Claranova — Q1 growth supports FY20 forecasts

Claranova (PAR: CLA)

Last close As at 27/03/2024

EUR2.60

0.07 (2.77%)

Market capitalisation

EUR145m

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Research: TMT

Claranova — Q1 growth supports FY20 forecasts

Claranova has reported another strong quarter of organic growth. In Q120 group revenues were 25% higher on an organic constant currency basis and 45% higher on a reported basis. The recently acquired Personal Creations was consolidated for the first time, contributing €8.5m to the Mobile division’s revenues. Based on the growth rates achieved in Q1, we maintain our forecasts.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Claranova

Q1 growth supports FY20 forecasts

Q1 revenue update

Software & comp services

8 November 2019

Price

€8.33

Market cap

€327m

$1.11:€1

Net cash (€m) at end FY19

23.6

Shares in issue

39.2m

Free float

91.3%

Code

CLA

Primary exchange

Euronext Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

20.2

(4.6)

(4.1)

Rel (local)

12.8

(14.3)

(14.9)

52-week high/low

€9.30

€5.20

Business description

Claranova consists of three businesses focused on mobile and internet technologies: Mobile (digital photo printing), Internet (consumer software) and Internet of Things (IoT). Its headquarters are in Paris, and it has operations in Europe, the US and Canada.

Next events

Q220 revenues

February 2020

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Claranova is a research client of Edison Investment Research Limited

Claranova has reported another strong quarter of organic growth. In Q120 group revenues were 25% higher on an organic constant currency basis and 45% higher on a reported basis. The recently acquired Personal Creations was consolidated for the first time, contributing €8.5m to the Mobile division’s revenues. Based on the growth rates achieved in Q1, we maintain our forecasts.

Year end

Revenue (€m)

EBITDA
(€m)

PBT*
(€m)

Diluted EPS*
(€)

DPS
(€)

P/E
(x)

06/18

161.5

3.9

3.1

0.06

0.0

132.0

06/19

262.3

16.0

12.0

0.25

0.0

33.8

06/20e

411.1

28.8

25.2

0.33

0.0

25.0

06/21e

488.8

36.4

32.8

0.48

0.0

17.4

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Q120 revenues: +25% organic

Claranova reported constant currency organic revenue growth of 30% in its Mobile business and 19% in its Internet business. The Internet of Things (IoT) business saw a decline reflecting one-off revenues from Sprint recognised in Q119. Personal Creations contributed a further €8.5m to the Mobile business and the company noted that it is taking measures to bring it in line with the rest of the business.

Buyout of Internet minority interest

Claranova announced on 31 October that it is planning to buy out the minority interests in its Internet business for a total of €87.9m in a mixture of cash and equity. On completion, Claranova will own 100% of its Internet business (up from the current c 40% level) and the sellers will own 15.87% of Claranova. In our view, this is a positive move as it gives the company full control over the business while incentivising the new shareholders to continue to contribute to the success of the group. We plan to factor the buy-out into our forecasts once the deal is approved.

Valuation: Sum-of-the-parts suggests upside

Reflecting the different business models and minority interests for each division, we continue to use a sum-of-the-parts approach to valuation. Based purely on peer group averages per division, we calculate a fair value of €14.08 per share. However, once multiples are adjusted to reflect our views on the growth and profitability of each division, we calculate a more realistic valuation of €13.74 per share. Factors that could provide upside to our forecasts include faster-than-expected growth of the Internet business (which, in turn, is likely to lead to better profitability), returning Personal Creations to profitability, launch of the PayAware solution and distributors selling myDevices in the US and China.

Q120 revenues: Strong organic growth

Exhibit 1: Quarterly revenues by division

Revenues (€m)

Q120

Q119

y-o-y

y-o-y

y-o-y

reported

constant currency

organic

Mobile

48.5

30.4

59%

57%

30%

Internet

20.8

16.9

23%

19%

19%

IoT

0.5

0.9

(39%)

(42%)

(42%)

Total

69.8

48.2

45%

42%

25%

Source: Claranova

In Q120, Claranova reported 45% growth in revenues year-on-year. On a constant currency organic basis growth was 25% higher year-on-year. On a constant currency organic basis, the Internet business grew 19% year-on-year. On the same basis, the Mobile business grew 30% before the inclusion of €8.5m of revenues from the consolidation of Personal Creations from the start of August. The company noted it is taking measures to bring the acquired business into line with group standards. The IoT business saw lower revenues than a year ago, as Q119 benefited from one-off revenues from the Sprint partnership. Despite the decline in revenues, the company noted that sales to new customers increased significantly, with 300 customers currently deploying the technology.

Based on revenues reported in Q1, we maintain our forecasts for FY20 and FY21.

Proposed buy-out of Internet minority interests

On 31 October, Claranova announced plans to buy out the minority shareholders in Avanquest Canada (AC), the subsidiary of Avanquest SAS (the Internet division) that holds Adaware, SodaPDF and Upclick. Avanquest SAS acquired a 50.01% stake in AC in July 2018; due to the strong performance of the Internet division since then, the minority shareholders have the right to exchange their 49.99% stake in AC for c 60% of Avanquest SAS.

Terms of the buy-out

Claranova has agreed to pay a total of €87.9m to buy out the shares held by the original owners of the acquired businesses, giving it 100% ownership of the Internet business. The company plans to buy 70% through the issue of 7.443m Claranova shares at an assumed price of €8.22 and the remaining 30% in cash of $29.6m, payable by the end of CY20. The cash element will be funded by existing resources or new debt.

The deal requires shareholder approval at the shareholder meeting scheduled for 9 December. Assuming approval is given, the company plans to complete the buy out on 6 January 2020 with the issue of the 7.4m Claranova shares. We expect the cash payment to be made later in CY20.

Estimated impact on forecasts and valuation

The Internet business is the highest-margin division within the Claranova group (12.4% EBITDA margin in FY19 versus 6.2% for the Mobile division and the loss-making IoT division). The company noted that based on its internal forecasts, the deal is likely to drive reported EPS accretion of c 30% in FY20 and FY21 (this calculation assumes the deal happened on 1 July 2019).

Until the deal has shareholder approval, we are not factoring the buy out into our forecasts. However, we estimate the cash element of the deal will reduce Claranova’s net cash position to €32.1m at the end of FY21 (assuming the payment happens in H121) from our current €58.7m estimate.

Our current sum-of-the-parts valuation calculates a fair value of €13.74 for Claranova. Factoring in the minority interest buy out has a small negative impact, reducing the fair value to €13.43.

Sellers motivated to contribute to Claranova performance

On completion, the sellers will own 15.87% of Claranova and combined with Pierre Cesarini, will own 20.8% of Claranova’s shares and 21.92% of voting rights.

A majority of the selling shareholders and Pierre Cesarini have agreed to enter into a shareholders’ and voting agreement on the completion date of the planned deal. Under the terms of this agreement, they undertake to act in concert with the aim of forming a stable group of key shareholders. The shareholders’ agreement sets out the following governance rules: participating minority managers undertake to consult with Pierre Cesarini prior to all shareholders’ meeting during a five-year period, to consolidate his CEO role for a minimum three-year period (for an unlimited duration), and not to request representation on Claranova’s board of directors (to focus on Avanquest’s activities). Furthermore, one of the main minority interests will undertake to vote with Pierre Cesarini at future Claranova General Shareholders’ Meetings (except on compensation issues) during a period of five years. The agreement also provides that 65% of the newly issued Claranova shares will be covered by a one-year lock-up period. Thereafter, the sale of shares will remain subject to certain restrictions and notably a priority right granted to Claranova, subject to certain conditions, during a further six years. Finally, after the lock-up period and during an additional two years, minority shareholders will also be covered by a standstill obligation, under which they notably undertake not to exceed, in total, a certain shareholding percentage and not to acquire double voting rights.

Exhibit 2: Financial summary

€'m

2015

2016

2017

2018

2019

2020e

2021e

30-June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

93.1

117.4

130.2

161.5

262.3

411.1

488.8

EBITDA

 

 

(6.8)

(9.2)

(5.0)

3.9

16.0

28.8

36.4

Normalised operating profit

 

 

(11.4)

(16.0)

(5.8)

3.4

15.5

28.3

35.9

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

(1.5)

(1.5)

(1.5)

Exceptionals

15.6

(10.0)

0.4

(2.4)

(2.9)

0.0

0.0

Share-based payments

(0.0)

(0.1)

(4.8)

(7.1)

0.3

(2.0)

(2.0)

Reported operating profit

4.2

(26.1)

(10.1)

(6.1)

11.4

24.8

32.4

Net Interest

1.1

(1.7)

(0.9)

(0.3)

(3.5)

(3.1)

(3.1)

Joint ventures & associates (post tax)

0.0

(0.0)

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

(45.6)

0.0

0.0

Profit Before Tax (norm)

 

 

(10.3)

(17.7)

(6.6)

3.1

12.0

25.2

32.8

Profit Before Tax (reported)

 

 

5.3

(27.8)

(11.0)

(6.4)

(37.7)

21.7

29.3

Reported tax

(0.6)

(0.8)

(0.4)

(1.8)

(3.7)

(5.0)

(6.7)

Profit After Tax (norm)

(10.9)

(18.5)

(7.0)

2.4

9.2

19.4

26.0

Profit After Tax (reported)

4.7

(28.6)

(11.4)

(8.2)

(41.4)

16.7

22.5

Minority interests

(8.1)

0.0

0.3

0.2

0.6

(6.1)

(6.9)

Discontinued operations

(3.2)

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

(18.9)

(18.5)

(6.7)

2.6

9.8

13.3

19.1

Net income (reported)

(6.5)

(28.6)

(11.0)

(7.9)

(40.8)

10.6

15.7

Basic average number of shares outstanding (m)

6

38

38

39

39

39

39

EPS - basic normalised (€)

 

 

(3.27)

(0.49)

(0.18)

0.07

0.25

0.34

0.49

EPS - diluted normalised (€)

 

 

(3.27)

(0.49)

(0.18)

0.06

0.25

0.33

0.48

EPS - basic reported (€)

 

 

(1.13)

(0.76)

(0.29)

(0.20)

(1.04)

0.27

0.40

Dividend (€)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

#DIV/0!

26.1

10.9

24.0

62.4

56.7

18.9

EBITDA Margin (%)

-7.3

-7.9

-3.8

2.4

6.1

7.0

7.4

Normalised Operating Margin

-12.3

-13.7

-4.4

2.1

5.9

6.9

7.3

BALANCE SHEET

Fixed Assets

 

 

15.7

3.0

2.0

1.3

75.1

89.8

88.3

Intangible Assets

12.0

1.5

0.9

0.5

69.9

84.5

82.9

Tangible Assets

0.6

0.5

0.3

0.2

1.4

1.5

1.6

Investments & other

3.1

1.1

0.7

0.6

3.8

3.8

3.8

Current Assets

 

 

48.0

25.5

28.1

79.1

100.9

112.7

150.2

Stocks

5.9

5.0

3.7

3.7

4.8

7.5

8.9

Debtors

4.8

4.7

4.3

4.9

11.6

18.2

21.6

Cash & cash equivalents

30.5

11.1

17.1

65.7

75.4

77.9

110.5

Other

6.9

4.7

2.9

4.8

9.1

9.1

9.1

Current Liabilities

 

 

(32.0)

(25.3)

(28.1)

(37.2)

(60.5)

(68.3)

(79.7)

Creditors

(26.9)

(24.5)

(26.6)

(35.4)

(54.8)

(62.6)

(74.0)

Tax and social security

(0.3)

(0.0)

(0.3)

(1.7)

(3.0)

(3.0)

(3.0)

Short term borrowings

(4.8)

(0.7)

(1.1)

(0.1)

(2.7)

(2.7)

(2.7)

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(2.4)

(1.1)

(0.7)

(29.0)

(52.0)

(52.0)

(52.0)

Long term borrowings

(1.8)

(0.6)

0.0

(28.1)

(49.1)

(49.1)

(49.1)

Other long term liabilities

(0.7)

(0.5)

(0.7)

(0.9)

(2.9)

(2.9)

(2.9)

Net Assets

 

 

29.3

2.1

1.3

14.2

63.6

82.2

106.8

Minority interests

0.0

0.0

(0.1)

(1.8)

(11.0)

(17.1)

(23.9)

Shareholders' equity

 

 

29.3

2.1

1.2

12.5

52.6

65.1

82.8

CASH FLOW

Op Cash Flow before WC and tax

(6.8)

(9.2)

(5.0)

3.9

16.0

28.8

36.4

Working capital

0.4

2.5

6.8

7.9

(4.1)

12.9

6.6

Exceptional & other

(3.8)

(4.3)

(2.2)

(5.7)

(5.2)

0.0

0.0

Tax

0.3

(0.3)

(0.0)

(1.2)

(3.8)

(5.0)

(6.7)

Net operating cash flow

 

 

(9.8)

(11.3)

(0.4)

5.0

3.0

36.8

36.3

Capex

(4.4)

(0.9)

(0.2)

(0.1)

(2.5)

(0.5)

(0.5)

Acquisitions/disposals

10.8

(0.4)

3.6

14.2

(13.3)

(30.7)

0.0

Net interest

(0.9)

(0.1)

(0.0)

(0.3)

0.0

(3.1)

(3.1)

Equity financing

33.2

(5.1)

1.9

2.0

(1.4)

0.0

0.0

Dividends

0.0

2.0

0.0

0.0

0.0

0.0

0.0

Other

0.1

0.1

0.1

(0.6)

0.0

0.0

0.0

Net Cash Flow

29.0

(15.7)

5.0

20.1

(14.2)

2.5

32.7

Opening net debt/(cash)

 

 

18.0

(23.9)

(9.8)

(16.0)

(37.5)

(23.6)

(26.1)

FX

0.1

(0.1)

(0.6)

0.4

0.3

0.0

0.0

Other non-cash movements

12.6

1.7

1.8

1.1

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(23.9)

(9.8)

(16.0)

(37.5)

(23.6)

(26.1)

(58.7)

Source: Claranova, Edison Investment Research


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This report has been commissioned by Claranova and prepared and issued by Edison, in consideration of a fee payable by Claranova. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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