SNP is acquiring BCC, one of the largest SAP partners in Central and Eastern Europe, for an undisclosed price. The deal broadens the group’s customer base, widens its expertise in the areas of SAP service and cloud provisioning and brings onboard c 250 SAP and IT consultants who can be cross-trained in transformation projects. On our estimates, the deal is value creating and earnings enhancing, with our FY18e and FY19e EPS rising by c 19%. However, we have cut our FY17 EBIT forecast, which implies a 7.3% margin, or 9.7% before the €2.65m one-off items outlined in the Q1 results. Given SNP’s strong market position in software-based transformation projects and assuming a sustained high level of activity, we believe the shares remain attractive on c 18x our FY19e earnings.
Written by
SNP Schneider-Neureither & Partner |
Polish SAP consulting bolt-on |
Acquisition |
Software & comp services |
12 May 2017 |
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Business description
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SNP is acquiring BCC, one of the largest SAP partners in Central and Eastern Europe, for an undisclosed price. The deal broadens the group’s customer base, widens its expertise in the areas of SAP service and cloud provisioning and brings onboard c 250 SAP and IT consultants who can be cross-trained in transformation projects. On our estimates, the deal is value creating and earnings enhancing, with our FY18e and FY19e EPS rising by c 19%. However, we have cut our FY17 EBIT forecast, which implies a 7.3% margin, or 9.7% before the €2.65m one-off items outlined in the Q1 results. Given SNP’s strong market position in software-based transformation projects and assuming a sustained high level of activity, we believe the shares remain attractive on c 18x our FY19e earnings.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
56.2 |
3.4 |
58.8 |
34.0 |
67.0 |
0.9 |
12/16 |
80.7 |
5.7 |
94.4 |
39.0 |
41.8 |
1.0 |
12/17e |
110.0 |
7.2 |
96.3 |
45.0 |
40.9 |
1.1 |
12/18e |
135.1 |
13.6 |
185.6 |
52.0 |
21.2 |
1.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Acquisition of BCC
SNP is acquiring 100% of the shares in the Polish BCC Group from its management for an undisclosed price. In our view, BCC provides an excellent geographic fit with SNP, since BCC is one of the largest SAP partners in Eastern Europe. Additionally, Polish talent is cheaper than in other markets, and BCC offers the potential for nearshoring/offshoring. Despite having over 400 customers in 40 countries, BCC was subscale and had limited capital to expand. BCC generated revenue of PLN95.4m in FY16 (c €21.6m) with profit margins in mid-single digits.
Acquisition of Innoplexia
Separately, SNP has increased its stake in Innoplexia from 20% to 80%. SNP paid €0.4m for the initial 20% in April 2016, so we assume it has paid €1.2m for the additional 60%. Innoplexia operates out of the same offices as SNP in Heidelberg. Innoplexia’s flagship product – Innoplexia Virtual Industry – collects, processes and analyses digital market data from search engines and comparison portals.
Forecasts: FY17 cut while FY18 EPS rises by c 19%
We have increased our FY17 revenues in line with the new guidance of €110m and have conservatively ignored Innoplexia. We have cut FY17 operating profit by €1.8m to €8.0m. We increase group revenue by €24.6m in FY18 and €26.9m in FY19, while EPS rise by 19% in each year. Noting that SNP seeks to acquire businesses at c 0.6-1.2x sales, we have assumed a €20m purchase price for BCC.
Valuation: Strong growth play in the ERP space
The stock trades on c 41x our FY17e EPS, which falls to c 21x in FY18e and to c 18x in FY19e. Our discounted cash flow (DCF) valuation rises to €47.75/sh from €46.00, which is c 21% above the current share price. However, our model is based on conservative assumptions and takes no account of any additional acquisitions.
Acquisition of BCC
SNP is acquiring 100% of the shares in the Poznan-based BCC Group from its three senior managers for an undisclosed price. Founded in 1995, BCC has c 300 employees and therefore this acquisition will take SNP’s total headcount to more than 1,000. BCC has one of the biggest SAP teams in Central and Eastern Europe, with over 200 SAP specialists along with a further c 50 IT experts. As an authorised SAP partner, BCC has competencies in all major SAP products and technologies and offers a wide range of solutions extending from standard SAP to complementary solutions. In addition to SAP services, BCC offers IT outsourcing activities, including cloud computing and managed hosting, operating from two twinned data centres at different locations. SNP intends to maintain these data centre activities, which will strengthen its service offering and enable it to match some of its larger competitors. Additionally, BCC offers customised software development through the BCC Software Factory, which will offer synergies with SNPs own software activities.
BCC has over 400 customers in 40 countries and has implemented more than 1,000 projects. It had a strategy in place called BCC + international, which ran until 2017. The plan was to drive revenues above PLN140m, with at least 60% of the revenues coming from projects carried out outside Poland. However, this plan appears to have been behind target. BCC generated revenue of PLN95.4m in FY16 (c €21.6m) with profit margins in mid-single digits.
The purchase is funded from the group’s existing cash resources. As SNP had cash resources of €53.9m at the end of March (ie net cash of €12.2m after taking into account €41.7m of debt of which €39.6m is long term), based on our assumptions this will reduce to a pro forma €32.7m after the acquisitions of BCC and Innoplexia. This would leave the group with c €25-30m of headroom for acquisitions before additional financing is needed.
Acquisition of Innoplexia
SNP has increased its stake in Innoplexia from 20% to 80%. Innoplexia operates out of the same offices as SNP in Heidelberg. Innoplexia’s flagship product – Innoplexia Virtual Industry – collects, processes and analyses digital market data from search engines and comparison portals. SNP has got to know the Innoplexia business well, and it plans to utilise Innoplexia’s skills in it its future transformation software to generate automated recommended actions in transformation projects using artificial intelligence and software algorithms.
Founded in 2010, Innoplexia has 24 employees and generated revenue of c €1m FY16. In the future, SNP and Innoplexia will further extend and grow their collaboration, particularly in the areas of software development and sales. Innoplexia will be able to use the established distribution networks of SNP and will also seek separate routes to international markets. The company founders and managing directors hold the remaining 20% of Innoplexia shares. A unilateral purchase option has additionally been arranged for these shares.
Management guidance
Following the BCC acquisition, and prior to the Innoplexia deal, SNP’s management increased its FY17 revenue guidance to €110m from €96-100m previously. This implies c €22m in annualised revenue from BCC based on seven months in FY17. With the Q1 results, management’s FY17 EBIT margin guidance was 9-11%, or 7-12% after any acquisitions.
Forecasts: FY18 & FY19 revenues rise by c 22% while EPS goes up by c 19%
We have included BCC for a seven-month period in FY17, taking our FY17 revenues to match management’s new guidance of €110m. We have conservatively eased our FY17 operating profit forecast by €1.8m to €8.0m (vs €6.9m in 2016) to reflect additional one-off costs going into the business, as outlined in the Q1 results. This translates to an operating margin of 7.3%, or 9.7% after adding back the one-off costs. We increase group revenue by €24.6m in FY18 and €26.9m in FY19, with incremental margins of 8.6% and 9.3% to take synergies into account. We have treated this as professional services revenue for simplicity. We have conservatively ignored Innoplexia given its small size. We have maintained our interest charge forecasts, since the financing is already in place and there is no interest on cash balances. We have maintained our tax charge assumptions at 30% going forward.
Given that SNP seeks to acquire businesses at around 0.6-1.2x sales, we have assumed a €20m purchase price for BCC. We have ignored any earnout or other deferred payment structure. As SNP paid €0.4m for the initial 20% of Innoplexia in April 2016, we have assumed that SNP has paid €1.2m for the additional 60%.
In all, our revenue forecasts rise by 13% in FY17, and 22% in each of FY18 and FY19. EBIT falls by 18% in FY17, and rises by 17% in FY18 and FY19, while EPS falls by 21% in FY17 and rises 19% in FY18 and FY19. We forecast the group to end FY17 with net cash of €0.3m, which moves to net debt of €2.2m at end-FY18 (after making the deferred payments for previous acquisitions) and then moves to €6.1m net cash a year later.
Exhibit 1: Forecast changes
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
|
(€'000s) |
2017e |
2017e |
% |
2018e |
2018e |
% |
2019e |
2019e |
% |
Revenue |
|
|
|
|
|
|
|||
Professional services |
80,500 |
92,991 |
15.5 |
91,652 |
116,292 |
26.9 |
100,104 |
127,025 |
26.9 |
Software licences |
14,000 |
14,000 |
0.0 |
15,000 |
15,000 |
0.0 |
16,425 |
16,425 |
0.0 |
Software maintenance |
3,000 |
3,000 |
0.0 |
3,850 |
3,850 |
0.0 |
4,216 |
4,216 |
0.0 |
Total software |
17,000 |
17,000 |
0.0 |
18,850 |
18,850 |
0.0 |
20,641 |
20,641 |
0.0 |
Group revenue |
97,500 |
109,991 |
12.8 |
110,502 |
135,142 |
22.3 |
120,745 |
147,665 |
22.3 |
Growth (%) |
20.8 |
36.3 |
|
13.3 |
22.9 |
|
9.3 |
9.3 |
|
Professional services contribution |
7,889 |
6,650 |
(15.7) |
9,394 |
11,513 |
22.6 |
10,511 |
13,020 |
23.9 |
Software contribution |
4,590 |
4,250 |
(7.4) |
5,655 |
5,655 |
(0.0) |
6,915 |
6,915 |
0.0 |
Non-segment-related expenses |
(3,200) |
(3,400) |
6.3 |
(3,350) |
(3,350) |
0.0 |
(3,417) |
(3,417) |
0.0 |
Other operating income & other taxes |
500 |
500 |
0.0 |
510 |
510 |
0.0 |
520 |
520 |
0.0 |
Operating expenses |
(87,721) |
(101,991) |
16.3 |
(98,293) |
(120,814) |
22.9 |
(106,216) |
(130,627) |
23.0 |
Adjusted operating profit (EBIT) |
9,779 |
8,000 |
(18.2) |
12,209 |
14,328 |
17.4 |
14,529 |
17,038 |
17.3 |
Operating profit margin (%) |
10.0 |
7.3 |
|
11.0 |
10.6 |
|
12.0 |
11.5 |
|
Growth (%) |
42.6 |
16.7 |
|
24.9 |
79.1 |
|
19.0 |
18.9 |
|
Net interest |
(800) |
(800) |
0.0 |
(750) |
(750) |
0.0 |
(700) |
(700) |
0.0 |
Profit before tax norm |
8,979 |
7,200 |
(19.8) |
11,459 |
13,578 |
18.5 |
13,829 |
16,338 |
18.1 |
Profit before tax |
8,979 |
7,200 |
(19.8) |
11,459 |
13,578 |
18.5 |
13,829 |
16,338 |
18.1 |
Taxation |
(2,694) |
(2,160) |
(19.8) |
(3,438) |
(4,073) |
18.5 |
(4,149) |
(4,901) |
18.1 |
Non-controlling interests |
(248) |
(248) |
0.0 |
(267) |
(267) |
0.0 |
(289) |
(289) |
0.0 |
FRS 3 net income |
6,038 |
4,792 |
(20.6) |
7,754 |
9,237 |
19.1 |
9,391 |
11,148 |
18.7 |
Adjusted EPS (c) |
121.3 |
96.3 |
(20.6) |
155.8 |
185.6 |
19.1 |
188.7 |
224.0 |
18.7 |
P/E - Adjusted EPS |
|
40.9 |
|
21.2 |
|
17.6 |
Source: Edison Investment Research
Exhibit 2: Financial summary
€'000s |
2014 |
2015 |
2016 |
2017e |
2018e |
2019e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
30,480 |
56,236 |
80,685 |
109,991 |
135,142 |
147,665 |
Cost of sales |
0 |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
30,480 |
56,236 |
80,685 |
109,991 |
135,142 |
147,665 |
||
EBITDA |
|
|
862 |
5,484 |
8,524 |
10,077 |
16,804 |
19,823 |
Adjusted Operating Profit |
|
|
(66) |
4,222 |
6,857 |
8,000 |
14,328 |
17,038 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
1,505 |
356 |
0 |
0 |
0 |
0 |
||
Associates |
0 |
(3) |
8 |
0 |
0 |
0 |
||
Operating Profit |
1,439 |
4,575 |
6,865 |
8,000 |
14,328 |
17,038 |
||
Net Interest |
(66) |
(828) |
(1,137) |
(800) |
(750) |
(700) |
||
Profit Before Tax (norm) |
|
|
(132) |
3,394 |
5,720 |
7,200 |
13,578 |
16,338 |
Profit Before Tax (FRS 3) |
|
|
1,373 |
3,747 |
5,728 |
7,200 |
13,578 |
16,338 |
Tax |
(344) |
(1,195) |
(1,517) |
(2,160) |
(4,073) |
(4,901) |
||
Profit After Tax (norm) |
(477) |
2,198 |
4,203 |
5,040 |
9,505 |
11,437 |
||
Profit After Tax (FRS 3) |
1,028 |
2,552 |
4,211 |
5,040 |
9,505 |
11,437 |
||
Minority interest |
(40) |
0 |
(147) |
(248) |
(267) |
(289) |
||
Adjustments for normalised earnings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net income (norm) |
(517) |
2,198 |
4,056 |
4,792 |
9,237 |
11,148 |
||
Net income (FRS 3) |
988 |
2,552 |
4,064 |
4,792 |
9,237 |
11,148 |
||
Average Number of Shares Outstanding (m) |
3.7 |
3.7 |
4.3 |
5.0 |
5.0 |
5.0 |
||
EPS - normalised (c) |
|
|
(13.9) |
58.8 |
94.4 |
96.3 |
185.6 |
224.0 |
EPS - normalised & fully diluted (c) |
|
|
(13.9) |
58.8 |
94.4 |
96.3 |
185.6 |
224.0 |
EPS - FRS 3 (c) |
|
|
26.6 |
68.3 |
94.6 |
96.3 |
185.6 |
224.0 |
Dividend per share (c) |
13.00 |
34.00 |
39.00 |
45.00 |
52.00 |
60.00 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
||
EBITDA Margin (%) |
2.8 |
9.8 |
10.6 |
9.2 |
12.4 |
13.4 |
||
Adjusted Operating Margin (%) |
-0.2 |
7.5 |
8.5 |
7.3 |
10.6 |
11.5 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
8,291 |
15,243 |
29,054 |
50,377 |
50,603 |
50,772 |
Intangible Assets |
5,190 |
11,675 |
24,179 |
45,779 |
45,779 |
45,779 |
||
Tangible Assets |
1,231 |
1,999 |
3,161 |
3,284 |
3,510 |
3,679 |
||
Other |
1,871 |
1,570 |
1,714 |
1,314 |
1,314 |
1,314 |
||
Current Assets |
|
|
17,882 |
29,996 |
59,478 |
80,293 |
86,280 |
93,771 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
11,286 |
16,084 |
27,201 |
37,081 |
45,560 |
49,782 |
||
Cash |
5,681 |
13,769 |
31,914 |
42,849 |
40,357 |
43,626 |
||
Current Liabilities |
|
|
(9,782) |
(13,703) |
(34,382) |
(33,134) |
(46,041) |
(49,576) |
Creditors |
(9,182) |
(11,101) |
(21,583) |
(31,034) |
(38,941) |
(42,476) |
||
Short term borrowings |
(600) |
(2,602) |
(12,799) |
(2,100) |
(7,100) |
(7,100) |
||
Long Term Liabilities |
|
|
(2,501) |
(15,513) |
(5,576) |
(45,576) |
(36,076) |
(26,576) |
Long term borrowings |
(1,650) |
(12,344) |
(434) |
(40,434) |
(35,434) |
(30,434) |
||
Other long term liabilities |
(851) |
(3,169) |
(5,141) |
(5,141) |
(641) |
3,859 |
||
Net Assets |
|
|
13,890 |
16,024 |
48,575 |
51,961 |
54,767 |
68,391 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
2,579 |
1,879 |
1,005 |
9,526 |
16,129 |
19,085 |
Net Interest |
(66) |
(167) |
53 |
(800) |
(750) |
(700) |
||
Tax |
(1,102) |
(554) |
(412) |
(2,016) |
(3,802) |
(4,575) |
||
Capex |
(701) |
(1,779) |
(3,451) |
(2,200) |
(2,703) |
(2,953) |
||
Acquisitions/disposals |
(500) |
(3,228) |
(5,923) |
(21,200) |
(9,127) |
0 |
||
Shares issued |
0 |
0 |
30,129 |
0 |
0 |
0 |
||
Dividends |
(335) |
(483) |
(1,264) |
(1,676) |
(2,240) |
(2,588) |
||
Net Cash Flow |
(124) |
(4,332) |
20,137 |
(18,366) |
(2,492) |
8,269 |
||
Opening net debt/(cash) |
|
|
(3,505) |
(3,431) |
1,176 |
(18,681) |
(315) |
2,177 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
51 |
(275) |
(281) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(3,431) |
1,176 |
(18,681) |
(315) |
2,177 |
(6,092) |
Source: SNP Schneider-Neureither & Partner accounts, Edison Investment Research
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Hybrigenics’ main focus is the development of inecalcitol as a niche treatment for leukaemia. In February it presented encouraging initial results for inecalcitol in combination with oral imatinib in chronic myeloid leukaemia (CML), with 43% of patients responding in a Phase II study that will complete in H218. A Phase II trial in acute myeloid leukaemia (AML) is ongoing with data expected in H119. Inecalcitol is Phase III-ready for chronic lymphocytic leukaemia (CLL) where it slowed progression in half of patients. The company has sold the proteomic services division and refocused on biopharma R&D. Our valuation is €141m; net cash at end 2016 was €8.5m.