eServGlobal |
H116 results in line; order recovery underway |
H116 results |
Software & comp services |
4 July 2016 |
Share price performance
Business description
Next events
Analysts
eServGlobal is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
eServGlobal has reported H116 results in line with its recent trading update and confirmed that it continues to expect to report a small positive EBITDA for FY16. Once approved, the proposed fund-raising and debt restructure should strengthen the company’s balance sheet and provide funds to support the growth of the core business.
Year end |
Revenue (A$m) |
EBITDA* |
EPS* |
DPS |
P/E |
EV/EBITDA |
10/14 |
31.3 |
2.6 |
(0.20) |
0.0 |
N/A |
14.6 |
10/15 |
25.9 |
(10.4) |
(5.41) |
0.0 |
N/A |
N/A |
10/16e |
29.9 |
0.1 |
(3.18) |
0.0 |
N/A |
N/A |
10/17e |
32.0 |
2.0 |
(1.57) |
0.0 |
N/A |
19.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H116 results in line with recent trading update
eServGlobal has reported H116 results in line with guidance given in its recent trading update: revenues A$8.4m, adjusted EBITDA loss A$6.6m, reported EBITDA loss A$8.8m and net debt A$19.8m. Management has reiterated its outlook for FY16, expecting a small positive EBITDA for the year, and confirmed that the recovery in order flow has continued into the first two months of H216. Other than factoring in the recently issued shares, our forecasts are substantially unchanged.
Fund-raising and debt refinancing to strengthen the balance sheet
The company is partway through a fund-raising. It has already issued 31.9m shares at 4p per share under existing authorities (gross proceeds £1.3m/A$2.4m) and is seeking shareholder approval to issue a further 342.5m shares at 4p per share. Combined with a proposed debt refinancing, this should put the company on surer footing and provide the funds to grow the core business. An EGM is scheduled for 22 July to approve both the fund-raising and debt restructure.
Valuation: Improving confidence
Based on eServGlobal’s current market cap of £13m and adjusting for the third-party valuation of its stake in HomeSend, the implied value of the core business is £6.7m, equivalent to an EV/sales multiple of 0.4x for FY16e and FY17e. Recent contract wins are building confidence in the company’s ability to reach break-even, with further announcements crucial to confirm that break-even revenues can be achieved in FY16. Shareholder approval of the fund-raising and debt restructure should provide further confidence in the business and, once consistent order flow is established and profitability resumed, the valuation should trend upwards. With the payment institution licence in place and the new data centre in use, HomeSend is now positioned to grow transaction volumes and revenues, which should provide additional support to the share price.
H116 results
eServGlobal has reported H116 results in line with its recent trading update (see Exhibit 1). The outlook is unchanged, with management still expecting the company to report a small positive adjusted EBITDA for FY16. The company noted that the recovery in order flow had continued into the first two months of H216.
Exhibit 1: H1 results
A$m |
H116 |
H115 |
y-o-y |
Revenues |
8.36 |
12.83 |
(34.8%) |
Gross profit |
0.45 |
6.41 |
(92.9%) |
Gross margin |
5.4% |
50.0% |
(44.5%) |
EBITDA |
(8.81) |
(6.99) |
(26.0%) |
EBITDA margin |
(105.3%) |
(54.5%) |
(50.9%) |
Normalised EBITDA |
(6.56) |
(3.12) |
(110.4%) |
Normalised EBITDA margin |
(78.4%) |
(24.3%) |
(54.1%) |
Net income |
(12.22) |
(7.65) |
(59.8%) |
Net debt |
19.84 |
14.56 |
36.3% |
Source: eServGlobal
Changes to forecasts
Our forecasts are substantially unchanged, bar incorporating the first tranche of shares issued on 16 June as part of the recently announced fund-raising. 31.87m shares were issued under existing authorities, raising gross proceeds of £1.27m/A$2.44m.
The company is holding an EGM on 22 July to approve the remainder of the fund-raising:
■
Conditional offer: 268,133,893 shares at 4p per share for gross proceeds of £10.7m, of which £4.4m will be an exchange of debt for equity by AlphaGen Volantis (eServGlobal’s largest shareholder).
■
Open offer: 74,410,039 shares at 4p per share for gross proceeds of £3.0m.
The company is also refinancing its debt, planning a term loan of £7m repayable on 30 June 2019, with an interest rate of 1% per month. This can be repaid at any time with no repayment premium.
Exhibit 2: Changes to forecasts
A$000s |
FY16e old |
FY16e new |
Change (%) |
FY17e old |
FY17e new |
Change (%) |
Revenues |
29,898 |
29,889 |
0.0 |
32,027 |
32,017 |
0.0 |
Gross profit |
14,451 |
14,230 |
(1.5) |
16,265 |
16,260 |
0.0 |
Gross margin |
48.3% |
47.6% |
(0.7) |
50.8% |
50.8% |
0.0 |
Normalised EBITDA |
51 |
64 |
26.0 |
1,965 |
1,964 |
(0.1) |
Normalised EBITDA margin |
0.2% |
0.2% |
0.0 |
6.1% |
6.1% |
0.0 |
Normalised EBIT |
(3,049) |
(3,036) |
0.4 |
(1,435) |
(1,436) |
0.1 |
Normalised EBIT margin |
-10.2% |
-10.2% |
0.0 |
-4.5% |
-4.5% |
0.0 |
Reported EBIT |
(5,999) |
(3,463) |
42.3 |
(3,035) |
(3,036) |
0.0 |
Normalised PBT |
(10,553) |
(10,868) |
(3.0) |
(5,661) |
(5,662) |
0.0 |
Reported PBT |
(13,503) |
(11,295) |
16.4 |
(7,261) |
(7,262) |
0.0 |
Normalised net income |
(8,572) |
(8,824) |
(2.9) |
(4,659) |
(4,660) |
0.0 |
Reported net income |
(10,932) |
(9,166) |
16.2 |
(5,939) |
(5,940) |
0.0 |
Normalised EPS |
(3.23) |
(3.18) |
1.5 |
(1.75) |
(1.57) |
10.7 |
Net debt/(cash) |
15,928 |
13,524 |
(15.1) |
16,582 |
14,167 |
(14.6) |
Source: Edison Investment Research
Exhibit 3: Financial summary
A$'000s |
2011 |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
||
Year end 31 October |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
7,017 |
28,070 |
31,003 |
31,261 |
25,866 |
29,889 |
32,017 |
Cost of Sales |
(4,234) |
(12,267) |
(11,789) |
(13,359) |
(20,608) |
(15,659) |
(15,757) |
||
Gross Profit |
2,783 |
15,803 |
19,214 |
17,902 |
5,258 |
14,230 |
16,260 |
||
EBITDA |
|
|
(6,694) |
(1,936) |
1,683 |
2,571 |
(10,449) |
64 |
1,964 |
Operating Profit (before amort acq intang, SBP and except.) |
(8,601) |
(7,277) |
(660) |
1,987 |
(12,469) |
(3,036) |
(1,436) |
||
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
(6,485) |
5,997 |
28,735 |
(12,539) |
378 |
0 |
||
Share-based payments |
(261) |
(624) |
(456) |
(438) |
(54) |
(805) |
(1,600) |
||
Operating Profit |
(8,862) |
(14,386) |
4,881 |
30,284 |
(25,062) |
(3,463) |
(3,036) |
||
Income from associate |
0 |
0 |
0 |
(2,275) |
(3,831) |
(4,562) |
(1,559) |
||
Net Interest |
164 |
(1,016) |
(386) |
(254) |
(1,356) |
(3,270) |
(2,667) |
||
Profit Before Tax (norm) |
|
|
(8,437) |
(8,293) |
(1,046) |
(542) |
(17,656) |
(10,868) |
(5,662) |
Profit Before Tax (FRS 3) |
|
|
(8,698) |
(15,402) |
4,495 |
27,755 |
(30,249) |
(11,295) |
(7,262) |
Tax |
(560) |
(187) |
5,879 |
(13,515) |
(2,125) |
2,259 |
1,452 |
||
Profit After Tax (norm) |
(8,997) |
(5,805) |
(732) |
(379) |
(14,125) |
(8,694) |
(4,530) |
||
Profit After Tax (FRS3) |
(9,258) |
(15,589) |
10,374 |
14,240 |
(32,374) |
(9,036) |
(5,810) |
||
Average Number of Shares Outstanding (m) |
196.8 |
196.8 |
241.1 |
253.1 |
264.0 |
277.8 |
297.6 |
||
EPS - normalised (c) |
|
|
(4.59) |
(3.01) |
(0.36) |
(0.20) |
(5.41) |
(3.18) |
(1.57) |
EPS - FRS 3 (c) |
|
|
(4.73) |
(7.98) |
4.25 |
5.57 |
(12.33) |
(3.30) |
(2.00) |
DPS (c) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Gross Margin (%) |
39.7% |
56.3% |
62.0% |
57.3% |
20.3% |
47.6% |
50.8% |
||
EBITDA Margin (%) |
(95.4%) |
(6.9%) |
5.4% |
8.2% |
(40.4%) |
0.2% |
6.1% |
||
Operating Margin (before am and except.) (%) |
(122.6%) |
(25.9%) |
(2.1%) |
6.4% |
(48.2%) |
(10.2%) |
(4.5%) |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
20,090 |
16,303 |
14,330 |
43,431 |
42,928 |
36,259 |
32,698 |
Intangible Assets |
13,190 |
9,386 |
3,523 |
9,011 |
6,939 |
4,939 |
3,139 |
||
Tangible Assets |
1,541 |
912 |
482 |
3 |
84 |
84 |
84 |
||
Other Fixed Assets |
5,359 |
6,005 |
10,325 |
34,417 |
35,905 |
31,236 |
29,475 |
||
Current Assets |
|
|
50,814 |
18,136 |
38,855 |
30,761 |
34,895 |
38,928 |
33,677 |
Stock |
|
|
170 |
158 |
74 |
173 |
66 |
66 |
66 |
Debtors |
|
|
40,425 |
14,094 |
21,846 |
26,811 |
24,403 |
26,204 |
28,069 |
Cash |
|
|
10,129 |
3,794 |
4,909 |
3,679 |
4,976 |
12,341 |
5,224 |
Other |
|
|
90 |
90 |
12,026 |
98 |
5,450 |
317 |
317 |
Current Liabilities |
|
|
(40,856) |
(12,934) |
(15,082) |
(18,033) |
(25,520) |
(37,539) |
(40,064) |
Creditors |
(19,952) |
(11,665) |
(11,932) |
(13,010) |
(22,285) |
(19,080) |
(20,438) |
||
Taxation & social security |
(6,904) |
(69) |
(150) |
(2,023) |
(235) |
(235) |
(235) |
||
Short term borrowings |
(14,000) |
(1,200) |
(3,000) |
(3,000) |
(3,000) |
(18,224) |
(19,391) |
||
Long Term Liabilities |
|
|
(1,175) |
(6,431) |
(749) |
(865) |
(19,532) |
(10,641) |
(3,001) |
Long term borrowings |
0 |
(6,000) |
0 |
0 |
(16,531) |
(7,640) |
0 |
||
Other long term liabilities |
(1,175) |
(431) |
(749) |
(865) |
(3,001) |
(3,001) |
(3,001) |
||
Net Assets |
|
|
28,803 |
14,989 |
37,154 |
55,070 |
32,359 |
26,465 |
22,638 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
(8,060) |
(11,901) |
(7,207) |
(5,810) |
(12,130) |
(1,038) |
1,457 |
Net Interest |
1,486 |
(974) |
(580) |
(271) |
(423) |
(200) |
(200) |
||
Tax |
(448) |
(7,813) |
(1,088) |
2,018 |
(3,148) |
(300) |
(300) |
||
Capex |
(529) |
(1,966) |
(1,950) |
(6,403) |
(2,921) |
(1,100) |
(1,600) |
||
Acquisitions/disposals |
0 |
23,307 |
0 |
5,418 |
0 |
5,133 |
0 |
||
Financing |
(33,230) |
(77) |
16,140 |
3,964 |
4,365 |
(1,465) |
0 |
||
Dividends |
(23,910) |
(111) |
0 |
(146) |
0 |
0 |
0 |
||
Net Cash Flow |
(64,691) |
465 |
5,315 |
(1,230) |
(14,257) |
1,031 |
(643) |
||
Opening net debt/(cash) |
|
|
(60,820) |
3,871 |
3,406 |
(1,909) |
(679) |
14,555 |
13,524 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
977 |
(0) |
0 |
||
Closing net debt/(cash) |
|
|
3,871 |
3,406 |
(1,909) |
(679) |
14,555 |
13,524 |
14,167 |
Source: eServGlobal, Edison Investment Research
|