Piteco — Resilient performance

Piteco (MI: PITE)

Last close As at 26/04/2024

EUR9.48

0.24 (2.60%)

Market capitalisation

EUR192m

More on this equity

Research: TMT

Piteco — Resilient performance

In FY20, Piteco SpA generated good revenue and EBITDA growth of 5%. The resilience of the business model is clear, with 64% of revenues originating from recurring fees. Group revenues were up 3% and EBITDA margin remained above 40% despite the coronavirus pandemic. Juniper and Myrios witnessed a slowdown in orders, as expected, and concentrated their efforts on developing innovative solutions, which will help to accelerate growth as the market recovers. The RAD acquisition, initially announced in October, provides a further platform for growth of the business. At 12.8x FY21 EV/EBITDA, Piteco continues to trade at a discount to its international software peers.

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Written by

TMT

Piteco

Resilient performance

FY20 results

Software & comp services

31 March 2021

Price

€10.65

Market cap

€214m

Net debt (€m) FY20, excluding value of put options

40.3

Shares in issue

20.1m

Free float

27%

Code

PITE

Primary exchange

Borsa Italiana

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.7)

13.1

100.9

Rel (local)

(9.8)

2.1

37.6

52-week high/low

€12.00

€5.75

Business description

Piteco is Italy’s leading company in designing, developing and implementing software for treasury, finance and financial planning management. Piteco offers core corporate treasury software, Myrios specialises in finance and risk management, and Juniper in digital payments and clearing houses.

Next events

AGM

29 April 2021

H121 results

28 September 2021

Analysts

Sara Welford

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Piteco is a research client of Edison Investment Research Limited

In FY20, Piteco SpA generated good revenue and EBITDA growth of 5%. The resilience of the business model is clear, with 64% of revenues originating from recurring fees. Group revenues were up 3% and EBITDA margin remained above 40% despite the coronavirus pandemic. Juniper and Myrios witnessed a slowdown in orders, as expected, and concentrated their efforts on developing innovative solutions, which will help to accelerate growth as the market recovers. The RAD acquisition, initially announced in October, provides a further platform for growth of the business. At 12.8x FY21 EV/EBITDA, Piteco continues to trade at a discount to its international software peers.

Year end

Net revenue (€m)

EBITDA*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/19

22.8

10.2

33.5

15.0

31.8

1.4

12/20

23.5

9.9

30.0

15.0

35.5

1.4

12/21e

36.7

18.0

62.7

17.5

17.0

1.6

12/22e

39.3

19.6

69.8

17.5

15.3

1.6

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

Continued growth, albeit at a lower level

During FY20 Piteco Group reported 3% revenue and -3% EBITDA growth. Group EBITDA margin was 40.2% during the period, and recurring fees made up 64% of net revenues, demonstrating the group’s robust business model. While Piteco continued to operate throughout the lockdown, the acquisition of new contracts was pushed back as some customers chose to preserve cash at an uncertain time. This had an adverse effect on Piteco’s growth, although we expect the group to catch up on this in FY21 and beyond.

The underlying business model is strong

FY20 demonstrated the strength of the corporate treasury core business (Piteco), while Myrios (finance and risk management solutions) and Juniper (digital payments) slowed down due to some new and existing contracts being delayed. The acquisition of EveryMake (during H1) has been integrated and RAD was acquired during H2 (with a further 10% bought in February 2021). The latter should find itself in the sweet spot over the next few years as unlikely to pay (UTP) management becomes increasingly regulated. We have updated our forecasts to incorporate the acquisition of RAD, which lifts our revenue and EBITDA forecasts materially.

Valuation: €13.0/share

We believe Piteco has a strong business model, with is its ability to generate high profit margins while providing customers with a flexible and cost-effective solution. We expect robust group revenue growth (6.8% CAGR 2021–23e) to translate into solid earnings progression (normalised EPS CAGR of 11% 2021–23e). The 12.8x EV/EBITDA and 17.0x P/E for FY21 are at a discount to large international software providers. Our DCF-based valuation rises to €13.0/share (from €8.20 previously).

FY20 resilient despite the pandemic

During FY20 Piteco was the strongest performer within the Piteco Group. It generated revenue and EBITDA growth of 5%, as the business continued to deliver good growth and to benefit from recent acquisitions. While the COVID-19 pandemic slowed growth somewhat, we expect Piteco to return to its prior growth trajectory in FY21 if there are no further lockdowns in its main markets. Piteco continues to trade at a discount to Italian and international software players.

Piteco was the star performer

Piteco Group reported strong revenue and EBITDA growth during FY20. We provide more detail on the key takeaways from the results below. The COVID-19 pandemic temporarily slowed growth in the banking digital payments segment and, hence, Juniper, as customers postponed projects and hence there were fewer new customers. This business witnessed a revenue decline of 5% versus FY19. Myrios also witnessed a sector slowdown in the financial risk management segment, and hence its revenues were down 15% in FY20.

Group revenues grew 3% y-o-y to €24.7m, with the growth principally stemming from subscription fees, which in H120 accounted for 64% of total revenues.

EBITDA decline of 3% y-o-y to €9.9m.

Pre-tax profit of €7.3m was up 97% y-o-y, (though included a €3m gain due to a revaluation in put option value), and net income of €7.1m was up 135% versus FY19.

Net debt (excluding put options) was €40.3m at the end of FY20, from €14.6m at end FY19. The increase was due to the two acquisitions made during FY20, Everymake (€0.5m) and 70% of Rad Informatica (€34.8m). Including the value of put options, net debt was €65.0m.

Piteco growth to continue, recovery expected in FY21

We update our forecasts for the acquisition of RAD. While Piteco Group did experience a pandemic-related slowdown across all its divisions, Myrios and Juniper were the most heavily affected, as expected. Their greater exposure to the financial segment resulted in more of the new projects being pushed back and delayed.

We expect robust group revenue growth (6.8% CAGR 2021–23e) to translate into solid earnings progression (normalised EPS CAGR of 11%). A favourable business mix should help drive long-term EBITDA margin improvement (Myrios has higher margins and a higher growth rate than the Piteco base business). Our forecasts only reflect organic growth for the group, but we believe further acquisitions in due course could strengthen the outlook. In the shorter term, we do not expect any significant acquisitions, as RAD is being integrated into the business.

Exhibit 1: Revenue breakdown by business

Exhibit 2: Group EBITDA and EBITDA margin

Source: Company data, Edison Investment Research

Source: Company data, Edison Investment Research

Exhibit 1: Revenue breakdown by business

Source: Company data, Edison Investment Research

Exhibit 2: Group EBITDA and EBITDA margin

Source: Company data, Edison Investment Research

Piteco Group has expanded significantly via acquisitions over the last few years, with four deals in five years (Centro Data in 2015, Juniper in 2017, Myrios in 2018, EveryMake in March 2020 and RAD in October 2020). With good cash flow generation, leverage ratios should fall rather quickly, well below the covenant thresholds. We therefore do not expect the company to consider further acquisitions in the short term, but M&A could return to play a part by FY23.

Exhibit 3: Leverage and FCF yield

Source: Piteco data, Edison Investment Research

Forecasts

We raise our revenue and EBITDA forecasts to incorporate the acquisition of RAD. Although there remains uncertainty about any future lockdowns in Piteco’s markets, the group fared well in the pandemic. Piteco’s business was not directly affected by the coronavirus outbreak; indeed, its products can help steer financial and treasury decision making at times of crisis. That said, the uncertainty of the lockdowns caused a softening in demand for Piteco’s products, as new and existing customers chose to conserve cash and delay upgrading their internal systems. As a reminder, Piteco’s customers are medium- and large-scale corporates, so are less likely to face a longer-term liquidity crisis. In addition, its customers do not operate in the sectors that have been most affected by the restrictions, such as leisure and tourism.

We assume some growth in FY21, as restrictions are eased during H2. We illustrate the main changes to our forecasts below. We have incorporated the acquisition of RAD announced in October/November. As a reminder, RAD had pro-forma revenues of €10.3m and pro-forma EBITDA of €5.9m in the 12m to June 2020, hence its pro-forma EBITDA margins are higher than the rest of the Piteco Group. RAD is market leader in software for the management of non-performing loans (NPL) and unlikely to pay (UTP). With greater regulation looming for the UTP segment, we believe software solutions for UTP customers are likely to experience strong growth over the next few years.

Exhibit 4: Forecast changes

€000s

2021e

2022e

2023e

Net sales revenue

NEW

36,731

39,279

41,947

OLD

27,247

29,078

30,940

% change

35%

35%

36%

EBITDA

NEW

18,040

19,560

21,242

OLD

12,177

13,179

14,250

% change

48%

48%

49%

Operating profit (before amort. and exceptionals)

NEW

16,141

17,678

19,375

OLD

10,272

11,330

12,457

% change

57%

56%

56%

Net income

NEW

12,662

14,081

15,643

OLD

8,255

9,252

10,313

% change

53%

52%

52%

Source: Piteco data, Edison Investment Research

Valuation: Discount to international and Italian players

We believe the key attractiveness of Piteco is its ability to generate high profit margins while providing customers with a flexible and cost-effective solution. The historical growth track record, earnings growth outlook and sustained cash-flow generation support further investment opportunities in the long term that could strengthen the growth outlook. The stock is trading on 12.8x EV/EBITDA and 17.0x P/E for FY21, at a discount to large international software peers, and smaller Italian software peers.

We update our DCF to reflect our new estimates, which incorporate RAD. Our DCF-based valuation rises to €13.0/share. This is based on a 5% CAGR for net revenues over 10 years, a long-term EBITDA margin of 50%, a WACC of 8% and a terminal growth rate of 2%.

Exhibit 5: Peer valuation metrics

Share price

Market cap

EV/sales (x)

EV/EBITDA (x)

P/E (x)

Local currency

Local currency

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

Piteco

€ 10.65

€ 216

6.3

5.9

12.8

11.8

17.0

15.3

Large global ERP/accounting software providers

Microsoft

$231.85

$1,748,663

10.3

9.1

21.5

19.2

31.1

28.3

Oracle

$70.55

$203,433

5.9

5.7

11.6

11.3

15.8

14.6

SAP

$103.56

$127,745

5.0

4.8

15.3

14.7

21.8

20.5

Intuit

$373.66

$102,323

11.4

9.8

31.7

27.0

44.6

38.1

Workday

$243.23

$59,105

11.5

9.8

49.6

40.5

87.2

69.4

Sage

£606.20

£6,646

3.7

3.6

16.0

14.8

26.8

24.4

Xero

A$126.53

A$18,569

23.5

18.7

89.1

76.7

339.3

271.7

Median

10.3

9.1

21.5

19.2

31.1

28.3

Smaller software companies quoted in Italy

TXT e-solutions

€ 7.58

€ 99

0.9

0.8

7.3

6.5

16.5

14.2

Wiit

€ 156.50

€ 417

6.8

6.3

18.1

15.7

43.4

32.8

Expert System

€ 2.96

€ 151

N/A

3.2

N/A

N/A

N/A

N/A

Tas Tecnologia Avanzata dei Sistemi

€ 1.75

€ 147

N/A

N/A

N/A

N/A

N/A

N/A

Reply

€ 107.30

€ 4,031

2.7

2.5

16.6

15.0

29.9

26.6

Sesa

€ 106.60

€ 1,658

0.8

0.7

13.3

11.2

30.2

24.7

IT Way

€ 0.89

€ 7

N/A

N/A

N/A

N/A

N/A

N/A

Exprivia

€ 0.83

€ 43

N/A

N/A

N/A

N/A

N/A

N/A

Techedge

€ 5.38

€ 139

N/A

N/A

N/A

N/A

N/A

N/A

Median

1.8

2.5

14.9

13.1

30.0

25.6

Source: Refinitiv, Edison Investment Research. Note: Priced at 30 March 2021.

The key upside or downside risks to our forecasts are higher or lower customer acquisitions at Piteco Spa, stronger or slower than expected revenue acceleration at Myrios or Juniper, higher or lower contributions from international clients (Myrios Switzerland) and higher or lower margins. The COVID-19 pandemic is the largest unknown at present, with the scale and duration of any further lockdowns, and related economic downturn, potentially affecting the business.

Exhibit 6: Financial summary

€'000s

2018

2019

2020

2021e

2022e

2023e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

20,214.0

24,038.6

24,719.5

37,965.8

40,589.2

43,334.6

Net sales revenue

19,374.0

22,773.6

23,545.5

36,730.6

39,279.5

41,947.2

Cost of Sales

534.0

1,119.0

791.0

646.9

680.9

716.0

Gross Profit

20,748.0

25,157.6

25,510.5

38,612.7

41,270.1

44,050.6

EBITDA

 

 

8,266.0

10,237.6

9,930.5

18,040.2

19,559.5

21,242.3

Normalised operating profit

 

 

6,471.0

7,301.6

6,377.5

16,140.9

17,678.0

19,375.5

Amortisation of acquired intangibles

(67.0)

0.0

0.0

0.0

0.0

0.0

Exceptionals

(5.0)

(47.0)

(64.0)

0.0

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

0.0

Reported operating profit

6,399.0

7,254.6

6,313.5

16,140.9

17,678.0

19,375.5

Net Interest

(340.0)

(612.0)

(507.0)

(885.4)

(713.1)

(528.9)

Fair value adjustments

(327.0)

(270.0)

(1,584.0)

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

6,131.0

6,689.6

5,870.5

15,255.4

16,964.9

18,846.6

Profit Before Tax (reported)

 

 

5,732.0

3,678.6

7,257.5

15,255.4

16,964.9

18,846.6

Reported tax

(467.0)

(662.0)

(157.0)

(2,593.4)

(2,884.0)

(3,203.9)

Profit After Tax (norm)

5,664.0

6,010.6

5,743.5

12,662.0

14,080.8

15,642.6

Profit After Tax (reported)

5,265.0

3,016.6

7,100.5

12,662.0

14,080.8

15,642.6

Net income (normalised)

5,664.0

6,010.6

5,743.5

12,662.0

14,080.8

15,642.6

Net income (reported)

5,265.0

3,016.6

7,100.5

12,662.0

14,080.8

15,642.6

Basic average number of shares outstanding (m)

18

18

19

20

20

20

EPS - basic normalised (€)

 

 

0.31

0.33

0.30

0.63

0.70

0.78

EPS - normalised fully diluted (c)

 

 

31.49

33.47

30.01

62.73

69.76

77.50

EPS - basic reported (€)

 

 

0.29

0.17

0.37

0.63

0.70

0.78

Dividend (c)

15.00

15.00

15.00

17.50

17.50

20.00

Revenue growth (%)

18.3

17.5

3.4

56.0

6.9

6.8

Gross Margin (%)

102.6

104.7

103.2

101.7

101.7

101.7

EBITDA Margin (%)

40.9

42.6

40.2

47.5

48.2

49.0

Normalised Operating Margin

32.0

30.4

25.8

42.5

43.6

44.7

BALANCE SHEET

Fixed Assets

 

 

60,884.0

62,088.0

125,270.0

122,611.3

119,918.0

117,184.5

Intangible Assets

58,301.0

56,900.0

120,518.0

120,118.6

119,637.1

119,070.3

Tangible Assets

2,098.0

4,015.0

3,931.0

1,671.7

(540.1)

(2,706.8)

Investments & other

485.0

1,173.0

821.0

821.0

821.0

821.0

Current Assets

 

 

11,171.0

10,742.0

19,428.0

30,090.3

43,283.6

59,185.9

Stocks

0.0

0.0

0.0

0.0

0.0

0.0

Debtors

4,808.0

6,475.0

6,951.0

8,352.5

8,929.6

9,533.6

Cash & cash equivalents

5,834.0

3,754.0

11,825.0

21,085.8

32,696.6

45,077.3

Other

529.0

513.0

652.0

652.0

1,657.4

4,574.9

Current Liabilities

 

 

(10,439.0)

(16,044.0)

(18,847.0)

(13,562.2)

(12,134.5)

(12,298.3)

Creditors

(972.0)

(927.0)

(2,329.0)

(2,077.0)

(2,220.5)

(2,370.7)

Tax and social security

(3,388.0)

(5,381.0)

(6,804.0)

(1,771.2)

(200.0)

(213.6)

Short term borrowings

(6,079.0)

(9,736.0)

(9,714.0)

(9,714.0)

(9,714.0)

(9,714.0)

Long Term Liabilities

 

 

(30,480.0)

(25,367.0)

(81,852.0)

(81,852.0)

(81,852.0)

(81,852.0)

Long term borrowings

(26,549.0)

(21,476.0)

(67,083.0)

(67,083.0)

(67,083.0)

(67,083.0)

Other long term liabilities

(3,931.0)

(3,891.0)

(14,769.0)

(14,769.0)

(14,769.0)

(14,769.0)

Net Assets

 

 

31,136.0

31,419.0

43,999.0

57,287.3

69,215.1

82,220.1

Shareholders' equity

 

 

31,136.0

31,419.0

43,999.0

57,287.3

69,215.1

82,220.1

CASH FLOW

Op Cash Flow before WC and tax

8,266.0

10,237.6

9,930.5

18,040.2

19,559.5

21,242.3

Working capital

(93.0)

(887.0)

4,127.0

(1,149.5)

(720.7)

(754.2)

Exceptional & other

(1,286.0)

(1,758.0)

(2,237.0)

0.0

0.0

0.0

Tax

(648.0)

(336.0)

(935.0)

(2,593.4)

(2,884.0)

(3,203.9)

Net operating cash flow

 

 

6,239.0

7,256.6

10,885.5

14,297.3

15,954.8

17,284.2

Capex

(758.4)

(396.0)

(247.2)

(759.3)

(811.8)

(866.7)

Acquisitions/disposals

3.0

262.0

(35,000.0)

0.0

0.0

0.0

Equity financing

0.0

0.0

0.0

0.0

0.0

0.0

Dividends

(2,698.0)

(2,688.0)

(2,871.2)

(3,532.2)

(3,532.2)

(4,036.8)

Other

(2,366.6)

(7,172.0)

35,478.2

0.0

0.0

0.0

Net Cash Flow

419.0

(2,737.4)

8,245.3

10,005.8

11,610.8

12,380.7

Opening net debt/(cash)

 

 

6,497.1

26,794.1

27,458.0

64,972.2

55,711.4

44,100.6

FX

(1.0)

0.4

(0.5)

0.0

0.0

0.0

Other non-cash movements

(20,715.0)

2,073.0

(45,759.0)

(745.0)

0.0

0.0

Closing net debt/(cash)

 

 

26,794.1

27,458.0

64,972.2

55,711.4

44,100.6

31,719.9

Source: Edison Investment Research, company data


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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

1185 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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United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 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

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

1185 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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Wheaton Precious Metals — Q121 results preview

IIn the context of known production and sales, Q420 financial results were closely in line with our expectations, while results for the full year were characterised by record annual revenues and operating cash flows. In conjunction with virtually extinguished net debt, these caused management to increase Wheaton Precious Metals’ (WPM’s) declared quarterly dividend by 30% to US$0.13/share per quarter. After the conclusion of a series of new precious metals purchase agreements in the past 12 months (eg Marmato, Cozamin, Santo Domingo), we estimate that gold equivalent production will rise 13.3% in FY21, driving continued increases in earnings and revenues, notwithstanding the recent relative weakness in precious metals prices.

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