Last week, SNP carried out a 10% capital increase, raising €18.74m before costs. The funds will be used to help finance the proposed acquisitions of three South American SAP consultancy firms. The acquisitions will create SNP’s first significant presence in South America, and follow recent acquisitions in Asia, the UK and Poland. We will update our forecasts for the capital increase and acquisitions following the Q2 results, when we will have more information. Given SNP’s strong position in software-based transformation projects and assuming a sustained high level of activity, we believe the shares remain attractive on c 18x our (pre-deals) FY19e EPS.
Written by
SNP Schneider-Neureither & Partner |
Global expansion continues |
Capital increase |
Software & comp services |
11 July 2017 |
Share price performance
Business description
Next events
Analysts
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Last week, SNP carried out a 10% capital increase, raising €18.74m before costs. The funds will be used to help finance the proposed acquisitions of three South American SAP consultancy firms. The acquisitions will create SNP’s first significant presence in South America, and follow recent acquisitions in Asia, the UK and Poland. We will update our forecasts for the capital increase and acquisitions following the Q2 results, when we will have more information. Given SNP’s strong position in software-based transformation projects and assuming a sustained high level of activity, we believe the shares remain attractive on c 18x our (pre-deals) FY19e EPS.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
56.2 |
3.4 |
58.8 |
34.0 |
67.1 |
0.9 |
12/16 |
80.7 |
5.7 |
94.4 |
39.0 |
41.8 |
1.0 |
12/17e |
110.0 |
7.2 |
96.3 |
45.0 |
41.0 |
1.1 |
12/18e |
135.1 |
13.6 |
185.6 |
52.0 |
21.3 |
1.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
10% capital increase
SNP successfully placed the maximum of 497,677 new shares that were offered to selected institutional investors by means of an accelerated book-building process. New shares were placed at a price of €37.65, raising c €18.74m in gross proceeds. The shareholding of Dr Andreas Schneider-Neureither, CEO, has subsequently fallen from 20.03% to 18.21%.
Three related acquisitions in South America
SNP is seeking to acquire three unnamed South American SAP consultancy firms. The companies have high-quality customer bases and focus on projects with very large data volumes. All three consultancies are profitable and have generated robust revenue growth in recent years. In FY16, total revenue amounted to c $20m and EBIT margins have been c 9% in the previous few years. SNP expects an earnings contribution of $0.7m to $0.9m from the acquisitions for the remaining six-month period in FY17, or $1.4m to $1.8m on an annualised basis.
Contract win: Major automotive component supplier
Last week, SNP said it had received an order for an extensive transformation project from one of the world’s largest automotive component suppliers. This order for services follows the purchase of software licences from SNP in 2016. The customer is consolidating its entire SAP ERP territory and SNP will be involved in the migration of core and transaction data, as well as the transformation of processes from the old SAP systems, to a modern digital platform.
Valuation: Strong growth play in the ERP space
The stock trades on c 41x our FY17e EPS, which falls to c 21x in FY18e and to c 18x in FY19e. In our last note, our discounted cash flow valuation came out at €47.75/share. However, our model is based on conservative assumptions and took no account of any additional acquisitions.
Exhibit 1: Financial summary
€000s |
2014 |
2015 |
2016 |
2017e |
2018e |
2019e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
30,480 |
56,236 |
80,685 |
109,991 |
135,142 |
147,665 |
Cost of sales |
0 |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
30,480 |
56,236 |
80,685 |
109,991 |
135,142 |
147,665 |
||
EBITDA |
|
|
862 |
5,484 |
8,524 |
10,077 |
16,804 |
19,823 |
Adjusted Operating Profit |
|
|
(66) |
4,222 |
6,857 |
8,000 |
14,328 |
17,038 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
1,505 |
356 |
0 |
0 |
0 |
0 |
||
Associates |
0 |
(3) |
8 |
0 |
0 |
0 |
||
Operating Profit |
1,439 |
4,575 |
6,865 |
8,000 |
14,328 |
17,038 |
||
Net Interest |
(66) |
(828) |
(1,137) |
(800) |
(750) |
(700) |
||
Profit Before Tax (norm) |
|
|
(132) |
3,394 |
5,720 |
7,200 |
13,578 |
16,338 |
Profit Before Tax (FRS 3) |
|
|
1,373 |
3,747 |
5,728 |
7,200 |
13,578 |
16,338 |
Tax |
(344) |
(1,195) |
(1,517) |
(2,160) |
(4,073) |
(4,901) |
||
Profit After Tax (norm) |
(477) |
2,198 |
4,203 |
5,040 |
9,505 |
11,437 |
||
Profit After Tax (FRS 3) |
1,028 |
2,552 |
4,211 |
5,040 |
9,505 |
11,437 |
||
Minority interest |
(40) |
0 |
(147) |
(248) |
(267) |
(289) |
||
Adjustments for normalised earnings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net income (norm) |
(517) |
2,198 |
4,056 |
4,792 |
9,237 |
11,148 |
||
Net income (FRS 3) |
988 |
2,552 |
4,064 |
4,792 |
9,237 |
11,148 |
||
Average Number of Shares Outstanding (m) |
3.7 |
3.7 |
4.3 |
5.0 |
5.0 |
5.0 |
||
EPS - normalised (c) |
|
|
(13.9) |
58.8 |
94.4 |
96.3 |
185.6 |
224.0 |
EPS - normalised & fully diluted (c) |
|
|
(13.9) |
58.8 |
94.4 |
96.3 |
185.6 |
224.0 |
EPS - FRS 3 (c) |
|
|
26.6 |
68.3 |
94.6 |
96.3 |
185.6 |
224.0 |
Dividend per share (c) |
13.00 |
34.00 |
39.00 |
45.00 |
52.00 |
60.00 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
||
EBITDA Margin (%) |
2.8 |
9.8 |
10.6 |
9.2 |
12.4 |
13.4 |
||
Adjusted Operating Margin (%) |
-0.2 |
7.5 |
8.5 |
7.3 |
10.6 |
11.5 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
8,291 |
15,243 |
29,054 |
50,377 |
50,603 |
50,772 |
Intangible Assets |
5,190 |
11,675 |
24,179 |
45,779 |
45,779 |
45,779 |
||
Tangible Assets |
1,231 |
1,999 |
3,161 |
3,284 |
3,510 |
3,679 |
||
Other |
1,871 |
1,570 |
1,714 |
1,314 |
1,314 |
1,314 |
||
Current Assets |
|
|
17,882 |
29,996 |
59,478 |
80,293 |
86,280 |
93,771 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
11,286 |
16,084 |
27,201 |
37,081 |
45,560 |
49,782 |
||
Cash |
5,681 |
13,769 |
31,914 |
42,849 |
40,357 |
43,626 |
||
Current Liabilities |
|
|
(9,782) |
(13,703) |
(34,382) |
(33,134) |
(46,041) |
(49,576) |
Creditors |
(9,182) |
(11,101) |
(21,583) |
(31,034) |
(38,941) |
(42,476) |
||
Short term borrowings |
(600) |
(2,602) |
(12,799) |
(2,100) |
(7,100) |
(7,100) |
||
Long Term Liabilities |
|
|
(2,501) |
(15,513) |
(5,576) |
(45,576) |
(36,076) |
(26,576) |
Long term borrowings |
(1,650) |
(12,344) |
(434) |
(40,434) |
(35,434) |
(30,434) |
||
Other long term liabilities |
(851) |
(3,169) |
(5,141) |
(5,141) |
(641) |
3,859 |
||
Net Assets |
|
|
13,890 |
16,024 |
48,575 |
51,961 |
54,767 |
68,391 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
2,579 |
1,879 |
1,005 |
9,526 |
16,129 |
19,085 |
Net Interest |
(66) |
(167) |
53 |
(800) |
(750) |
(700) |
||
Tax |
(1,102) |
(554) |
(412) |
(2,016) |
(3,802) |
(4,575) |
||
Capex |
(701) |
(1,779) |
(3,451) |
(2,200) |
(2,703) |
(2,953) |
||
Acquisitions/disposals |
(500) |
(3,228) |
(5,923) |
(21,200) |
(9,127) |
0 |
||
Shares issued |
0 |
0 |
30,129 |
0 |
0 |
0 |
||
Dividends |
(335) |
(483) |
(1,264) |
(1,676) |
(2,240) |
(2,588) |
||
Net Cash Flow |
(124) |
(4,332) |
20,137 |
(18,366) |
(2,492) |
8,269 |
||
Opening net debt/(cash) |
|
|
(3,505) |
(3,431) |
1,176 |
(18,681) |
(315) |
2,177 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
51 |
(275) |
(281) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(3,431) |
1,176 |
(18,681) |
(315) |
2,177 |
(6,092) |
Source: Edison Investment Research
|
|
Research: Real Estate
Custodian REIT (CREI) reported a 2.2% increase in FY17 EPRA NAVPS, boosted by revaluation gains and disposal profits. With a dividend of 6.35p (+1.6%), the share price total return for the year was 10.3%. We have made minor changes to our forecasts following the results. Our EPRA NAV forecasts have increased by 1% in both FY18 and FY19, as CREI has made acquisitions worth £19m in the year to date, with another £19m under offer. Management’s focus is on long-term secure income, to deliver the earnings to cover a sustainable growth in dividends and generate less volatile returns. We believe the 9% premium to FY18e NAV is justified by the conservative gearing and one of the highest dividend yields in the sector.