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GBP481m
Research: Healthcare
In the run-up to Ergomed’s FY22 trading update (expected end-January 2023), we take a fresh look at our estimates for the company and make minor adjustments to our projections to incorporate recent forex trends (primarily related to the US dollar strengthening in H222), management feedback and increased clarity on business performance. We raise our FY22–23 top-line estimates by c £2m for both years (benefiting from forex tailwinds), although our profitability and margin expectations remain largely unchanged as we increase our opex estimates slightly. We also update our capex and working capital estimates following clarity from the company management. Overall, our valuation remains broadly unchanged at £789m (1,573p/share) versus £783m (or 1,568p/share).
Ergomed |
Exiting FY22 on a strong footing |
Estimates update |
Healthcare services |
21 December 2022 |
Share price performance
Business description
Next events
Analysts
Ergomed is a research client of Edison Investment Research Limited |
In the run-up to Ergomed’s FY22 trading update (expected end-January 2023), we take a fresh look at our estimates for the company and make minor adjustments to our projections to incorporate recent forex trends (primarily related to the US dollar strengthening in H222), management feedback and increased clarity on business performance. We raise our FY22–23 top-line estimates by c £2m for both years (benefiting from forex tailwinds), although our profitability and margin expectations remain largely unchanged as we increase our opex estimates slightly. We also update our capex and working capital estimates following clarity from the company management. Overall, our valuation remains broadly unchanged at £789m (1,573p/share) versus £783m (or 1,568p/share).
Year end |
Revenue |
Adjusted EBITDA*(£m) |
EPS* |
DPS |
P/E |
Yield |
12/20 |
86.4 |
19.4 |
23.8 |
0.0 |
54.1 |
N/A |
12/21 |
118.6 |
25.4 |
41.3 |
0.0 |
31.1 |
N/A |
12/22e |
142.1 |
28.1 |
40.4 |
0.0 |
31.9 |
N/A |
12/23e |
158.3 |
31.4 |
44.9 |
0.0 |
28.7 |
N/A |
Note: *Adjusted EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Earnings expectations adjusted slightly
Given that the majority of Ergomed’s revenue is generated in the United States (c 63% in H122) and is denominated in US dollars, the company has benefited from the recent strengthening of the US dollar against other major currencies such as sterling and the euro. We now incorporate the forex contribution in our top line, which results in our FY22 and FY23 revenue estimates increasing to £142.1m and £158.3m, respectively (vs. our previous estimates of £140.1m and £156.5m). We also raise our operating estimates to factor in the increased costs associated with recent senior hires as well as investment in technology. Overall, our adjusted EBITDA estimates remain largely unchanged at £28.1m in FY22 and £31.4m in FY23 (£28.2m and £31.7m, previously), although margins are now slightly lower (19.8% in FY22 and FY23, vs 20.1% and 20.3% previously).
Capex and working capital needs revised
We have increased our FY22 capex estimate from £0.9m to £2.0m, assuming higher expenses on fixed assets in H222 (c £0.5m in H122). For FY23, we reduce our expectation from £3.5m to £3.0m. We also adjust our FY22 operating cash flow expectations down from £20.7m to £17.8m, primary driven by increased working capital utilisation assumptions (up from £2.3m to £4.8m). Overall, our estimate for the year-end cash balance falls to £19.3m, from £26.0m previously. Ergomed was debt free at end H122 and remains well capitalised to fund future growth.
Valuation: £789m or 1,573p/share
Our enterprise value decreases marginally due to the slightly lower margins and higher capex and working capital estimates, but has been more than offset by higher period-end net cash (FY22e net cash of £19.3m vs £12m at end-H122). Overall, our valuation remains largely unchanged at £789m or 1,573p/share, versus £783m or 1,568p/share previously.
Exhibit 1: Financial summary
Accounts: IFRS, year-end 31 December, £000s |
2019 |
2020 |
2021 |
2022e |
2023e |
INCOME STATEMENT |
|
|
|
|
|
Total revenues |
68,255 |
86,391 |
1,18,581 |
1,42,077 |
1,58,304 |
Cost of sales |
(29,790) |
(38,686) |
(52,191) |
(62,601) |
(69,337) |
Reimbursable expenses |
(8,940) |
(8,055) |
(18,028) |
(20,489) |
(22,896) |
Gross profit |
29,525 |
39,650 |
48,362 |
58,986 |
66,070 |
Gross margin % |
43% |
46% |
41% |
42% |
42% |
SG&A (expenses) |
(23,513) |
(27,518) |
(34,877) |
(38,842) |
(40,493) |
R&D costs |
(545) |
(152) |
(130) |
(94) |
(95) |
Other income/(expense) |
50 |
1,554 |
1,269 |
1,057 |
0 |
Exceptionals and adjustments |
3,265 |
993 |
5,753 |
1,396 |
500 |
Reported EBITDA |
9,229 |
18,378 |
19,670 |
26,730 |
30,888 |
Depreciation and amortisation |
3,712 |
4,844 |
5,046 |
5,623 |
5,406 |
Reported EBIT |
5,517 |
13,534 |
14,624 |
21,107 |
25,482 |
Finance income/(expense) |
(245) |
(395) |
(360) |
(478) |
(478) |
Other income/(expense) |
(286) |
(511) |
0 |
0 |
0 |
Reported PBT |
4,986 |
12,628 |
14,264 |
20,581 |
25,004 |
Income tax expense (includes exceptionals) |
583 |
(2,946) |
(1,590) |
(4,130) |
(5,001) |
Reported net income |
5,569 |
9,682 |
12,674 |
16,451 |
20,003 |
Basic average number of shares, m |
46.6 |
48.3 |
48.5 |
50.2 |
50.2 |
Basic EPS (p) |
12.0 |
20.0 |
26.2 |
32.0 |
39.0 |
Adjusted EBITDA |
12,494 |
19,371 |
25,423 |
28,126 |
31,388 |
Adjusted EBIT |
8,782 |
14,527 |
20,377 |
22,503 |
25,982 |
Adjusted PBT |
8,636 |
14,442 |
21,616 |
24,381 |
27,504 |
Adjusted EPS (p) |
19.8 |
23.8 |
41.3 |
40.4 |
44.9 |
Adjusted diluted EPS (p) |
19.0 |
22.8 |
39.6 |
39.4 |
43.8 |
Order book |
1,24,100 |
1,93,000 |
2,39,700 |
3,04,416 |
3,53,558 |
BALANCE SHEET |
|
|
|
|
|
Property, plant and equipment |
1,110 |
1,742 |
1,966 |
2,909 |
2,503 |
Right-of-use assets |
5,171 |
4,715 |
2,691 |
2,691 |
2,691 |
Goodwill |
13,380 |
24,605 |
23,903 |
36,025 |
36,025 |
Intangible assets |
2,755 |
9,618 |
7,653 |
15,194 |
13,194 |
Other non-current assets |
2,616 |
4,898 |
9,433 |
9,433 |
9,433 |
Total non-current assets |
25,032 |
45,578 |
45,646 |
66,252 |
63,845 |
Cash and equivalents |
14,259 |
18,995 |
31,243 |
19,321 |
38,696 |
Trade and other receivables |
14,359 |
22,224 |
25,143 |
31,919 |
37,299 |
Other current assets |
3,382 |
5,553 |
3,958 |
3,958 |
3,958 |
Total current assets |
32,000 |
46,771 |
60,344 |
55,198 |
79,953 |
Lease liabilities |
3,716 |
3,128 |
1,432 |
839 |
839 |
Long term debt |
0 |
0 |
0 |
0 |
0 |
Other non-current liabilities |
635 |
2,743 |
1,939 |
1,939 |
1,939 |
Total non-current liabilities |
4,351 |
5,871 |
3,371 |
2,778 |
2,778 |
Trade and other payables |
10,373 |
15,702 |
15,207 |
17,151 |
18,996 |
Lease liabilities |
1,718 |
1,978 |
1,249 |
953 |
953 |
Other current liabilities |
3,770 |
15,932 |
18,924 |
16,149 |
16,149 |
Total current liabilities |
15,861 |
33,612 |
35,380 |
34,253 |
36,098 |
Equity attributable to company |
36,820 |
52,866 |
67,239 |
84,419 |
1,04,922 |
CASH FLOW STATEMENT |
|
|
|
|
|
Profit before tax |
4,986 |
12,628 |
14,264 |
20,581 |
25,004 |
Cash from operations (CFO) |
11,787 |
18,048 |
18,683 |
17,800 |
22,375 |
Capex |
(996) |
(974) |
(983) |
(1,992) |
(3,000) |
Acquisitions & disposals net |
(107) |
(11,985) |
103 |
(24,237) |
0 |
Other investing activities |
(1,728) |
183 |
(3,266) |
(700) |
0 |
Cash used in investing activities (CFIA) |
(2,831) |
(12,776) |
(4,146) |
(26,929) |
(3,000) |
Net proceeds from issue of shares |
1,427 |
1,869 |
546 |
172 |
0 |
Movements in debt |
(1,677) |
0 |
0 |
0 |
0 |
Other financing activities |
0 |
(2,346) |
(2,660) |
(2,964) |
(2,964) |
Cash from financing activities (CFF) |
(250) |
(477) |
(2,114) |
(2,792) |
(2,964) |
Increase/(decrease) in cash and equivalents |
8,706 |
4,795 |
12,423 |
(11,921) |
16,411 |
Currency translation differences and other |
364 |
(60) |
(175) |
(1) |
1 |
Cash and equivalents at start of period |
5,189 |
14,259 |
18,995 |
31,243 |
19,321 |
Cash and equivalents at end of period |
14,259 |
18,995 |
31,243 |
19,321 |
35,732 |
Net (debt)/cash |
14,259 |
18,995 |
31,243 |
19,321 |
38,696 |
Source: Ergomed accounts, Edison Investment Research
|
|
Research: TMT
CentralNic (CNIC) announced on 19 December that it is acquiring a portfolio of niche websites as part of its vertical integration strategy for its Online Marketing segment. The portfolio provides the company with exclusive special internet traffic to monetise and will be immediately earnings accretive. This is the latest in a multi-year series of acquisitions that has been transformative for the business, driving strong free cash flow generation. Combined with recent debt restructuring, CNIC is now in a position to start to return cash to shareholders and expects to launch its first share buyback by the end of FY22. We have upgraded our FY22 and FY23 revenue and profit forecasts to reflect these recent announcements, as well as the group’s strong trading. The acquisition follows the recent announcement of CEO Ben Crawford’s retirement from the CNIC board, with group CFO Michael Riedl appointed as his successor.
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