Fusionex International
Written by
Fusionex International |
Upgrade on lower costs, pipeline strong |
Trading update/upgrade |
Software & comp services |
24 October 2016 |
Share price performance
Business description
Next events
Analysts
Fusionex International is a research client of Edison Investment Research Limited |
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Fusionex’s year-end trading update indicates that revenues will be in line with market expectations (we estimate 16% revenue growth in FY16) and that a strong pipeline for GIANT 2016 should drive further momentum in FY17. The planned increase in sales, marketing and other investment to support adoption of GIANT has been more moderate than we forecast, meaning that EBITDA is expected to be significantly above consensus. We upgrade our FY16 EBITDA by MYR3.2m (83% but from a compressed level) to reflect this, while leaving our estimates for FY17 and FY18 unchanged.
Year |
Revenue |
Revenue |
EBITDA |
PBT |
EPS* |
DPS |
EV/Sales |
Yield |
09/14 |
57.1 |
11.2 |
25.8 |
21.4 |
42.1 |
2.0 |
5.7 |
1.1 |
09/15 |
77.0 |
15.1 |
33.2 |
26.3 |
53.3 |
2.1 |
4.2 |
1.2 |
09/16e |
89.5 |
17.5 |
7.1 |
(5.9) |
(11.1) |
2.2 |
3.6 |
1.3 |
09/17e |
133.7 |
26.2 |
9.7 |
(6.8) |
(12.6) |
2.2 |
2.4 |
1.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Sales in line, good pipeline
In a brief trading update, Fusionex has stated that full year revenues are expected to be in line with market expectations. Our full year estimate of MYR89.5m equates to a robust 16% y-o-y revenue growth. While this implies some moderation in growth in H2 (6% on our estimates), GIANT 2016 was only launched at the end of June and we understand that the majority of new GIANT customers are contracting on a subscription basis where revenues are drawn down over the life of the contract, rather than paying a licence up front. Management also states that the pipeline for GIANT 2016 is significant and that momentum is expected to continue into FY17.
More moderate investment drives upside
The company announced a step change in investment in January, sacrificing the group’s historically high margins near term to support a more aggressive growth strategy. The rate of increase in investment in FY16 is now expected to be more moderate than previously thought and we upgrade our FY16 EBITDA by MYR3.2m (83%) to reflect this. It is worth highlighting that our revised estimates still assume a 96% increase in opex year-on-year and that the company remains in an investment phase to support strong growth and margin expansion in future years. Our FY16 EBIT and EPS loss forecasts are reduced by 35%, but our FY17and FY18 estimates remain essentially unchanged.
Valuation: Investment case unchanged
Our reverse DCF suggests that the current share price is discounting our forecasts, followed by revenue growth of around 10% to FY25. While not insignificant, this is fairly benign for a high-quality product so early in its sales cycle (we forecast GIANT sales to double this year), in a rapidly growing global market. Evidence that the current momentum is being maintained could lead to considerable upside.
Estimate changes
On the basis of lower operating expense forecasts for FY16, we have increased our FY16 EBITDA forecast from MYR3.9m to MYR7.1m (+83%). This results in a smaller operating loss (from MRY9.1m to MYR5.9m) and similarly a smaller loss before and after tax. We make no changes to FY17 or FY18 forecasts at this point.
Exhibit 1: Estimate changes
Year end 30 September |
2014 |
2015 |
2016e |
2017e |
2018e |
||
MYR000s |
IFRS actual |
Old |
New |
Change |
No changes |
||
Revenue |
57,106 |
77,044 |
89,500 |
89,500 |
0% |
133,719 |
190,831 |
EBITDA |
25,816 |
33,195 |
3,881 |
7,085 |
83% |
9,733 |
30,248 |
Operating Profit (before amort. and except.) |
21,797 |
26,376 |
(9,114) |
(5,910) |
35% |
(6,767) |
10,248 |
Profit Before Tax (norm) |
21,415 |
26,334 |
(9,122) |
(5,918) |
35% |
(6,775) |
10,240 |
Tax |
(3,320) |
(3,424) |
1,095 |
710 |
35% |
813 |
(1,229) |
Profit After Tax (norm) |
18,095 |
22,910 |
(8,027) |
(5,208) |
35% |
(5,962) |
9,012 |
EPS - normalised and fully diluted (sen) |
42.1 |
53.3 |
(17.2) |
(11.1) |
35% |
(12.6) |
19.1 |
Dividend per share (p) |
2.0 |
2.1 |
2.2 |
2.2 |
0% |
2.2 |
2.3 |
Source: Company Data, Edison Investment Research
Exhibit 2: Financial summary
Year end 30 September |
MYR000s |
2013 |
2014 |
2015 |
2016e |
2017e |
2018e |
|
|
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
44,423 |
57,106 |
77,044 |
89,500 |
133,719 |
190,831 |
Cost of Sales |
(10,090) |
(12,793) |
(18,191) |
(23,020) |
(33,641) |
(46,777) |
||
Gross Profit |
34,333 |
44,312 |
58,853 |
66,480 |
100,077 |
144,054 |
||
EBITDA |
|
|
22,478 |
25,816 |
33,195 |
7,085 |
9,733 |
30,248 |
Operating Profit (before amort. and except.) |
20,840 |
21,797 |
26,376 |
(5,910) |
(6,767) |
10,248 |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
1,365 |
2,037 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
20,840 |
23,162 |
28,412 |
(5,910) |
(6,767) |
10,248 |
||
Net Interest |
(340) |
(381) |
(41) |
(8) |
(8) |
(8) |
||
Profit Before Tax (norm) |
|
|
20,500 |
21,415 |
26,334 |
(5,918) |
(6,775) |
10,240 |
Profit Before Tax (FRS 3) |
|
|
20,500 |
22,780 |
28,371 |
(5,918) |
(6,775) |
10,240 |
Tax |
(1,488) |
(3,320) |
(3,424) |
710 |
813 |
(1,229) |
||
Profit After Tax (norm) |
19,012 |
18,095 |
22,910 |
(5,208) |
(5,962) |
9,012 |
||
Profit After Tax (FRS 3) |
19,012 |
19,460 |
24,947 |
(5,208) |
(5,962) |
9,012 |
||
Average Number of Shares Outstanding (m) |
41.9 |
43.0 |
43.0 |
46.7 |
47.3 |
47.3 |
||
EPS - normalised (sen) |
|
|
45.3 |
42.1 |
53.3 |
(11.1) |
(12.6) |
19.1 |
EPS - normalised and fully diluted (sen) |
|
45.3 |
42.1 |
53.3 |
(11.1) |
(12.6) |
19.1 |
|
EPS - (IFRS) (sen) |
|
|
45.3 |
45.3 |
58.0 |
(11.1) |
(12.6) |
19.1 |
Dividend per share (p) |
2.0 |
2.0 |
2.1 |
2.2 |
2.2 |
2.3 |
||
Gross Margin (%) |
77.3 |
77.6 |
76.4 |
74.3 |
74.8 |
75.5 |
||
EBITDA Margin (%) |
50.6 |
45.2 |
43.1 |
7.9 |
7.3 |
15.9 |
||
Operating Margin (before GW and except.) (%) |
46.9 |
38.2 |
34.2 |
-6.6 |
-5.1 |
5.4 |
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BALANCE SHEET |
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Fixed Assets |
|
|
49,077 |
57,761 |
73,605 |
90,110 |
109,610 |
130,610 |
Intangible Assets |
13,642 |
22,125 |
34,742 |
45,492 |
56,992 |
66,992 |
||
Tangible Assets |
35,435 |
35,194 |
38,031 |
43,786 |
51,786 |
62,786 |
||
Investments |
0 |
442 |
831 |
831 |
831 |
831 |
||
Current Assets |
|
|
72,678 |
79,467 |
94,140 |
151,705 |
126,188 |
113,122 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
10,287 |
12,312 |
36,412 |
33,682 |
42,881 |
54,666 |
||
Cash |
62,392 |
64,021 |
57,728 |
118,023 |
83,307 |
58,456 |
||
Other |
0 |
3,134 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(7,345) |
(12,190) |
(13,408) |
(13,960) |
(20,224) |
(25,739) |
Creditors |
(6,377) |
(8,856) |
(12,588) |
(13,141) |
(19,405) |
(24,919) |
||
Short term borrowings |
(969) |
(3,334) |
(819) |
(819) |
(819) |
(819) |
||
Long Term Liabilities |
|
|
(27,894) |
(23,645) |
(25,664) |
(24,814) |
(23,964) |
(23,114) |
Long term borrowings |
(26,776) |
(20,224) |
(19,446) |
(18,596) |
(17,746) |
(16,896) |
||
Other long term liabilities |
(1,117) |
(3,421) |
(6,218) |
(6,218) |
(6,218) |
(6,218) |
||
Net Assets |
|
|
86,516 |
101,393 |
128,672 |
203,041 |
191,609 |
194,879 |
CASH FLOW |
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Operating Cash Flow |
|
|
21,459 |
25,869 |
13,071 |
10,367 |
6,799 |
23,978 |
Net Interest |
3 |
(239) |
227 |
(8) |
(8) |
(8) |
||
Tax |
(1,643) |
(1,115) |
(1,651) |
710 |
813 |
(1,229) |
||
Capex |
(35,185) |
(14,132) |
(16,105) |
(29,500) |
(36,000) |
(41,000) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
0 |
||
Financing |
52,789 |
0 |
0 |
84,785 |
0 |
0 |
||
Dividends |
(5,959) |
(4,795) |
(4,961) |
(5,209) |
(5,469) |
(5,743) |
||
Net Cash Flow |
31,464 |
5,588 |
(9,419) |
61,145 |
(33,866) |
(24,001) |
||
Opening net debt/(cash) |
|
|
(4,153) |
(34,646) |
(40,463) |
(37,462) |
(98,608) |
(64,742) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(971) |
229 |
6,418 |
(0) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(34,646) |
(40,463) |
(37,462) |
(98,608) |
(64,742) |
(40,741) |
|
Source: Company accounts, Edison Investment Research |
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