Prodware
Written by
Prodware |
Solid foundations for growth |
Company update |
Software & comp services |
26 May 2016 |
Share price performance
Business description
Next event
Analysts
Prodware is a research client of Edison Investment Research Limited |
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The Q1 revenues release shows that with revenues of €42.5m in Q1 Prodware continues to make solid progress (+2.6% Q1 on Q1 underlying growth) and that there are also signs of a turnaround in the Benelux and all important German markets. The €79m debt restructuring post year-end leaves Prodware well financed to achieve its ambitious medium-term growth objectives. The shares, however, continue to trade on substantial and undeserved multiple discounts to comparators.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
174.8 |
9.9 |
118.4 |
0.0 |
5.3 |
N/A |
12/15 |
181.8 |
11.8 |
140.4 |
0.0 |
4.5 |
N/A |
12/16e |
191.2 |
14.2 |
153.7 |
0.0 |
4.1 |
N/A |
12/17e |
206.1 |
18.1 |
196.5 |
0.0 |
3.2 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Trading solid and encouraging signs
Q1 revenues of €42.5m show that Prodware remains on course, with underlying top-line growth of 2.5% Q1 on Q1. In Q1 the geographical sales mix shift towards the Francophone zone seen in FY15 was reversed, with strong performances in Spain and Israel. There were also signs of turnarounds in Germany and Benelux, confirming our view that the restructuring is complete and the foundations of growth across all geographies are in place. We are adjusting our forecasts slightly following this announcement and the release of the full FY15 report and accounts in April. Our revenue and earnings forecasts are not substantially changed and certainly not by enough to alter our view that Prodware’s shares are undervalued. Our debt figures are significantly changed (up by €12m FY16e) following the one-off heavy investment in new product development in FY15. Details of the changes are shown overleaf.
Balance sheet set up for growth
Following the year end the company has completed the restructuring of its debt and it is perhaps only now that the commitment to the 2016-21 drive for growth has become clear. With nearly €80m of restructured debt in place, Prodware has the resources to finance the organic and acquisition driven growth that management has discussed (see our November 2015 note Drive for growth). We suspect that until the delivery of the promised growth becomes more evident, this debt may weigh upon the share price.
Valuation: Discount remains
Prodware’s shares continue to trade at a substantial discount to those of its closest listed comparators (see Exhibit 2). While the acquisition of Qurius and its integration and turnaround have proved more problematic than may have been anticipated, the restructuring and repositioning process now appears complete and the business is well placed to drive growth in both margins and revenues.
Forecasts: Revisions mainly investment in product
We have made little change to our revenues and EBITDA forecasts and the main driver to the change in the EBIT figure has been the increase in the amortisation charge following the heavy investment in capitalised development in FY15. Our forecast for development spend capitalised for FY15 was €18.5m, but the actual spend was substantially ahead of this at €35.7m, following management’s decision to accelerate the development of the new product platforms using outsourced developers/programmers. The difference between our year end debt estimate and the actual result (€45.6m vs €46.5m) was, however, significantly lower because of a considerable reduction in working capital. The increase in spend on product in FY15 and a forecast expansion in working capital for FY16e (back to more normal levels) have led to a higher forecast debt figure and, as a result, to a higher interest charge. Management has stated that the investment in this area will now revert to more normal levels and we have a capitalised development spend estimate of €18.5m for FY16.
Exhibit 1: Forecast revisions
Revenues (new) €m |
Revenues (old) €m |
EBIT (new) €m |
EBIT (old) €m |
EPS (new) |
EPS (old) |
Net debt (new) €m |
Net debt (old) €m |
|
FY16e |
191.2 |
190.6 |
17.2 |
18.1 |
1.5 |
1.8 |
40.5 |
28.7 |
FY17e |
206.1 |
207.7 |
20.9 |
22.2 |
2.0 |
2.2 |
28.3 |
22.7 |
Source: Edison Investment Research
Valuation: Discount excessive in our view
The table below shows that Prodware continues to trade at significant discounts in both EV/EBITDA and P/E multiples terms to its main listed European comparators. Although the frustrating newsflow relating to the turnaround of Qurius and the ongoing debt levels suggest that some discount is justifiable, we regard the level of discount as excessive. Placing the shares on the average CY16 P/E multiples of Prodware’s closest comparators in margin and business model terms (K3 and Sword, 14.5x) suggests a share price of €22.2.
Exhibit 2: Comparator multiples
Company name |
Share price |
Currency |
Market cap |
EV |
FY1 year end |
Revenue Y1 |
Revenue Y2 |
EBITDA Y1 |
EBITDA Y2 |
EPS Y1 |
EPS Y2 |
EV/ |
EV/ |
P/E Y1 |
P/E Y2 |
Linedata Services |
40.6 |
€ |
299.2 |
314.9 |
Dec-16 |
176.0 |
180.2 |
46.6 |
48.4 |
3.0 |
3.1 |
6.8 |
6.5 |
13.7 |
13.0 |
Cegid Group |
61.4 |
€ |
570.3 |
631.8 |
Dec-16 |
310.3 |
323.1 |
85.7 |
92.5 |
3.1 |
3.5 |
7.4 |
6.8 |
19.6 |
17.7 |
Sword Group |
22.6 |
€ |
214.2 |
177.4 |
Dec-16 |
162.8 |
179.7 |
24.6 |
28.0 |
1.5 |
1.7 |
7.2 |
6.3 |
14.5 |
13.0 |
K3 |
346 |
£ |
123.3 |
135.0 |
Jun-16 |
88.3 |
94.7 |
13.6 |
15.8 |
0.2 |
0.3 |
9.9 |
8.5 |
14.6 |
13.1 |
Prodware |
6.3 |
€ |
51.7 |
98.2 |
Dec-16 |
191.2 |
206.1 |
35.2 |
40.7 |
1.5 |
2.0 |
3.0 |
2.7 |
4.1 |
3.2 |
Source: Thomson, Edison Investment Research. Note: Prices as at 25 May 2016.
Exhibit 3: Financial summary
Year end December |
€000s |
2013 |
2014 |
2015 |
2016e |
2017e |
|
|
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
176,397 |
174,824 |
181,828 |
191,219 |
206,115 |
EBITDA |
|
|
28,520 |
27,718 |
27,443 |
35,163 |
40,652 |
Operating Profit (before amort. and except.) |
17,710 |
13,518 |
15,372 |
17,163 |
20,852 |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
(5,503) |
(4,589) |
(5,579) |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
12,207 |
8,929 |
9,793 |
17,163 |
20,852 |
||
Net Interest |
(3,492) |
(3,635) |
(3,548) |
(3,000) |
(2,750) |
||
Profit Before Tax (norm) |
|
|
14,218 |
9,883 |
11,824 |
14,163 |
18,102 |
Profit Before Tax (FRS 3) |
|
|
8,715 |
5,294 |
6,245 |
14,163 |
18,102 |
Tax |
(47) |
(183) |
(397) |
(1,558) |
(1,991) |
||
Profit After Tax (norm) |
14,171 |
9,700 |
11,427 |
12,605 |
16,110 |
||
Profit After Tax (FRS 3) |
8,668 |
5,111 |
5,848 |
12,605 |
16,110 |
||
Average Number of Shares Outstanding (m) |
7.3 |
8.2 |
8.2 |
8.2 |
8.2 |
||
EPS - normalised (c) |
|
|
195.0 |
118.4 |
140.4 |
153.7 |
196.5 |
EPS - normalised fully diluted (c) |
|
|
178.7 |
112.1 |
130.8 |
147.4 |
188.4 |
EPS - (IFRS) (c) |
|
|
119.2 |
62.2 |
72.4 |
153.7 |
196.5 |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
EBITDA Margin (%) |
16.2 |
15.9 |
15.1 |
18.4 |
19.7 |
||
Operating Margin (before GW and except.) (%) |
10.0 |
7.7 |
8.5 |
9.0 |
10.1 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
117,640 |
125,549 |
145,231 |
147,531 |
148,781 |
Intangible Assets |
95,794 |
102,667 |
124,206 |
127,706 |
129,956 |
||
Tangible Assets |
8,722 |
9,279 |
7,645 |
6,445 |
5,445 |
||
Investments |
13,124 |
13,603 |
13,380 |
13,380 |
13,380 |
||
Current Assets |
|
|
92,192 |
98,356 |
81,834 |
127,993 |
142,511 |
Stocks |
1,698 |
2,021 |
135 |
0 |
0 |
||
Debtors |
81,579 |
90,894 |
72,637 |
80,400 |
90,740 |
||
Cash |
8,915 |
5,441 |
9,062 |
47,593 |
51,771 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(86,198) |
(85,242) |
(75,162) |
(78,517) |
(86,175) |
Creditors |
(67,715) |
(68,389) |
(56,872) |
(60,227) |
(67,885) |
||
Short term borrowings |
(18,483) |
(16,853) |
(18,290) |
(18,290) |
(18,290) |
||
Long Term Liabilities |
|
|
(28,100) |
(33,877) |
(41,423) |
(73,923) |
(65,923) |
Long term borrowings |
(24,505) |
(29,760) |
(37,295) |
(69,795) |
(61,795) |
||
Other long term liabilities |
(3,595) |
(4,117) |
(4,128) |
(4,128) |
(4,128) |
||
Net Assets |
|
|
95,534 |
104,786 |
110,480 |
123,084 |
139,194 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
22,611 |
13,485 |
34,889 |
26,332 |
33,228 |
Net Interest |
(3,132) |
(2,895) |
(2,768) |
0 |
0 |
||
Tax |
0 |
0 |
397 |
0 |
0 |
||
Capex |
(20,550) |
(20,951) |
(37,391) |
(20,300) |
(21,050) |
||
Acquisitions/disposals |
(597) |
0 |
0 |
0 |
0 |
||
Financing |
9,598 |
4,130 |
(57) |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
7,930 |
(6,231) |
(4,930) |
6,032 |
12,178 |
||
Opening net debt/(cash) |
|
|
42,001 |
34,071 |
41,172 |
46,523 |
40,492 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
(870) |
(421) |
(0) |
0 |
||
Closing net debt/(cash) |
|
|
34,071 |
41,172 |
46,523 |
40,491 |
28,314 |
Source: Prodware accounts, Edison Investment Research
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