Regenersis
Written by
Regenersis |
Disposal process on track |
Trading update |
Tech hardware & equipment |
14 January 2016 |
Share price performance
Business description
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Regenersis is a research client of Edison Investment Research Limited |
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The trading update confirms that trading is in line with expectations and, more importantly, that the disposal process for the Aftermarket Services division is going to plan, with a number of indicative offers having been received. We have increased our FY16 year-end net debt estimate by £1.4m, mainly as a result of exceptional deal costs, but we see no real change to the investment story, with our sum of the parts continuing to suggest that the shares are significantly undervalued.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
06/14 |
197.5 |
9.9 |
16.2 |
4.0 |
11.5 |
2.2 |
06/15 |
202.6 |
14.5 |
16.2 |
5.0 |
11.5 |
2.7 |
06/16e |
197.4 |
13.9 |
15.8 |
6.0 |
11.7 |
3.2 |
06/17e |
208.3 |
16.1 |
17.6 |
7.2 |
10.5 |
3.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
All-important disposal process on track
The H1 update confirms that trading was in line with expectations. The Software division, principally Blancco, the data erasure business, has seen further strong revenue growth in the first half. The Aftermarket Services division has also seen performance in line with expectations. The big issue for Regenersis investors, however, is not short-term trading, but the sale process for the Aftermarket Services division. The investment case rests on this potential release of value and the subsequent ability to focus investment and management time on driving the global growth of the Software division (see our October 2015 Update note) across the data erasure space. It is therefore particularly encouraging to hear that this process is running according to plan and that several indicative offers have been received.
Underlying profit forecasts unchanged
In our estimates we have slightly adjusted the mix of underlying profits, but not revenues, from Aftermarket Services to Software, driven primarily by comments that the Software division has been maintaining its operating margin, rather than seeing the decline in margins that we had anticipated. We also have a higher level of exceptional costs due to the progress with the disposal process resulting in legal and corporate due diligence costs not previously included (FY16e £1.75m to £4.25m, with much of this figure still being contingent on the deal). We have reduced our estimates of the level of capital expenditure for both tangible assets and software development (FY16e £9.75m to £7.25m). The effect of these changes is to increase FY16 year-end net debt estimate from £6.8m to £8.2m.
Valuation: Our SOTP continues to suggest upside
We considered the valuation in detail in our October 2015 Update note and calculated a sum-of-the-parts valuation of 224p per share based on EV/Sales multiples for the divisions. Our revenue estimates have not changed following this trading update and so our sum-of-the-parts valuation remains unchanged at 224p, c 21% ahead of the current share price.
Exhibit 1: Financial summary
Year end June |
£'000s |
2013 |
2014 |
2015 |
2016e |
2017e |
|
|
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
179,714 |
197,482 |
202,564 |
197,441 |
208,278 |
EBITDA |
|
|
11,841 |
14,152 |
18,231 |
19,024 |
21,537 |
Operating Profit (before amort. and except.) |
9,507 |
10,965 |
15,426 |
15,624 |
17,837 |
||
Intangible Amortisation |
(90) |
(589) |
(3,349) |
(3,350) |
(3,350) |
||
Exceptionals |
(1,874) |
(9,395) |
(5,175) |
(4,250) |
0 |
||
Other |
(465) |
(518) |
(1,277) |
(950) |
(750) |
||
Operating Profit |
7,078 |
463 |
5,625 |
7,074 |
13,737 |
||
Net Interest |
(868) |
(1,225) |
(1,196) |
(2,200) |
(2,200) |
||
Exceptional Financial |
(539) |
3,632 |
2,368 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
8,645 |
9,859 |
14,501 |
13,924 |
16,137 |
Profit Before Tax (FRS 3) |
|
|
5,671 |
2,870 |
6,797 |
4,874 |
11,537 |
Tax |
(978) |
381 |
(1,680) |
(731) |
(1,731) |
||
Profit After Tax (norm) |
7,667 |
10,240 |
12,821 |
13,193 |
14,406 |
||
Profit After Tax (FRS 3) |
4,693 |
3,251 |
5,117 |
4,143 |
9,806 |
||
Average Number of Shares Outstanding (m) |
44.6 |
54.6 |
77.2 |
79.0 |
79.0 |
||
EPS - normalised (p) |
|
|
16.8 |
16.2 |
16.2 |
15.8 |
17.6 |
EPS - normalised and fully diluted (p) |
|
16.8 |
16.2 |
16.2 |
15.8 |
17.6 |
|
EPS - (IFRS) (p) |
|
|
10.5 |
5.5 |
7.0 |
5.6 |
12.4 |
Dividend per share (c) |
2.5 |
4.0 |
5.0 |
6.0 |
7.2 |
||
EBITDA Margin (%) |
6.6 |
7.2 |
9.0 |
9.6 |
10.3 |
||
Operating Margin (before GW and except.) (%) |
5.3 |
5.6 |
7.6 |
7.9 |
8.6 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
52,957 |
117,548 |
119,086 |
128,086 |
128,786 |
Intangible Assets |
45,029 |
110,270 |
110,198 |
120,148 |
121,998 |
||
Tangible Assets |
4,381 |
5,341 |
6,355 |
5,405 |
4,255 |
||
Investments |
3,547 |
1,937 |
2,533 |
2,533 |
2,533 |
||
Current Assets |
|
|
38,497 |
68,674 |
56,179 |
42,669 |
46,249 |
Stocks |
7,924 |
10,137 |
9,480 |
10,278 |
10,842 |
||
Debtors |
26,054 |
37,742 |
34,556 |
36,243 |
39,373 |
||
Cash |
4,519 |
20,795 |
12,143 |
149 |
534 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(34,316) |
(46,598) |
(41,486) |
(38,375) |
(37,538) |
Creditors |
(34,316) |
(46,598) |
(41,486) |
(38,375) |
(37,538) |
||
Short term borrowings |
0 |
0 |
0 |
(4,000) |
(4,500) |
||
Long Term Liabilities |
|
|
(17,740) |
(9,211) |
(11,113) |
(10,113) |
(11,113) |
Long term borrowings |
(6,423) |
(194) |
(4,357) |
(4,357) |
(4,357) |
||
Other long term liabilities |
(11,317) |
(9,017) |
(6,756) |
(5,756) |
(6,756) |
||
Net Assets |
|
|
39,398 |
130,413 |
122,666 |
122,267 |
126,384 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
11,015 |
(4,224) |
7,651 |
8,928 |
16,756 |
Net Interest |
(368) |
(706) |
(758) |
(1,700) |
(1,700) |
||
Tax |
(795) |
(816) |
(963) |
(731) |
(1,731) |
||
Capex |
(4,181) |
(6,457) |
(6,347) |
(7,250) |
(7,750) |
||
Acquisitions/disposals |
(7,488) |
(51,229) |
(4,655) |
(10,500) |
0 |
||
Financing |
4,065 |
90,808 |
(3,630) |
0 |
0 |
||
Dividends |
(799) |
(1,530) |
(3,381) |
(4,741) |
(5,690) |
||
Net Cash Flow |
1,449 |
25,846 |
(12,083) |
(15,994) |
(115) |
||
Opening net debt/(cash) |
|
|
2,877 |
1,904 |
(20,601) |
(7,786) |
8,208 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
(476) |
(3,341) |
(732) |
0 |
(0) |
||
Closing net debt/(cash) |
|
|
1,904 |
(20,601) |
(7,786) |
8,208 |
8,323 |
Source: Regenersis, Edison Investment Research
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