NetDimensions
Written by
NetDimensions (Holdings) |
Group returns to revenue growth in Q3 |
Q3 trading update |
Software & comp services |
11 November 2016 |
Share price performance
Business description
Next events
Analysts
NetDimensions (Holdings) is a research client of Edison Investment Research Limited |
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In a brief trading update, NetDimensions has said that both revenue and invoiced sales for Q316 were slightly ahead of Q315. This is after the group reported a 1% decline in revenue in H1. We are maintaining our forecasts, which imply a 9% revenue growth in H2 and hence a strong performance in the traditionally busy Q4. In early October, NetDimensions said it has had an unsolicited approach that “may or may not lead to an offer being made for the entire issued share capital of the company”. We note the group has a healthy net cash positon ($11.2m as at 30 June or c 16.5p per share), attractive growth profile, a cash-generative business model and, despite the recent gains, the shares trade on an FY17e EV/sales rating at just 0.9x.
Year |
Revenue ($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 |
26.6 |
(0.4) |
(0.6) |
1.0 |
N/A |
1.3 |
12/17e |
31.5 |
1.2 |
1.7 |
1.1 |
45.2 |
1.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. P/E and yield calculated in pence.
Q3 trading
The company says that revenue and invoiced sales for Q3 were both slightly ahead of the comparable period for the previous year. The revenue from the group’s global hosted secure SaaS offering increased by 5% and the revenue from licences (onsite rental) increased by 13% in the quarter. Management says the full year outlook will depend on Q4 sales and it says it will continue to focus on generating new business and controlling operating expenses. We note that in H1, group revenue slipped by 1% to $10.5m but costs fell, enabling the group to reduce its EBITDA loss by 58% to $0.8m. While our maintained forecasts imply 9% revenue growth in H2, our cost forecasts are conservative at 13% growth.
Unsolicited approach
On 5 October, the company said it “has had an unsolicited approach regarding a potential transaction, which may or may not lead to an offer being made for the entire issued share capital of the company”. It states it “continues to engage with interested parties and a further announcement will be made in due course.” We view the approach as opportunistic, as the shares were trading on just 0.4x FY17 revenues at the time of the approach, despite the business having returned to positive free cash flow generation in H116.
Valuation: High-growth sector with punchy valuations
If NetDimesions can manage the growth effectively, we continue to see significant upside as, even after the recent jump, the shares trade on an EV/sales rating of 0.9x our FY17e revenues, compared to the group’s larger US peers (its key competitors), which typically trade at 2.5-5.9x revenues.
Exhibit 1: Financial summary
US$'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 |
26,638 |
31,509 |
34,509 |
Cost of Sales |
(1,586) |
(4,002) |
(4,193) |
(4,388) |
(4,871) |
(5,336) |
||
Gross Profit |
14,622 |
18,699 |
21,203 |
22,250 |
26,638 |
29,173 |
||
EBITDA |
|
|
(4,105) |
(3,335) |
(501) |
(203) |
1,455 |
2,913 |
Adjusted Operating Profit |
|
|
(4,272) |
(3,531) |
(710) |
(434) |
1,194 |
2,584 |
Amortisation of acquired intangibles |
(477) |
(472) |
(488) |
(304) |
(304) |
(304) |
||
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) |
(1,113) |
489 |
1,855 |
||
Net Interest |
65 |
25 |
(15) |
25 |
25 |
25 |
||
Profit Before Tax (norm) |
|
|
(4,207) |
(3,507) |
(725) |
(409) |
1,219 |
2,609 |
Profit Before Tax (FRS 3) |
|
|
(4,946) |
(5,016) |
(1,909) |
(1,088) |
514 |
1,880 |
Tax |
() |
(124) |
(193) |
115 |
(341) |
(731) |
||
Profit After Tax (norm) |
(4,207) |
(3,631) |
(918) |
(294) |
878 |
1,878 |
||
Profit After Tax (FRS 3) |
(4,946) |
(5,141) |
(2,102) |
(974) |
173 |
1,149 |
||
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) |
(0.6) |
1.7 |
3.5 |
EPS - FRS 3 (c) |
|
|
(14.6) |
(13.3) |
(5.2) |
(1.9) |
0.3 |
2.2 |
Dividend per share (c) |
0.99 |
0.90 |
0.90 |
1.00 |
1.10 |
1.20 |
||
Gross Margin (%) |
90.2 |
82.4 |
83.5 |
83.5 |
84.5 |
84.5 |
||
EBITDA Margin (%) |
(25.3) |
(14.7) |
(2.0) |
(0.8) |
4.6 |
8.4 |
||
Operating Margin (%) |
(26.4) |
(15.6) |
(2.8) |
(1.6) |
3.8 |
7.5 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
3,980 |
3,359 |
3,019 |
2,803 |
2,615 |
2,395 |
Intangible Assets |
3,522 |
3,059 |
2,591 |
2,286 |
1,982 |
1,677 |
||
Tangible Assets |
316 |
270 |
260 |
349 |
465 |
550 |
||
Other |
142 |
30 |
168 |
168 |
168 |
168 |
||
Current Assets |
|
|
15,031 |
13,104 |
21,011 |
20,166 |
22,904 |
25,973 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
7,303 |
8,197 |
9,030 |
9,472 |
11,204 |
12,271 |
||
Cash |
7,728 |
4,907 |
11,981 |
10,694 |
11,700 |
13,702 |
||
Current Liabilities |
|
|
(10,673) |
(12,476) |
(11,830) |
(12,050) |
(14,144) |
(15,610) |
Creditors |
(10,671) |
(12,473) |
(11,826) |
(12,045) |
(14,140) |
(15,606) |
||
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 |
10,840 |
11,295 |
12,679 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
(2,514) |
(2,085) |
(2,349) |
(432) |
1,793 |
3,296 |
Net Interest |
65 |
25 |
(15) |
25 |
25 |
25 |
||
Tax |
(31) |
(57) |
(148) |
(193) |
82 |
(329) |
||
Capex |
(256) |
(144) |
(205) |
(320) |
(378) |
(414) |
||
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 |
(1,287) |
1,006 |
2,002 |
||
Opening net debt/(cash) |
|
|
(6,814) |
(7,719) |
(4,902) |
(11,963) |
(10,676) |
(11,681) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
37 |
(160) |
(403) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(7,719) |
(4,902) |
(11,963) |
(10,676) |
(11,681) |
(13,684) |
Source: NetDimensions accounts, Edison Investment Research
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