NetDimensions (Holdings)
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NetDimensions (Holdings) |
Strong cost discipline outweighs deferrals |
H1 trading update |
Software & comp services |
25 July 2016 |
Share price performance
Business description
Next event
Analysts
NetDimensions (Holdings)is a research client of Edison Investment Research Limited |
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In a short trading update, NetDimensions (AIM: NETD, OTCQX: NETDY) has said that H1 revenues were lower than expected due to delays in deal rollouts. The delays are expected to continue into H2; hence we have cut our FY16 revenue forecast by $1.2m to $27.0m. Nevertheless, the adjusted EBITDA loss has significantly improved and we now forecast the group to trade at breakeven in FY16 (previously a $0.6m loss). We are maintaining our FY17 forecasts, but note that if the deal rollouts do materialise in the period, they could potentially result in FY17 upgrades. NETD’s larger US peers continue to trade at significant EV/sales premiums and therefore we continue to believe NETD shares could warrant a significant re-rating.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
22.7 |
(3.5) |
(9.4) |
0.9 |
N/A |
1.2 |
12/15 |
25.4 |
(0.7) |
(2.2) |
0.9 |
N/A |
1.2 |
12/16e |
27.0 |
0.0 |
0.0 |
1.0 |
N/A |
1.3 |
12/17e |
32.0 |
1.4 |
2.0 |
1.1 |
38.6 |
1.4 |
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: Roll-outs delayed, costs controlled
The company reports that revenue for the period was broadly unchanged from H115 while the adjusted EBITDA loss for the period was less than $1m – which is a substantial improvement on the $1.8m EBITDA loss in H115. The reduced loss was due to better management of expenses, which NETD also expects will benefit the full-year EBITDA result. We understand that the company has received open purchase orders for significant annual on premise licences. However, due to delays in the roll-outs, the company has not been able to recognise the revenue or cash flow. Expenses have been tightly controlled due to a significant slowdown in new hires, which is below budget. While a busy Q4 performance could potentially boost the FY16 results if annual licences or perpetual licences are sold, the increasing focus on recurring Secure SaaS rental revenues means that a strong new business performance in Q4 will not necessarily boost FY16 numbers.
Forecasts: FY16 revenues fall, but costs fall more
We have reduced our FY16 revenues by $1.2m to $27.0m, and lowered our forecast operating costs by $1.8m. Hence our adjusted operating profit and normalised PBT forecasts both improve by $0.6m to break even. Our forecast for year-end net cash edges up to $11.1m, from $11.0m. We note that the group retains significant GBP deposits, following the fundraising in November 2015, which have been affected by the decline in the GBP against the USD.
Valuation: High-growth sector with punchy valuations
If NETD can manage the growth effectively, we continue to see significant upside, as the shares trade on an EV of 0.9x our FY17e revenues, compared to the group’s larger US peers (its key competitors), which typically trade at 2.6-6.8x revenues.
Forecast changes
We have summarised our key forecast changes in the table below.
Exhibit 1: Forecast changes
Revenue ($m) |
PBT normalised ($m) |
EPS (c) |
|||||||
Old |
New |
% chg |
Old |
New |
% chg |
Old |
New |
% chg |
|
2016e |
28.2 |
27.0 |
(4) |
(0.6) |
0.0 |
N/A |
(0.9) |
0.0 |
N/A |
2017e |
32.0 |
32.0 |
0 |
1.4 |
1.4 |
0 |
2.0 |
2.0 |
0 |
2018e |
35.1 |
35.1 |
0 |
2.8 |
2.8 |
0 |
3.8 |
3.8 |
0 |
Source: NetDimensions accounts, Edison Investment Research
Exhibit 2: Financial summary
US$'000s |
2013 |
2014 |
2015 |
2016e |
2017e |
2018e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
16,208 |
22,701 |
25,396 |
27,038 |
32,042 |
35,080 |
Cost of Sales |
(1,586) |
(4,002) |
(4,193) |
(5,302) |
(5,955) |
(6,561) |
||
Gross Profit |
14,622 |
18,699 |
21,203 |
21,735 |
26,087 |
28,519 |
||
EBITDA |
|
|
(4,105) |
(3,335) |
(501) |
208 |
1,682 |
3,079 |
Adjusted Operating Profit |
|
|
(4,272) |
(3,531) |
(710) |
(24) |
1,417 |
2,745 |
Amortisation of acquired intangibles |
(477) |
(472) |
(488) |
(488) |
(488) |
(488) |
||
Exceptional items and exchange movements |
4 |
(364) |
(319) |
0 |
0 |
0 |
||
Associates and joint ventures |
0 |
0 |
0 |
0 |
0 |
0 |
||
Share based payments |
(266) |
(674) |
(377) |
(375) |
(400) |
(425) |
||
Operating Profit |
(5,011) |
(5,041) |
(1,894) |
(886) |
529 |
1,832 |
||
Net Interest |
65 |
25 |
(15) |
25 |
25 |
25 |
||
Profit Before Tax (norm) |
|
|
(4,207) |
(3,507) |
(725) |
1 |
1,442 |
2,770 |
Profit Before Tax (FRS 3) |
|
|
(4,946) |
(5,016) |
(1,909) |
(861) |
554 |
1,857 |
Tax |
() |
(124) |
(193) |
() |
(404) |
(776) |
||
Profit After Tax (norm) |
(4,207) |
(3,631) |
(918) |
1 |
1,038 |
1,994 |
||
Profit After Tax (FRS 3) |
(4,946) |
(5,141) |
(2,102) |
(862) |
151 |
1,082 |
||
Average Number of Shares Outstanding (m) |
33.8 |
38.5 |
40.8 |
51.6 |
52.3 |
53.2 |
||
EPS - normalised (c) |
|
|
(12.4) |
(9.4) |
(2.2) |
0.0 |
2.0 |
3.8 |
EPS - FRS 3 (c) |
|
|
(14.6) |
(13.3) |
(5.2) |
(1.7) |
0.3 |
2.0 |
Dividend per share (c) |
0.99 |
0.90 |
0.90 |
1.00 |
1.10 |
1.20 |
||
Gross Margin (%) |
90.2 |
82.4 |
83.5 |
80.4 |
81.4 |
81.3 |
||
EBITDA Margin (%) |
(25.3) |
(14.7) |
(2.0) |
0.8 |
5.2 |
8.8 |
||
Operating Margin (%) |
(26.4) |
(15.6) |
(2.8) |
(0.1) |
4.4 |
7.8 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
3,980 |
3,359 |
3,019 |
2,623 |
2,256 |
1,855 |
Intangible Assets |
3,522 |
3,059 |
2,591 |
2,103 |
1,615 |
1,127 |
||
Tangible Assets |
316 |
270 |
260 |
352 |
472 |
560 |
||
Other |
142 |
30 |
168 |
168 |
168 |
168 |
||
Current Assets |
|
|
15,031 |
13,104 |
21,011 |
20,714 |
23,620 |
26,768 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
7,303 |
8,197 |
9,030 |
9,614 |
11,393 |
12,474 |
||
Cash |
7,728 |
4,907 |
11,981 |
11,100 |
12,227 |
14,295 |
||
Current Liabilities |
|
|
(10,673) |
(12,476) |
(11,830) |
(12,193) |
(14,319) |
(15,765) |
Creditors |
(10,671) |
(12,473) |
(11,826) |
(12,189) |
(14,314) |
(15,761) |
||
Short term borrowings |
(2) |
(2) |
(4) |
(4) |
(4) |
(4) |
||
Long Term Liabilities |
|
|
(113) |
(182) |
(80) |
(80) |
(80) |
(80) |
Long term borrowings |
(6) |
(3) |
(14) |
(14) |
(14) |
(14) |
||
Other long term liabilities |
(106) |
(179) |
(65) |
(65) |
(65) |
(65) |
||
Net Assets |
|
|
8,225 |
3,805 |
12,120 |
11,065 |
11,477 |
12,779 |
CASH FLOW |
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Operating Cash Flow |
|
|
(2,514) |
(2,085) |
(2,349) |
(21) |
2,002 |
3,429 |
Net Interest |
65 |
25 |
(15) |
25 |
25 |
25 |
||
Tax |
(31) |
(57) |
(148) |
(193) |
() |
(389) |
||
Capex |
(256) |
(144) |
(205) |
(324) |
(385) |
(421) |
||
Acquisitions/disposals |
(2,242) |
(258) |
0 |
0 |
0 |
0 |
||
Equity financing |
6,133 |
250 |
10,553 |
0 |
0 |
0 |
||
Dividends |
(287) |
(389) |
(374) |
(367) |
(516) |
(576) |
||
Net Cash Flow |
868 |
(2,658) |
7,464 |
(881) |
1,127 |
2,068 |
||
Opening net debt/(cash) |
|
|
(6,814) |
(7,719) |
(4,902) |
(11,963) |
(11,081) |
(12,208) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
37 |
(160) |
(403) |
() |
0 |
() |
||
Closing net debt/(cash) |
|
|
(7,719) |
(4,902) |
(11,963) |
(11,081) |
(12,208) |
(14,276) |
Source: NetDimensions accounts, Edison Investment Research
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