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Research: TMT
CREALOGIX is a leading, global digital banking engagement platform provider, based in Switzerland, offering front-end software solutions that enable ‘the digital bank of tomorrow’. The market is dynamic and fast-changing, with the group’s solutions used by traditional retail, private and commercial banks, as well as wealth managers that need to upgrade legacy systems to meet the challenge of digital banks. Traditional banks see the benefits of modular, customisable, single-platform solutions, offering lower maintenance and development costs, better content management and stronger security in a swiftly digitalising marketplace.
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CREALOGIX |
Driven by growth in recurring revenue
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Software & comp services |
Deutsches Eigenkapitalforum 2021
17 November 2021 |
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Business description
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CREALOGIX is a leading, global digital banking engagement platform provider, based in Switzerland, offering front-end software solutions that enable ‘the digital bank of tomorrow’. The market is dynamic and fast-changing, with the group’s solutions used by traditional retail, private and commercial banks, as well as wealth managers that need to upgrade legacy systems to meet the challenge of digital banks. Traditional banks see the benefits of modular, customisable, single-platform solutions, offering lower maintenance and development costs, better content management and stronger security in a swiftly digitalising marketplace.
A market leader in a fast-growing market
CREALOGIX provides front-end banking software solutions for digital banking via its modular Digital Banking Hub, with 34% of FY21 sales from Switzerland, 49% across Europe and 17% RoW as CREALOGIX expands its international footprint. As with other businesses, the COVID-19 pandemic slowed business development but, despite this, with a focus on high-growth markets (principally Middle East and APAC) the group still delivered 6.4% constant currency organic revenue growth in FY21. The total addressable market for digital banking software is estimated to be worth $60bn globally (of which c 10% is for third-party digital front-end solutions), forecast to grow at 8% between 2020 and 2022 (source: Temenos, February 2020).
More than 50% recurring revenues in FY21
Management is focused on growing SaaS/recurring revenues. In FY21, recurring revenues grew 22% y-o-y to 50% of total sales, of which SaaS/hosting revenues grew 76% y-o-y, to 27% of total revenues. FY21 was the third year of a five-year SaaS transition, with FY21 EBITDA of CHF3.3m, a margin of 3.0%. CREALOGIX expects to make continued operational progress in FY22 and complete its SaaS transition, with no fixed guidance. The benefits of the SaaS transition are expected to be seen in FY23, when management expects double-digit EBITDA margins, with 60% recurring revenues, of which 30% will be SaaS.
Valuation: Further upside post SaaS transition
Looking at SaaS comparables for CREALOGIX suggests a valuation of c 4–5x EV/sales and c 18x EV/EBITDA could be achievable as CREALOGIX emerges from its SaaS transition. If we apply the peer group EV/EBITDA multiple to consensus estimates for CREALOGIX, it suggests an EV of CHF220m in FY23, a premium of c 30% to the EV and share price today. Looking ahead, a multiple of 4x revenues would imply an EV of CHF488m in the medium term.
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Consensus estimates
Source: Company, Refinitiv (17 November 2021) |
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Research: Investment Companies
Fundsmith Emerging Equities Trust (FEET) has evolved from an emerging markets (EM) consumer-driven growth story since launch in 2014. Its strategy remains to own high-quality companies, but a number of changes in emphasis have been made. The managers have made the portfolio more focused by number of holdings (38 at end-September 2021) and the weighting in technology and healthcare has increased. The team stresses that the fund suits investors with a long-term time horizon, as the underlying strong portfolio fundamentals lead to it owning businesses with superior operating performance, regardless of short-term market momentum. A combination of the recent robust performance of FEET’s holdings and a lengthy correction in China’s equity market (where FEET at c 15% is underweight the benchmark at c 19pp) has resulted in a strengthening of the fund’s absolute and relative performance.