP finance leases initiated |
0 |
0 |
48 |
0 |
0 |
0 |
||
Other |
0 |
977 |
(4,690) |
2,302 |
202 |
0 |
||
Closing net debt/(cash) |
|
|
(679) |
14,555 |
2,384 |
(14,180) |
(10,801) |
(28,977) |
Source: eServGlobal, Edison Investment Research. Note: *14-month period ended 31 December 2017.
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Research: Industrials
Rubicon’s H1 performance contained typical seasonal trading features ahead of the more important H2 trading period and our earnings estimates are unchanged. We are encouraged to see a number of positive commercial steps being taken in each of the main countries, which will support future aspirations. Our earnings estimates are unchanged as is our previous DCF valuation analysis which indicated a NZ$0.74 per share valuation.