Novabase is a leading IT services company and the largest technology company listed on the Lisbon Stock Exchange. The company is currently in the midst of a major transformation, to focus on new fast-growing technologies such as AI, analytics, automation and cloud. Novabase has continued to grow in 2020 and is in a strong position to gain from the increased speed of digitisation COVID-19 has forced on organisations.
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Novabase |
Reconfigured for the future
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Technology |
Deutsches Eigenkapitalforum 2020
2 November 2020 |
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Novabase is a leading IT services company and the largest technology company listed on the Lisbon Stock Exchange. The company is currently in the midst of a major transformation, to focus on new fast-growing technologies such as AI, analytics, automation and cloud. Novabase has continued to grow in 2020 and is in a strong position to gain from the increased speed of digitisation COVID-19 has forced on organisations.
Ambitious growth strategy
Since 2017 the group has sold off three non-core subsidiaries (€89.3m cumulative initial consideration) and acquired the remaining 45% in Celfocus from Vodafone (€20m initial consideration). In 2019, on the 30-year anniversary of its founding, Novabase unveiled its five-year growth strategy titled Strategy 2019+, the primary goal being to double revenue by 2023 (versus 2018 revenue: €110m) and boost operating margins to double digits by 2023 (5.9% EBITDA margin in 2018). To achieve this growth, it reorganised its business into two new operating segments: (1) Next-Gen, focused on newer and faster-growing technologies, and (2) Value Portfolio, which are profitable businesses that will fund the Next-Gen portfolio. To achieve the ambitious 2023 growth targets, Novabase plans to continue hiring in Portugal, where there is an abundance of IT talent, focusing on the group’s capabilities to provide newer and in demand technologies to clients in its core markets of Europe and the Middle East. M&A will also be a key plank for growth, with a focus solely on expanding customer base.
Growth and key progress towards 2023 goals
Novabase continued to grow in H120, with COVID-19 having no impact on performance during the period. Revenue increased 14% y-o-y to €63.7m, with Next-Gen accounting for 72% of revenue. 56.3% of H120 revenue came from international operations. EBITDA increased 48.6% y-o-y to €5.5m with margins improving robustly to 8.6% (+200bp y-o-y). Novabase ended H120 with a strengthened balance sheet, with net cash increasing 48.7% to €50.7m (versus €34.1m at the end of 2019).
Valuation: Net cash over half of current market value
Excluding its net cash position of €50.7m (currently 51% of €99.2m market cap), Novabase currently trades at just under 10x 2021 EPS. This sub 10x P/E multiple (ex-net cash) is undemanding for a company of Novabase’s pedigree, with robust growth prospects combined with a solid balance sheet.
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Consensus estimates
Source: Company data, Refinitiv. Note: €0.50 extraordinary dividend paid in 2019. |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Industrials
Forward Industries has augmented its outsourced manufacturing service offer to include hardware and software design capabilities and the ability to secure listings in major US retail chains. This enhanced offer provides a route for offsetting the declining revenues in the legacy business, which provides carry cases for diabetes equipment, as well as enhancing profit. Our indicative valuation is $1.73/share, which is 16% higher than the current share price.