eServGlobal |
Encouraging FY17 order outlook despite FY16 revenue shortfall |
Trading update |
Software & comp services |
17 November 2016 |
Share price performance
Business description
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Analysts
eServGlobal is a research client of Edison Investment Research Limited |
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eServGlobal has confirmed that revenues for FY16 fell below its guidance range and, despite a material reduction in costs, EBITDA profitability was not achieved. However, recent order intake and the prospect of winning several material contracts that are currently in negotiation provide a more positive outlook for FY17. Management also confirmed that HomeSend continues to make progress and is on track to break-even in 2017.
Year |
Revenue (A$m) |
EBITDA |
EPS* |
DPS |
P/E |
EV/EBITDA (x) |
10/14 |
31.3 |
2.6 |
(0.20) |
0.0 |
N/A |
26.4 |
10/15 |
25.9 |
(10.4) |
(5.41) |
0.0 |
N/A |
N/A |
10/16e |
21.4 |
(7.8) |
(4.00) |
0.0 |
N/A |
N/A |
Note: *EPS is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Revenue shortfall confirmed for FY16
eServGlobal expects to report FY16 revenues of €14-14.5m (A$21-21.7m), below its guidance range of €19-20m. With reported revenue of €5.5m in H116, this implies revenues of €8.5-9m for H216. The shortfall was due to the combination of contracts signed close to year-end where revenues will not be recognised until FY17 and beyond and negotiations on material contracts not closing by year-end. The company confirmed FY16 costs of c €19.5m (A$29.3m), in line with previous guidance and down from €23.8m in FY15, and hopes to reduce this below €18.5m in FY17. Year-end cash was c €6.4m (A$9.5m).
Order book supports more positive outlook
The company’s FY16 contracted order book of €21m is 60% higher than a year ago; in addition it is still negotiating several material contracts and recently signed a major channel partnership that should help it to access parts of Africa it had previously struggled to reach. This provides some comfort that FY17 revenues should be stronger than in FY16. We have revised our FY16 forecasts (revenues -28% to A$21.4m, EBITDA cut from A$0.1m to -A$7.8m, net cash of A$0.6m moving to net debt of A$3.4m). We suspend our FY17 forecasts pending the availability of FY16 results (expected end December) and a review of financials by the new CFO, Andrew Hayward, who joined eServGlobal in October.
Valuation: HomeSend to drive upside
Based on a sum-of-the-parts valuation, we calculate a per share value of 10.6p. We value the core business at a discount to mobile software peers to reflect its profitability profile. We assume that the HomeSend JV is successful in reaching break-even in FY17, growing its share of the international remittance market to 2% by FY25. For the value of the JV to be reflected in the share price, investors will need to see regular operational updates tracking new hub members, live corridors, volumes transacted and progress towards profitability.
Exhibit 1: Financial summary
A$'000s |
2011 |
2012 |
2013 |
2014 |
2015 |
2016e |
||
Year end 31 October |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
7,017 |
28,070 |
31,003 |
31,261 |
25,866 |
21,409 |
Cost of Sales |
(4,234) |
(12,267) |
(11,789) |
(13,359) |
(20,608) |
(15,085) |
||
Gross Profit |
2,783 |
15,803 |
19,214 |
17,902 |
5,258 |
6,324 |
||
EBITDA |
|
|
(6,694) |
(1,936) |
1,683 |
2,571 |
(10,449) |
(7,842) |
Operating Profit (before amort acq intang, SBP and except.) |
(8,601) |
(7,277) |
(660) |
1,987 |
(12,469) |
(10,942) |
||
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
(6,485) |
5,997 |
28,735 |
(12,539) |
(5,738) |
||
Share-based payments |
(261) |
(624) |
(456) |
(438) |
(54) |
(100) |
||
Operating Profit |
(8,862) |
(14,386) |
4,881 |
30,284 |
(25,062) |
(16,780) |
||
Income from associate |
0 |
0 |
0 |
(2,275) |
(3,831) |
(4,605) |
||
Net Interest |
164 |
(1,016) |
(386) |
(254) |
(1,356) |
(2,620) |
||
Profit Before Tax (norm) |
|
|
(8,437) |
(8,293) |
(1,046) |
(542) |
(17,656) |
(18,167) |
Profit Before Tax (FRS 3) |
|
|
(8,698) |
(15,402) |
4,495 |
27,755 |
(30,249) |
(24,005) |
Tax |
(560) |
(187) |
5,879 |
(13,515) |
(2,125) |
4,801 |
||
Profit After Tax (norm) |
(8,997) |
(5,805) |
(732) |
(379) |
(14,125) |
(14,534) |
||
Profit After Tax (FRS3) |
(9,258) |
(15,589) |
10,374 |
14,240 |
(32,374) |
(19,204) |
||
Average Number of Shares Outstanding (m) |
196.8 |
196.8 |
241.1 |
253.1 |
264.0 |
366.6 |
||
EPS - normalised (c) |
|
|
(4.59) |
(3.01) |
(0.36) |
(0.20) |
(5.41) |
(4.00) |
EPS - FRS 3 (c) |
|
|
(4.73) |
(7.98) |
4.25 |
5.57 |
(12.33) |
(5.27) |
DPS (c) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Gross Margin (%) |
39.7% |
56.3% |
62.0% |
57.3% |
20.3% |
29.5% |
||
EBITDA Margin (%) |
(95.4%) |
(6.9%) |
5.4% |
8.2% |
(40.4%) |
(36.6%) |
||
Operating Margin (before am and except.) (%) |
(122.6%) |
(25.9%) |
(2.1%) |
6.4% |
(48.2%) |
(51.1%) |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
20,090 |
16,303 |
14,330 |
43,431 |
42,928 |
32,867 |
Intangible Assets |
13,190 |
9,386 |
3,523 |
9,011 |
6,939 |
4,939 |
||
Tangible Assets |
1,541 |
912 |
482 |
3 |
84 |
84 |
||
Other Fixed Assets |
5,359 |
6,005 |
10,325 |
34,417 |
35,905 |
27,844 |
||
Current Assets |
|
|
50,814 |
18,136 |
38,855 |
30,761 |
34,895 |
30,747 |
Stock |
|
|
170 |
158 |
74 |
173 |
66 |
100 |
Debtors |
|
|
40,425 |
14,094 |
21,846 |
26,811 |
24,403 |
20,823 |
Cash |
|
|
10,129 |
3,794 |
4,909 |
3,679 |
4,976 |
9,508 |
Other |
|
|
90 |
90 |
12,026 |
98 |
5,450 |
317 |
Current Liabilities |
|
|
(40,856) |
(12,934) |
(15,082) |
(18,033) |
(25,520) |
(19,615) |
Creditors |
(19,952) |
(11,665) |
(11,932) |
(13,010) |
(22,285) |
(19,380) |
||
Taxation & social security |
(6,904) |
(69) |
(150) |
(2,023) |
(235) |
(235) |
||
Short term borrowings |
(14,000) |
(1,200) |
(3,000) |
(3,000) |
(3,000) |
0 |
||
Long Term Liabilities |
|
|
(1,175) |
(6,431) |
(749) |
(865) |
(19,532) |
(13,806) |
Long term borrowings |
0 |
(6,000) |
0 |
0 |
(16,531) |
(12,863) |
||
Other long term liabilities |
(1,175) |
(431) |
(749) |
(865) |
(3,001) |
(943) |
||
Net Assets |
|
|
28,803 |
14,989 |
37,154 |
55,070 |
32,359 |
29,652 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
(8,060) |
(11,901) |
(7,207) |
(5,810) |
(12,130) |
(3,296) |
Net Interest |
1,486 |
(974) |
(580) |
(271) |
(423) |
(200) |
||
Tax |
(448) |
(7,813) |
(1,088) |
2,018 |
(3,148) |
(300) |
||
Capex |
(529) |
(1,966) |
(1,950) |
(6,403) |
(2,921) |
(1,100) |
||
Acquisitions/disposals |
0 |
23,307 |
0 |
5,418 |
0 |
5,133 |
||
Financing |
(33,230) |
(77) |
16,140 |
3,964 |
4,365 |
14,479 |
||
Dividends |
(23,910) |
(111) |
0 |
(146) |
0 |
0 |
||
Net Cash Flow |
(64,691) |
465 |
5,315 |
(1,230) |
(14,257) |
14,716 |
||
Opening net debt/(cash) |
|
|
(60,820) |
3,871 |
3,406 |
(1,909) |
(679) |
14,555 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
977 |
3,516 |
||
Closing net debt/(cash) |
|
|
3,871 |
3,406 |
(1,909) |
(679) |
14,555 |
3,355 |
Source: eServGlobal, Edison Investment Research
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