SNP’s preliminary H118 results indicate that the strongly anticipated tsunami of SAP S/4HANA transformations has continued to shift out as enterprises await greater clarity on the technological transition to the new cloud platform. After the Q1 results in May we reported that there had been several S/4HANA project delays, as such transformations are highly complex to implement. We understand this trend has continued. Nevertheless, SNP remains extremely confident that the tsunami is just a matter of time. In preparation, SNP has established new partnership with IBM Services incorporating a novel ‘Bluefield’ approach to target the potentially substantial S/4HANA market. We have removed our forecasts and will review them after the full Q2/H1 results on Thursday.
Written by
SNP Schneider-Neureither & Partner |
Revenue guidance is cut by 9.8% at mid-points |
Preliminary H1 results |
Software & comp services |
31 July 2018 |
Share price performance
Business description
Next events
Analysts
SNP Schneider-Neureither & Partner is a research client of Edison Investment Research Limited |
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SNP’s preliminary H118 results indicate that the strongly anticipated tsunami of SAP S/4HANA transformations has continued to shift out as enterprises await greater clarity on the technological transition to the new cloud platform. After the Q1 results in May we reported that there had been several S/4HANA project delays, as such transformations are highly complex to implement. We understand this trend has continued. Nevertheless, SNP remains extremely confident that the tsunami is just a matter of time. In preparation, SNP has established new partnership with IBM Services incorporating a novel ‘Bluefield’ approach to target the potentially substantial S/4HANA market. We have removed our forecasts and will review them after the full Q2/H1 results on Thursday.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
80.7 |
6.4 |
109.7 |
39.0 |
16.1 |
2.2 |
12/17 |
122.3 |
0.2 |
(7.4) |
0.0 |
N/A |
0.0 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Trading update: Delays in project completions
H1 revenue was c €65m, representing c 35% growth over H117 while there was an adjusted loss before interest and tax (LBIT) of c €3.6m and a statutory LBIT of c €6.0m. The performance was primarily affected by delays in project completions, resulting in temporarily lower capacity utilisation for Professional Services, particularly software licence revenue from SNP’s in-house products fell short of expectations. Management now expects FY18 group revenue to be €135–140m (previous guidance was €150–155m) with a slightly negative EBIT margin. This suggests the H2 EBIT margin will be in positive single digits.
Partnership with IBM Services to target S/4HANA
In May, SNP announced a partnership with IBM Services, a unit of the US tech giant, to accelerate SAP S/4HANA adoption. The partnership will broaden SNP's route to market in North America and across the globe. The partners have developed a highly automated ‘Bluefield’ approach to rival traditional ‘Greenfield’ and ‘Brownfield’ approaches. It leverages SNP’s data transformation engine along with S/4HANA project management, technical and functional expertise from IBM Services to provide a faster approach to SAP S/4HANA adoption. The partnership will generate software sales for SNP, while IBM Services gets the services work.
Forecasts and valuation: Review after H2 numbers
We will review our forecasts after the full Q2 results on Thursday. The share price has halved since April and based on management’s new guidance, SNP trades on just over 1x FY18 revenues. This is cheap if management can return the business to double-digit margins, which we believe is highly probable if the S/4HANA transformation tsunami does materialise and the group can successfully grow its high-margin software sales.
Exhibit 1: Financial summary
€'000s |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
27,157 |
23,536 |
30,480 |
56,236 |
80,685 |
122,343 |
Cost of sales |
0 |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
27,157 |
23,536 |
30,480 |
56,236 |
80,685 |
122,343 |
||
EBITDA |
|
|
3,714 |
(1,972) |
862 |
5,484 |
8,524 |
3,268 |
Adjusted Operating Profit |
|
|
2,951 |
(2,714) |
(66) |
4,222 |
7,514 |
1,513 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
(657) |
(2,021) |
||
Exceptionals |
0 |
0 |
1,505 |
356 |
0 |
0 |
||
Associates |
(107) |
0 |
0 |
(3) |
8 |
(24) |
||
Operating Profit |
2,845 |
(2,714) |
1,439 |
4,575 |
6,865 |
(532) |
||
Net Interest |
20 |
(85) |
(66) |
(828) |
(1,137) |
(1,327) |
||
Profit Before Tax (norm) |
|
|
2,972 |
(2,799) |
(132) |
3,394 |
6,377 |
186 |
Profit Before Tax (FRS 3) |
|
|
2,865 |
(2,799) |
1,373 |
3,747 |
5,728 |
(1,859) |
Tax |
(947) |
477 |
(344) |
(1,195) |
(1,517) |
(807) |
||
Profit After Tax (norm) |
2,025 |
(2,322) |
(477) |
2,198 |
4,860 |
(620) |
||
Profit After Tax (FRS 3) |
1,918 |
(2,322) |
1,028 |
2,552 |
4,211 |
(2,666) |
||
Minority interest |
(127) |
(84) |
(40) |
0 |
(147) |
234 |
||
Adjustments for normalised earnings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net income (norm) |
1,897 |
(2,405) |
(517) |
2,198 |
4,713 |
(386) |
||
Net income (FRS 3) |
1,791 |
(2,405) |
988 |
2,552 |
4,064 |
(2,431) |
||
Average Number of Shares Outstanding (m) |
3.4 |
3.7 |
3.7 |
3.7 |
4.3 |
5.2 |
||
EPS - normalised (c) |
|
|
55.7 |
(64.7) |
(13.9) |
58.8 |
109.7 |
(7.4) |
EPS - normalised & fully diluted (c) |
|
|
55.7 |
(64.7) |
(13.9) |
58.8 |
109.7 |
(7.4) |
EPS - FRS 3 (c) |
|
|
52.5 |
(64.7) |
26.6 |
68.3 |
94.6 |
(46.8) |
Dividend per share (c) |
24.00 |
8.00 |
13.00 |
34.00 |
39.00 |
0.00 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
||
EBITDA Margin (%) |
13.7 |
-8.4 |
2.8 |
9.8 |
10.6 |
2.7 |
||
Adjusted Operating Margin (%) |
10.9 |
-11.5 |
-0.2 |
7.5 |
9.3 |
1.2 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
4,236 |
7,759 |
8,291 |
15,243 |
30,109 |
75,171 |
Intangible Assets |
2,327 |
5,194 |
5,190 |
11,675 |
24,179 |
67,012 |
||
Tangible Assets |
1,486 |
1,070 |
1,231 |
1,999 |
3,161 |
5,187 |
||
Other |
422 |
1,496 |
1,871 |
1,570 |
2,769 |
2,972 |
||
Current Assets |
|
|
18,316 |
16,145 |
17,882 |
29,996 |
58,424 |
78,614 |
Stocks |
0 |
0 |
0 |
0 |
371 |
371 |
||
Debtors |
7,309 |
9,105 |
11,286 |
16,084 |
25,652 |
43,781 |
||
Cash |
10,152 |
6,355 |
5,681 |
13,769 |
31,914 |
33,877 |
||
Current Liabilities |
|
|
(4,781) |
(5,804) |
(9,782) |
(13,703) |
(32,631) |
(40,531) |
Creditors |
(4,781) |
(5,204) |
(9,182) |
(11,101) |
(14,523) |
(29,295) |
||
Short term borrowings |
0 |
(600) |
(600) |
(2,602) |
(18,108) |
(11,236) |
||
Long Term Liabilities |
|
|
(772) |
(4,338) |
(2,501) |
(15,513) |
(7,327) |
(53,157) |
Long term borrowings |
0 |
(2,250) |
(1,650) |
(12,344) |
(5,531) |
(49,487) |
||
Other long term liabilities |
(772) |
(2,088) |
(851) |
(3,169) |
(1,796) |
(3,670) |
||
Net Assets |
|
|
16,998 |
13,762 |
13,890 |
16,024 |
48,575 |
60,097 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
3,022 |
(2,110) |
2,579 |
1,879 |
1,005 |
(5,316) |
Net Interest |
42 |
4 |
(66) |
(167) |
53 |
(798) |
||
Tax |
(1,826) |
(1,062) |
(1,102) |
(554) |
(412) |
(1,366) |
||
Capex |
(465) |
(230) |
(701) |
(1,779) |
(3,451) |
(5,234) |
||
Acquisitions/disposals |
(107) |
(2,267) |
(500) |
(3,228) |
(5,923) |
(28,783) |
||
Shares issued |
4,839 |
(35) |
0 |
0 |
30,129 |
18,293 |
||
Dividends |
(2,048) |
(937) |
(335) |
(483) |
(1,264) |
(1,932) |
||
Net Cash Flow |
3,457 |
(6,638) |
(124) |
(4,332) |
20,137 |
(25,136) |
||
Opening net debt/(cash) |
|
|
(6,695) |
(10,152) |
(3,505) |
(3,431) |
1,176 |
(8,275) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
(10) |
51 |
(275) |
(10,686) |
(9,985) |
||
Closing net debt/(cash) |
|
|
(10,152) |
(3,505) |
(3,431) |
1,176 |
(8,275) |
26,847 |
Source: Company accounts
|
|
Research: Industrials
North American growth remains the primary driver of underlying growth and acquisitions are also contributing to moving earnings forward. Good housekeeping with regard to ongoing operational footprint improvement and careful management of pricing against input cost rises are also important contributors to underlying business momentum. Investor sentiment should remain supportive, especially given a favourable US economic growth outlook.