NetDimensions (Holdings)
Written by
NetDimensions (Holdings) |
Revenue grows, costs controlled |
Trading update |
Software & comp services |
12 January 2016 |
Share price performance
Business description
Next event
Analysts
NetDimensions (Holdings) is a research client of Edison Investment Research Limited |
||||||||||||||||||||||||||||||||||||||||||||||||||
In a brief trading update, NetDimensions (AIM: NETD, OTCQX: NETDY) has said that FY15 trading was in line with expectations. It also says that the operating cost base actually fell over the year and hence the adjusted EBITDA loss will be better than current market expectations. Despite a significant de-rating in the shares of its US-quoted human capital management software peers over the last two years, these companies continue to trade on punchy EV/sales ratios. Hence we continue to believe there is significant upside potential in NetDimensions' shares.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/13 |
16.2 |
(4.1) |
(12.1) |
1.0 |
N/A |
1.2 |
12/14 |
22.7 |
(3.5) |
(9.4) |
0.9 |
N/A |
1.1 |
12/15e |
25.0 |
(2.5) |
(4.3) |
0.9 |
N/A |
1.1 |
12/16e |
28.2 |
(1.1) |
(1.5) |
1.0 |
N/A |
1.2 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. P/E and yield calculated in pence.
Trading update: FY15 revenue up 10%, costs decline
NetDimensions says that FY15 revenue and invoiced sales are expected to be ahead of FY14 with FY15 GAAP revenue at c $25m. Further, management says the operating cost base is lower than in FY14. This indicates that the operating loss is likely to be smaller than our forecast, where we have a $200k rise in operating costs at $22.4m. We understand that costs fell for two main reasons – reduced dependency on expensive short-term contractors for delivering services and a streamlining of middle management in sales and services. NetDimensions is becoming increasingly focused on so-called high consequence industries, where there are more stringent requirements for regulatory compliance and hence training. The primary verticals currently being targeted are US healthcare (essentially hospitals and doctors surgeries, where NetDimensions currently has c 44 clients out of a potential addressable market of c 5000) and precision manufacturing, primarily in Europe (which includes the automotive sector). In November, NetDimensions raised a gross £7.2m via a placement of new ordinary shares. The new money will be used to accelerate investment in R&D and support functions. It will also bolster the balance sheet, which will make the group’s products an easier sell to its increasingly blue-chip customer base, while also providing funds for acquisitions.
Forecasts: Maintained for now
We are maintaining our forecasts, which imply 13% revenue growth in each of the next two years with a further reduced loss in FY16 and the company returning to profitability in FY17. We will review our forecasts after the final results in April.
Valuation: High-growth sector with punchy valuations
If NetDimensions can manage growth effectively, we continue to see significant upside, as the shares trade on an EV of 1.0x our FY16e revenues, compared with its larger US peers (its key competitors), which typically trade at 3.8-6.6x revenues.
Exhibit 1: Financial summary
US$000s |
2012 |
2013 |
2014 |
2015e |
2016e |
2017e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
13,796 |
16,208 |
22,701 |
25,005 |
28,238 |
32,042 |
Cost of Sales |
(1,206) |
(1,586) |
(4,002) |
(5,051) |
(5,773) |
(6,448) |
||
Gross Profit |
12,590 |
14,622 |
18,699 |
19,953 |
22,464 |
25,594 |
||
EBITDA |
|
|
525 |
(3,992) |
(3,320) |
(2,269) |
(835) |
1,217 |
Adjusted Operating Profit |
|
|
357 |
(4,158) |
(3,516) |
(2,484) |
(1,095) |
925 |
Amortisation of acquired intangibles |
(338) |
(477) |
(472) |
(470) |
(470) |
(470) |
||
Exceptional items and exchange movements |
(170) |
(110) |
(379) |
0 |
0 |
0 |
||
Associates and joint ventures |
0 |
0 |
0 |
0 |
0 |
0 |
||
Share based payments |
(117) |
(266) |
(674) |
(300) |
(325) |
(350) |
||
Operating Profit |
(268) |
(5,011) |
(5,041) |
(3,254) |
(1,890) |
105 |
||
Net Interest |
67 |
65 |
25 |
25 |
25 |
25 |
||
Profit Before Tax (norm) |
|
|
424 |
(4,093) |
(3,492) |
(2,459) |
(1,070) |
950 |
Profit Before Tax (FRS 3) |
|
|
(201) |
(4,946) |
(5,016) |
(3,229) |
(1,865) |
130 |
Tax |
(108) |
() |
(124) |
689 |
300 |
(266) |
||
Profit After Tax (norm) |
315 |
(4,094) |
(3,616) |
(1,770) |
(770) |
684 |
||
Profit After Tax (FRS 3) |
(310) |
(4,946) |
(5,141) |
(2,540) |
(1,565) |
(136) |
||
Average Number of Shares Outstanding (m) |
25.2 |
33.8 |
38.5 |
40.8 |
51.4 |
51.8 |
||
EPS - normalised (c) |
|
|
1.3 |
(12.1) |
(9.4) |
(4.3) |
(1.5) |
1.3 |
EPS - FRS 3 (c) |
|
|
(1.2) |
(14.6) |
(13.3) |
(6.2) |
(3.0) |
(0.3) |
Dividend per share (c) |
0.81 |
0.99 |
0.90 |
0.90 |
1.00 |
1.10 |
||
Gross Margin (%) |
91.3 |
90.2 |
82.4 |
79.8 |
79.6 |
79.9 |
||
EBITDA Margin (%) |
3.8 |
(24.6) |
(14.6) |
(9.1) |
(3.0) |
3.8 |
||
Operating Margin (%) |
2.6 |
(25.7) |
(15.5) |
(9.9) |
(3.9) |
2.9 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
905 |
3,980 |
3,359 |
2,973 |
2,583 |
2,205 |
Intangible Assets |
567 |
3,522 |
3,059 |
2,589 |
2,119 |
1,649 |
||
Tangible Assets |
238 |
316 |
270 |
355 |
434 |
527 |
||
Other |
100 |
142 |
30 |
30 |
30 |
30 |
||
Current Assets |
|
|
13,021 |
15,031 |
13,104 |
21,534 |
21,713 |
23,964 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
6,194 |
7,303 |
8,197 |
9,028 |
10,196 |
11,569 |
||
Cash |
6,827 |
7,728 |
4,907 |
12,505 |
11,517 |
12,395 |
||
Current Liabilities |
|
|
(7,815) |
(10,673) |
(12,476) |
(13,369) |
(14,832) |
(16,540) |
Creditors |
(7,811) |
(10,671) |
(12,473) |
(13,367) |
(14,829) |
(16,538) |
||
Short term borrowings |
(3) |
(2) |
(2) |
(2) |
(2) |
(2) |
||
Long Term Liabilities |
|
|
(70) |
(113) |
(182) |
(182) |
(182) |
(182) |
Long term borrowings |
(9) |
(6) |
(3) |
(3) |
(3) |
(3) |
||
Other long term liabilities |
(61) |
(106) |
(179) |
(179) |
(179) |
(179) |
||
Net Assets |
|
|
6,041 |
8,225 |
3,805 |
10,956 |
9,282 |
9,447 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
1,115 |
(2,514) |
(2,085) |
(2,216) |
(553) |
1,537 |
Net Interest |
67 |
65 |
25 |
25 |
25 |
25 |
||
Tax |
(338) |
(31) |
(57) |
(124) |
246 |
214 |
||
Capex |
(161) |
(256) |
(144) |
(300) |
(339) |
(385) |
||
Acquisitions/disposals |
0 |
(2,242) |
(258) |
0 |
0 |
0 |
||
Equity financing |
91 |
6,133 |
250 |
10,561 |
0 |
0 |
||
Dividends |
(773) |
(287) |
(389) |
(347) |
(367) |
(514) |
||
Net Cash Flow |
0 |
868 |
(2,658) |
7,598 |
(988) |
878 |
||
Opening net debt/(cash) |
|
|
(6,862) |
(6,814) |
(7,719) |
(4,902) |
(12,500) |
(11,512) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(48) |
37 |
(160) |
0 |
() |
0 |
||
Closing net debt/(cash) |
|
|
(6,814) |
(7,719) |
(4,902) |
(12,500) |
(11,512) |
(12,390) |
Source: NetDimensions accounts, Edison Investment Research
|