Final results: 30 new contract wins, up from 26 in FY16
Net sales revenue rose by 21% to €16.4m, reflecting flat organic growth and an initial €2.9m for Juniper Payments, which contributed for eight months. The number was 4.1% below our forecast, mainly due to the lack of major services projects in FY17, along with continued weakness of the dollar, which weighed on the translation of Juniper revenue. Piteco acquired Juniper in early April, and revenue of €261k generated in that month was not booked but instead reduced the purchase cost. Excluding this effect, Juniper revenues were broadly in line with our forecast. Cash generation remained very healthy, with free cash flow increasing by c 7% to an estimated €4.4m, (assuming that normal capex was €0.4m out of the total capex of €10.23m), and the group ended the year with net debt of €6.5m (we forecast €6.0m) .
Software sales rose by 8% to €2.4m, compared with our €3.0m forecast, which included hosted SaaS sales. We have switched hosted SaaS into the recurring maintenance line, and the recurring maintenance line rose by 5% to €7.4m, partly due to the growth in the hosted SaaS offering. After including Juniper’s revenues (Jupiter has 90%+ recurring revenues), recurring revenues jumped by 46% to €10.3m, to represent 63% of net sales revenues, up from 52% in FY16. Services dipped by 12% to €3.7m (we forecast €3.9m).
There were 30 new contract wins, of which three were hosted cloud deals. While 30 new contracts was within the historical range, the company lacked larger sales in FY17, eg a normal deal could generate €50k in software sales and €50k in services, while a larger deal can generate €100k in software and €300k in services. Two customers were lost through bankruptcy in FY17, with a €180k exceptional charge made for bad debtors, which was reflected in the depreciation and amortisation line for the statutory accounts. The group made €334k exceptional gains, mostly relating to the patent box tax benefits, while there was €208k in exceptional costs for the acquisition of Juniper. The company employed an additional sales person in Italy, with the full cost expensed in FY17, while it takes a year or two to reach high productivity.
Juniper, previously known as LendingTools, operates in the US correspondent banking software market. It was acquired when the exchange rate was $1.06/€. The dollar slipped $1.20/€ at the year end and now stands at $1.226/€, representing a 13.5% decline since the acquisition 11 months ago. A contract with Juniper’s biggest client has been renewed, alleviating risk following the change of control. The group recorded a €1.106m unrealised loss on the 10-year $10m intercompany loan, which financed the Juniper deal; we note that the company had already repaid a tenth of the loan in FY17. In addition, there is a new liability of €1,192k for the acquisition of an additional 5% of Juniper, scheduled for payment in April 2019. Further, there is another €2,427k liability, which relates to a put option for Piteco's US partners to sell to the remaining 40% of Juniper to Piteco NA starting in five years’ time. This liability is not included in the group’s €6.5m net debt position. Intangible items relating to the acquisition are being amortised over seven years, with €956k expensed in FY17. Having owned Juniper for nearly a year, Piteco is working on developing a new strategy with which to attack the North American market. Juniper was originally acquired with a view to use it as a route to the North American market for the group’s core treasury software.
The annual dividend has been maintained at 15c, reflecting a 50% payout ratio on normalised earnings and 72% on statutory earnings.
Piteco has undergone most of the necessary steps to move its listing to the MTA, including hiring new advisers, and the new shift to MTA is now looking probable in Q3.
Management expects the core treasury business to return to normal trend growth in FY18 and FY19, potentially in the 8-10% range. We note that the core treasury software grew at 8% CAGR over the five years to FY16. Juniper has a stronger growth profile, and is likely to grow in the 10-20% range.
