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Research: TMT
DATAGROUP performed in line with expectations in H1, with revenue growing by 24%, including 1.5% organic growth, or 5–6% when adjusting for discontinued activities from acquisitions. Management conservatively maintained revenue guidance, despite 50% of this already being generated in H1, with ALMATO only contributing for one month in the period. While the rating looks fairly priced at c 10x EBITDA, DATAGROUP offers an excellent track record, high recurring revenues, a clear focus on the large German Mittelstand sector and an increasing number of key differentiators following the acquisitions of ikb Data and ALMATO.
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DATAGROUP |
EBITDA margins lift to 10.6% as acquisitions drive growth
IT services |
Scale research report - Update
23 May 2018 |
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DATAGROUP performed in line with expectations in H1, with revenue growing by 24%, including 1.5% organic growth, or 5–6% when adjusting for discontinued activities from acquisitions. Management conservatively maintained revenue guidance, despite 50% of this already being generated in H1, with ALMATO only contributing for one month in the period. While the rating looks fairly priced at c 10x EBITDA, DATAGROUP offers an excellent track record, high recurring revenues, a clear focus on the large German Mittelstand sector and an increasing number of key differentiators following the acquisitions of ikb Data and ALMATO.
H1 results: Organic growth was 1.5%
Revenue grew by 23.6% to €133.5m and EBITDA rose 35% as margins expanded from 10.6% to 11.6%. The company signed 12 new CORBOX customers during the period and significantly extended business with nine existing customers. The group ended the period with net debt of €14.5m, up from €10.6m at end-September.
New contracts
After the period-end, DATAGROUP won a contract to develop and run a software solution for the Federal Waterways and Shipping Administration to document the technical inspection and calibration of inland water vessels. After the initial €1.8m 16-month development phase, the customer is expected to become a Corbox customer, in the form of a maintenance contract over 10 years.
Guidance maintained at more than €265m revenues
Management maintained guidance with revenues of at least €265m and EBITDA of more than €30m. This looks conservative, given the group has generated 50% of this revenue target in H1, and with ALMATO only contributing for one month (c €0.5m) in the H1 period. The company needs to sign 8–10 new customers in H2 to meet the guidance, which includes the Federal Waterways contract.
Valuation: Premium reflects strong business drivers
While the shares look fairly priced at c 20x FY19e earnings and 9.7x EBITDA, the outlook remains underpinned by a favourable business model supported by attractive business drivers, which also provide a compelling case for acquisitions.
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Consensus estimates
Source: Bloomberg. |
Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.
H1 results: Organic growth was 5–6%, excluding acquisition impacts
Group revenue grew by 23.6% to €133.5m, boosted by the acquisitions of ikb Data, HanseCom and ALMATO. Organic growth was 1.5%, or 5–6% when excluding the impact of discontinued businesses from acquisitions – ie DATAGROUP sheds unprofitable business after making acquisitions, and there is an ongoing managed decline in business from Hewlett Packard Enterprise relating to the acquisition of SAP and application management services from 2016. Services revenues rose to 81.7% of the total, up from 81.5% in the corresponding period, and 84% of gross profit was recurring in nature. EBITDA jumped by 35.4% to €15.6m, with the margin rising by 100bp to 11.6%.
ALMATO performed well during its one-month period of consolidation. ALMATO offers robotics process automation solutions for the purpose of optimising standard business processes. ALMATO uses various software, including from Nice Systems technologies, hence acting as a reseller. The main purpose of the ALMATO acquisition was to provide DATAGROUP with the ability to offer customers solutions that will enable them to automate their business processes. DATAGROUP has already been making upsells of the solutions to its existing customers.
Operating cash flow dipped by 23% to €10.5m. Capex rose by 59% to €7.6m, reflecting the investment in infrastructure for cloud services. Additionally, the company shifted to new premises in Cologne while the new SAP staff had to be equipped. DATAGROUP is still in the process of combining offices in Hamburg following the acquisition of HanseCom. After a small amount of fixed asset disposals and net interest paid, free cash flow fell to €2.4m from €8.2m.
Exhibit 1: Key figures
€000s |
HY to March 2017 |
HY to March 2018 |
Change (%) |
Revenues |
108,054 |
133,513 |
23.6 |
Service and maintenance |
88,010 |
109,115 |
24.0 |
Trade |
19,954 |
24,335 |
22.0 |
Other |
90 |
63 |
(30.0) |
Own work capitalised |
295 |
350 |
18.6 |
Overall performance |
108,349 |
133,863 |
23.5 |
Cost of materials |
(30,972) |
(39,260) |
26.8 |
Gross profit |
77,377 |
94,603 |
22.3 |
Personnel expenses |
(57,707) |
(66,193) |
14.7 |
Other income |
2,339 |
1,867 |
(20.2) |
Other expenses |
(10,508) |
(14,707) |
40.0 |
EBITDA |
11,501 |
15,570 |
35.4 |
Depreciation from PPA |
(1,568) |
(1,975) |
26.0 |
Other depreciation |
(2,293) |
(4,949) |
115.8 |
EBIT |
7,640 |
8,646 |
13.2 |
Financial result |
(1,055) |
(1,353) |
28.2 |
EBT |
6,585 |
7,293 |
10.8 |
Taxation |
(2,098) |
(2,277) |
8.5 |
Net income |
4,487 |
5,016 |
11.8 |
Average number of shares (000s) |
7,572 |
8,331 |
10.0 |
EPS (€) |
0.59 |
0.60 |
1.6 |
Source: DATAGROUP
Management states results to have been “exactly in line with expectations” and hence maintained its FY18 guidance along with its long-term guidance. The latter is to achieve revenues of c €500m by FY21, including c €150m from acquisitions, along with EBITDA margins of 13%.
Acquisition strategy
The group is maintaining its acquisition strategy, which is to make infill acquisitions on regions where it is underrepresented in Germany, or to increase its technological expertise. The group has plenty of capacity to make acquisitions, with net debt to EBITDA currently at c 0.3x, compared with a 3.5x limit on its promissory notes. There is also a 21% equity ratio covenant on the promissory notes, compared with the current 29%. A low equity ratio was why the group carried out its €21m capital increase last year.
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The entire UK gaming sector has been stung by recent regulatory changes and, like other operators, Stride’s strategy is to diversify its UK-centric model into international markets. In the UK, the company is gaining market share, with H118 adjusted revenues increasing 14% to £44.9m, driven by 25% growth in the proprietary platform. However, we have lowered our total FY18 and FY19 EBITDA forecasts by 16.6% and 28.7% to reflect increased costs associated with regulatory compliance and international expansion. The stock has fallen 18% year to date and trades at 8.3x EV/EBITDA and 13.4x P/E for CY18e.