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TXT has announced an agreement to acquire an Italian financing software company for an enterprise value of €7.6m. This marks the first acquisition since TXT Retail was sold and diversifies the offering for the banking and finance business, adding software to what is predominantly a services offering. We estimate the deal should be earnings accretive (+11% FY18e EPS, +23% FY19e) and will revise our estimates on completion.
TXT e-solutions |
Diversifying the banking and finance business |
Acquisition |
Software & comp services |
26 June 2018 |
Share price performance
Business description
Next events
Analysts
TXT e-solutions is a research client of Edison Investment Research Limited |
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TXT has announced an agreement to acquire an Italian financing software company for an enterprise value of €7.6m. This marks the first acquisition since TXT Retail was sold and diversifies the offering for the banking and finance business, adding software to what is predominantly a services offering. We estimate the deal should be earnings accretive (+11% FY18e EPS, +23% FY19e) and will revise our estimates on completion.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
33.1 |
4.0 |
0.27 |
0.30 |
39.4 |
2.8 |
12/17 |
35.9 |
3.0 |
0.19 |
1.00 |
57.5 |
9.4 |
12/18e |
39.1 |
3.0 |
0.19 |
0.16 |
57.7 |
1.5 |
12/19e |
41.9 |
3.5 |
0.22 |
0.17 |
49.5 |
1.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Agreement to acquire financial software company
TXT has signed a letter of intent to acquire Cheleo S.r.l, an Italian developer of lifecycle management software for financing. Cheleo’s portfolio includes software to manage the entire process (initial application, credit management and collection, disposal of loan books) for leasing, mortgages, personal loans, salary-based loans, factoring and non-performing loans. Customers are Italian specialist financial companies. Cheleo is indirectly majority-owned by Enrico Magni, TXT’s largest shareholder and a TXT board director. The price is based on an enterprise value of €7.6m with c €2.5m of net cash. Cheleo reported 2017 revenues of €2.8m and EBITDA of €0.95m (34% margin). This implies an EV/EBITDA multiple of 8x versus TXT’s multiple of 9x FY18e. TXT will pay 60% in cash and 40% in treasury shares.
Potentially accretive deal
While Cheleo will continue to operate on a standalone basis within the banking and finance division, we expect a focus on cross-selling opportunities across the combined Italian client base. The two founders, Bruno Roma and Flavio Minari, will remain on the Cheleo board and will be entitled to a future cash payment based on the performance of Cheleo in 2019. Subject to the outcome of due diligence, TXT expects to complete the acquisition by the end of July. Conservatively factoring in flat revenues and margins, we estimate that the deal is likely to increase EBITDA margins by 0.7pp in FY18e and 1.4pp in FY19e, and lift FY18e normalised EPS by 11% and FY19e by 23%. We will revise our forecasts on completion of the deal.
Valuation: Factors in accretive acquisitions
On price-based valuation metrics, TXT continues to trade at a premium to peers as even post the deal c 64% of its market cap is made up by the net cash balance. Until the bulk of TXT’s cash is put to use on value-accretive acquisitions, we would expect the stock to trade at a significant premium to peers on a P/E basis. On an EV basis, TXT trades at a discount to peers, with forecast EBITDA and EBIT margins slightly below the peer group average. The company continues to evaluate targets in the aerospace and automotive space.
Exhibit 1: Financial summary
€'000s |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018e |
2019e |
|||||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||||
PROFIT & LOSS |
|||||||||||||
Revenue |
|
|
46,499 |
52,560 |
54,410 |
61,540 |
33,060 |
35,852 |
39,067 |
41,855 |
|||
Cost of sales |
(22,351) |
(24,854) |
(26,455) |
(29,189) |
(18,954) |
(20,224) |
(22,087) |
(23,826) |
|||||
Gross profit |
24,148 |
27,706 |
27,955 |
32,351 |
14,106 |
15,628 |
16,980 |
18,030 |
|||||
EBITDA |
|
|
5,322 |
6,263 |
5,324 |
6,659 |
4,260 |
3,536 |
4,124 |
4,620 |
|||
Operating Profit (before amort and except) |
|
|
4,283 |
5,241 |
4,284 |
5,820 |
3,954 |
3,180 |
2,860 |
3,356 |
|||
Amortisation of acquired intangibles |
0 |
(285) |
(285) |
(285) |
(264) |
(439) |
(439) |
(439) |
|||||
Exceptionals and other income |
939 |
0 |
1,468 |
0 |
(557) |
0 |
0 |
0 |
|||||
Other income |
0 |
0 |
0 |
(740) |
0 |
(69) |
0 |
0 |
|||||
Operating Profit |
5,222 |
4,956 |
5,467 |
4,795 |
3,133 |
2,672 |
2,421 |
2,917 |
|||||
Net Interest |
(37) |
(435) |
(249) |
(151) |
48 |
(208) |
150 |
150 |
|||||
Profit Before Tax (norm) |
|
|
4,246 |
4,806 |
4,035 |
5,669 |
4,002 |
2,972 |
3,010 |
3,506 |
|||
Profit Before Tax (FRS 3) |
|
|
5,185 |
4,521 |
5,218 |
4,644 |
3,181 |
2,464 |
2,571 |
3,067 |
|||
Tax |
(188) |
121 |
(1,046) |
(762) |
(661) |
(710) |
(720) |
(859) |
|||||
Profit After Tax (norm) |
4,092 |
4,927 |
3,226 |
4,739 |
3,170 |
2,170 |
2,167 |
2,524 |
|||||
Profit After Tax (FRS 3) |
4,997 |
4,642 |
4,172 |
3,882 |
2,520 |
1,754 |
1,851 |
2,208 |
|||||
Average Number of Shares Outstanding (m) |
11.0 |
11.5 |
11.5 |
11.7 |
11.7 |
11.7 |
11.7 |
11.7 |
|||||
EPS - normalised (€) |
|
|
0.371 |
0.428 |
0.281 |
0.406 |
0.271 |
0.186 |
0.185 |
0.216 |
|||
EPS - normalised fully diluted (€) |
|
|
0.340 |
0.411 |
0.276 |
0.403 |
0.271 |
0.186 |
0.185 |
0.216 |
|||
EPS - (IFRS) (€) |
|
|
0.454 |
0.403 |
0.364 |
0.333 |
0.475 |
5.874 |
0.158 |
0.189 |
|||
Dividend per share (c) |
0.18 |
0.23 |
0.23 |
0.25 |
0.30 |
1.00 |
0.16 |
0.17 |
|||||
Gross margin (%) |
51.9 |
52.7 |
51.4 |
52.6 |
42.7 |
43.6 |
43.5 |
43.1 |
|||||
EBITDA Margin (%) |
11.4 |
11.9 |
9.8 |
10.8 |
12.9 |
9.9 |
10.6 |
11.0 |
|||||
Operating Margin (before GW and except) (%) |
9.2 |
10.0 |
7.9 |
9.5 |
12.0 |
8.9 |
7.3 |
8.0 |
|||||
BALANCE SHEET |
|||||||||||||
Fixed Assets |
|
|
18,570 |
17,850 |
18,019 |
18,132 |
25,428 |
8,860 |
9,076 |
7,793 |
|||
Intangible Assets |
16,621 |
15,370 |
15,078 |
14,692 |
21,296 |
7,332 |
6,888 |
6,445 |
|||||
Tangible Assets |
1,154 |
1,118 |
1,249 |
1,361 |
1,598 |
793 |
1,453 |
613 |
|||||
Other |
795 |
1,362 |
1,692 |
2,079 |
2,534 |
735 |
735 |
735 |
|||||
Current Assets |
|
|
36,769 |
34,914 |
34,892 |
38,946 |
37,085 |
109,426 |
100,593 |
103,174 |
|||
Stocks |
1,388 |
1,451 |
1,820 |
2,075 |
3,146 |
2,528 |
2,628 |
2,728 |
|||||
Debtors |
19,562 |
18,642 |
20,768 |
27,791 |
26,369 |
17,215 |
18,196 |
19,494 |
|||||
Cash |
15,819 |
14,821 |
12,304 |
9,080 |
7,570 |
89,683 |
79,769 |
80,952 |
|||||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||||
Current Liabilities |
|
|
(20,651) |
(17,864) |
(17,451) |
(18,349) |
(21,051) |
(13,612) |
(15,323) |
(16,286) |
|||
Creditors |
(15,155) |
(14,512) |
(15,297) |
(17,528) |
(20,243) |
(12,937) |
(14,048) |
(15,011) |
|||||
Short term borrowings |
(5,496) |
(3,352) |
(2,154) |
(821) |
(808) |
(675) |
(1,275) |
(1,275) |
|||||
Long Term Liabilities |
|
|
(8,666) |
(6,965) |
(6,491) |
(5,105) |
(7,180) |
(4,781) |
(4,781) |
(4,781) |
|||
Long term borrowings |
(4,301) |
(2,896) |
(1,685) |
0 |
(1,391) |
(1,688) |
(1,688) |
(1,688) |
|||||
Other long term liabilities |
(4,365) |
(4,069) |
(4,806) |
(5,105) |
(5,789) |
(3,093) |
(3,093) |
(3,093) |
|||||
Net Assets |
|
|
26,022 |
27,935 |
28,969 |
33,624 |
34,282 |
99,893 |
89,565 |
89,900 |
|||
CASH FLOW |
|||||||||||||
Operating Cash Flow |
|
|
2,760 |
7,630 |
5,404 |
2,412 |
10,676 |
119 |
4,155 |
4,185 |
|||
Net Interest |
(37) |
(435) |
(249) |
(151) |
105 |
(208) |
150 |
150 |
|||||
Tax |
64 |
(1,615) |
(1,344) |
(1,461) |
(2,022) |
379 |
(720) |
(859) |
|||||
Capex |
(405) |
(483) |
(615) |
(763) |
(738) |
(661) |
(420) |
(420) |
|||||
Acquisitions/disposals |
(8,450) |
19 |
0 |
0 |
(5,403) |
82,250 |
0 |
0 |
|||||
Financing |
1,690 |
(755) |
(597) |
2,215 |
(828) |
(6) |
(440) |
0 |
|||||
Dividends |
0 |
(2,107) |
(2,615) |
(2,678) |
(2,931) |
(3,496) |
(11,738) |
(1,874) |
|||||
Net Cash Flow |
(4,378) |
2,254 |
(16) |
(426) |
(1,141) |
78,377 |
(9,013) |
1,182 |
|||||
Opening net debt/(cash) |
|
|
(10,266) |
(6,023) |
(8,575) |
(8,465) |
(8,259) |
(5,371) |
(87,320) |
(76,806) |
|||
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||||
Other |
135 |
298 |
(94) |
220 |
(1,747) |
3,572 |
(1,500) |
0 |
|||||
Closing net debt/(cash) |
|
|
(6,023) |
(8,575) |
(8,465) |
(8,259) |
(5,371) |
(87,320) |
(76,806) |
(77,989) |
|||
Source: TXT e-solutions, Edison Investment Research
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