In a brief AGM update, Brady said that trading has been in line. Following a period of significant change, with new people hired and the business having been streamlined, the primary focus has shifted to re-engineering the software. The initial outcome of this was shown with the launch of the group’s first FAST START implementation offering in May. We will review our forecasts following tomorrow’s capital markets day. If Brady can successfully transition to the cloud, there is a lot to go for as E/CTRM is an attractive growth industry and Brady has a high-quality customer base.
Written by
Brady |
In-line trading, focused on investing in technology |
AGM trading statement |
Software & comp services |
4 June 2018 |
Share price performance
Business description
Next events
Analysts
Brady is a research client of Edison Investment Research Limited |
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In a brief AGM update, Brady said that trading has been in line. Following a period of significant change, with new people hired and the business having been streamlined, the primary focus has shifted to re-engineering the software. The initial outcome of this was shown with the launch of the group’s first FAST START implementation offering in May. We will review our forecasts following tomorrow’s capital markets day. If Brady can successfully transition to the cloud, there is a lot to go for as E/CTRM is an attractive growth industry and Brady has a high-quality customer base.
Year |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16** |
25.4 |
1.3 |
2.4 |
0.0 |
26.7 |
N/A |
12/17** |
22.9 |
(2.4) |
(5.0) |
0.0 |
N/A |
N/A |
12/18e |
23.7 |
0.9 |
0.9 |
0.0 |
74.9 |
N/A |
12/19e |
24.9 |
1.5 |
1.4 |
0.0 |
44.6 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Excludes Recycling business.
Trading update: In line, substantial internal changes
According to Brady, it has made substantial progress in the first four months of the year and trading was in line with management's expectations. The company has continued to invest in the core technology that it believes will drive the business forward in the longer term and is starting to see the benefits of this investment. A Q1 highlight was a contact win with Ustekveikja Energi, a municipal-owned Norwegian utility, which has selected Brady EDM to support its physical power market operations in the Nordics.
New FAST START implementation offerings
In May, Brady launched a new cloud-deployed version of its physical trading and risk management solution for metals (Fintrade), which employs out-of-the-box, preconfigured settings that make it usable from day one. Brady plans to roll out further quick-start solutions for other commodities over the course of 2018.
Sector consolidation
ION announced it was acquiring Openlink earlier this year, following the acquisitions of Triple Point in 2013 and Aspect Enterprise Solutions in October 2017. Openlink and Triple Point are the two largest players in the E/CTRM space, followed by Allegro, which acquired Financial Engineering Associates from MSCI in April, and SunGard, which was acquired by FIS in 2015.
Valuation: Well positioned in a consolidating sector
We have maintained our forecasts for modest profitability in FY18, with the shares on c 75x our earnings estimates. However, the shift to microservices and cloud delivery will enable much improved scalability of the business model. Meanwhile, the shares are underpinned by the c 70% recurring revenues and the very high-quality customer base.
Exhibit 1: Financial summary
£'000s |
2015 |
2016 |
2017 |
2018e |
2019e |
2020e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
27,374 |
25,373 |
22,926 |
23,732 |
24,940 |
26,410 |
EBITDA |
|
|
1,506 |
1,910 |
(2,096) |
1,194 |
1,838 |
2,625 |
Adjusted Operating Profit |
|
|
924 |
1,290 |
(2,394) |
869 |
1,488 |
2,232 |
Amortisation of acquired intangibles |
(1,640) |
(1,618) |
(1,559) |
(1,559) |
(1,559) |
(1,559) |
||
Exceptionals items |
(469) |
(1,250) |
(4,363) |
0 |
0 |
0 |
||
Share based payments |
(243) |
(90) |
(11) |
(500) |
(600) |
(650) |
||
Operating Profit |
(1,428) |
(1,668) |
(8,327) |
(1,190) |
(671) |
23 |
||
Net Interest |
31 |
3 |
(22) |
20 |
50 |
80 |
||
Profit Before Tax (norm) |
|
|
955 |
1,293 |
(2,416) |
889 |
1,538 |
2,312 |
Profit Before Tax (FRS 3) |
|
|
(1,397) |
(1,665) |
(8,349) |
(1,170) |
(621) |
103 |
Tax |
(329) |
(188) |
102 |
(178) |
(338) |
(555) |
||
Profit After Tax (norm) |
813 |
1,992 |
(4,176) |
711 |
1,199 |
1,757 |
||
Profit After Tax (FRS 3) |
(1,726) |
(1,853) |
(8,247) |
(1,348) |
(960) |
(452) |
||
Average Number of Shares Outstanding (m) |
82.7 |
83.0 |
83.3 |
83.6 |
84.0 |
84.4 |
||
EPS – normalised (p) |
|
|
1.0 |
2.4 |
(5.0) |
0.9 |
1.4 |
2.1 |
EPS – FRS 3 (p) |
|
|
(2.1) |
(2.2) |
(9.9) |
(1.6) |
(1.1) |
(0.5) |
Dividend per share (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
1.00 |
||
EBITDA Margin (%) |
5.5 |
7.5 |
(9.1) |
5.0 |
7.4 |
9.9 |
||
Adjusted Operating Margin (%) |
3.4 |
5.1 |
(10.4) |
3.7 |
6.0 |
8.5 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
31,461 |
37,035 |
26,578 |
21,521 |
20,160 |
18,486 |
Intangible Assets |
29,831 |
35,999 |
26,091 |
20,956 |
19,483 |
17,674 |
||
Tangible Assets |
1,147 |
978 |
487 |
565 |
677 |
812 |
||
Deferred tax |
483 |
58 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
13,633 |
14,640 |
13,174 |
10,615 |
11,700 |
14,782 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
7,039 |
7,297 |
4,621 |
4,783 |
5,027 |
5,323 |
||
Cash |
6,594 |
7,343 |
4,089 |
5,831 |
6,673 |
9,459 |
||
Current Liabilities |
|
|
(10,804) |
(12,669) |
(10,734) |
(10,777) |
(10,924) |
(11,133) |
Creditors |
(10,804) |
(12,669) |
(10,734) |
(10,777) |
(10,924) |
(11,133) |
||
Short-term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long-Term Liabilities |
|
|
(4,814) |
(5,670) |
(4,593) |
(4,593) |
(4,593) |
(4,593) |
Long-term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other long-term liabilities |
(4,814) |
(5,670) |
(4,593) |
(4,593) |
(4,593) |
(4,593) |
||
Net Assets |
|
|
29,476 |
33,336 |
24,425 |
16,766 |
16,343 |
17,542 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
2,363 |
2,737 |
(316) |
2,727 |
3,871 |
4,740 |
Net Interest |
31 |
3 |
(22) |
20 |
50 |
80 |
||
Tax |
(416) |
(428) |
247 |
(860) |
(308) |
(509) |
||
Capex |
(2,591) |
(2,167) |
(2,806) |
(3,379) |
(2,706) |
(2,525) |
||
Acquisitions/disposals |
(1,186) |
(326) |
0 |
3,234 |
(66) |
1,000 |
||
Financing |
469 |
47 |
190 |
0 |
0 |
0 |
||
Dividends |
(1,524) |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(2,854) |
(134) |
(2,707) |
1,742 |
842 |
2,786 |
||
Opening net debt/(cash) |
|
|
(9,580) |
(6,594) |
(7,343) |
(4,089) |
(5,831) |
(6,673) |
Disposal |
0 |
0 |
(265) |
0 |
0 |
0 |
||
Other |
(132) |
883 |
(282) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(6,594) |
(7,343) |
(4,089) |
(5,831) |
(6,673) |
(9,459) |
Source: Brady (historicals), Edison Investment Research (forecasts). Note: FY16 and FY17 P&L reflect the continuing business, excluding the Recycling business that has been sold.
|
|
Research: Healthcare
Pacific Edge recently announced that it has adopted the new revenue recognition accounting standard, NZ IFRS 15, for FY18. This means that revenue from US customers will only be recognised once cash payment is received (previously it also included tests that had been billed but not yet paid). As a result, the company restated FY17 operating revenue from NZ$8.1m to NZ$3.2m and reported NZ$3.4m for FY18. Total revenue would have been up 26.3% without the accounting change but under NZ IFRS 15 this is reduced to 6.9% as the US is the main growth driver for tests. Pacific Edge is negotiating agreements with the Centers for Medicare and Medicaid (CMS) as well as private payers to provide for more timely reimbursement. Management will provide updated guidance later this year.