NetDimensions (Holdings) — Update 25 July 2016

NetDimensions (Holdings) — Update 25 July 2016

NetDimensions (Holdings)

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NetDimensions (Holdings)

Strong cost discipline outweighs deferrals

H1 trading update

Software & comp services

25 July 2016

Price

58.5p/$3.85*

Market cap

£30m/$39m

$1.31$/£

*ADR price

Net cash ($m) at 31 December 2015

12.0

Shares in issue

51.2m

Free float

78%

Code

NETD/NETDY

Primary exchange

AIM

Secondary exchange

OTCQX (ADR 5:1)

Share price performance

%

1m

3m

12m

Abs

(1.7)

(4.9)

(26.9)

Rel (local)

(7.3)

(9.8)

(27)

52-week high/low

80.00p

51.50p

Business description

NetDimensions provides talent and learning management systems (LMS) to global enterprises. The company’s solutions allow organisations to deliver personalised learning, share knowledge, enhance performance, foster collaboration and manage compliance for employees, customers, partners and suppliers.

Next event

Interim results

19 September

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

NetDimensions (Holdings)is a research client of Edison Investment Research Limited

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*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

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

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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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: TMT

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