In a brief in-line trading update, Brady has said it has made substantial progress in the first four months of FY19 and the sales pipeline is building. We are maintaining our forecasts. Carmen Carey took on the CEO role in February and we expect the results of her review of the business and new strategy to be outlined with the interims in September. The market opportunity is substantial and we believe Brady is well positioned to benefit from the significant sector consolidation.
Written by
Brady |
Sales pipeline is building |
AGM trading update |
Software & comp services |
30 May 2019 |
Share price performance
Business description
Next events
Analysts
Brady is a research client of Edison Investment Research Limited |
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In a brief in-line trading update, Brady has said it has made substantial progress in the first four months of FY19 and the sales pipeline is building. We are maintaining our forecasts. Carmen Carey took on the CEO role in February and we expect the results of her review of the business and new strategy to be outlined with the interims in September. The market opportunity is substantial and we believe Brady is well positioned to benefit from the significant sector consolidation.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17** |
22.2 |
(3.0) |
(5.7) |
0.0 |
N/A |
N/A |
12/18 |
23.2 |
0.3 |
0.0 |
0.0 |
N/A |
N/A |
12/19e |
24.3 |
1.0 |
0.9 |
0.0 |
62.5 |
N/A |
12/20e |
25.5 |
2.0 |
1.8 |
0.0 |
31.7 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Excludes recycling business and restated for IFRS 15.
Trading is in line with management’s expectations
Brady says trading to the end of April 2019 is in line with management's expectations and the new sales pipeline is building. In March it strengthened its board with the non-executive appointments of Dan Look (former head of the commodity and energy trading consulting group at Baringa) and Iain Greig (former CTO of LME Clear).
Investment case: E/CTRM is a highly attractive space
Brady has more than 300 customers, including many blue-chip names covering a wide range of commodity businesses such as trading companies, financial institutions, producers and manufacturers. The global E/CTRM market was worth c $1.65bn in 2016 (ComTech Advisory) and is forecast to grow at c 6% CAGR in 2016–20. Brady has a strong position in niche areas including commodity logistics, credit risk, metals (number one globally) and European energy, yet has a relatively modest market penetration overall (we estimate 1.2%). Recurring revenues were c 70% of the FY18 group total, which is in line with the 70% medium-term target.
Valuation: Well positioned in a consolidating sector
The streamlining and investment pave the way for scaling up the business, with the valuation upside resting on the shift to new technologies such as microservices and the cloud. If Brady could take a 5% market share and generate 20% operating margins (against 3.9% in FY19e), it would suggest c 400% upside if the stock traded on c 10x earnings. These targets could be achieved by building on the group’s existing customer relationships, more effectively targeting prospects that still use in-house systems and spreadsheets, expanding into other verticals, such as agriculture, and potentially expanding into adjacent areas such as logistics.
Exhibit 1: Financial summary
£'000s |
2016 |
2017 |
2018 |
2019e |
2020e |
2021e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
25,373 |
22,215 |
23,157 |
24,319 |
25,453 |
27,239 |
Cost of Sales |
(9,804) |
(9,852) |
(9,250) |
(9,498) |
(9,415) |
(9,806) |
||
Gross Profit |
15,569 |
12,363 |
13,907 |
14,821 |
16,038 |
17,433 |
||
EBITDA |
|
|
1,910 |
(2,643) |
685 |
1,310 |
2,419 |
3,447 |
Adjusted Operating Profit |
|
|
1,290 |
(2,941) |
318 |
960 |
1,969 |
3,083 |
Amortisation of acquired intangibles |
(1,618) |
(1,559) |
(1,283) |
(1,283) |
(1,283) |
(1,283) |
||
Exceptionals items |
(2,128) |
(2,441) |
(274) |
0 |
0 |
0 |
||
Share based payments |
(90) |
(9) |
137 |
(400) |
(500) |
(600) |
||
Operating Profit |
(2,546) |
(6,950) |
(1,102) |
(723) |
186 |
1,200 |
||
Net Interest |
3 |
(22) |
(42) |
30 |
45 |
60 |
||
Profit Before Tax (norm) |
|
|
1,293 |
(2,963) |
276 |
990 |
2,014 |
3,143 |
Profit Before Tax (FRS 3) |
|
|
(2,543) |
(6,972) |
(1,144) |
(693) |
231 |
1,260 |
Tax |
(188) |
127 |
(664) |
(218) |
(483) |
(754) |
||
Discontinued items |
878 |
(1,922) |
(271) |
0 |
0 |
0 |
||
Profit After Tax (norm) |
1,992 |
(4,721) |
5 |
772 |
1,531 |
2,389 |
||
Profit After Tax (FRS 3) |
(1,853) |
(8,767) |
(2,079) |
(911) |
(252) |
506 |
||
Average Number of Shares Outstanding (m) |
83.0 |
83.3 |
83.4 |
83.6 |
84.0 |
84.4 |
||
EPS – normalised (p) |
|
|
2.4 |
(5.7) |
0.0 |
0.9 |
1.8 |
2.8 |
EPS – FRS 3 (p) |
|
|
(2.2) |
(10.5) |
(2.5) |
(1.1) |
(0.3) |
0.6 |
Dividend per share (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
EBITDA Margin (%) |
7.5 |
(11.9) |
3.0 |
5.4 |
9.5 |
12.7 |
||
Adjusted Operating Margin (%) |
5.1 |
(13.2) |
1.4 |
3.9 |
7.7 |
11.3 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
37,035 |
27,001 |
27,285 |
27,037 |
25,754 |
23,968 |
Intangible Assets |
35,999 |
26,091 |
26,449 |
26,101 |
25,014 |
23,320 |
||
Tangible Assets |
978 |
487 |
746 |
846 |
650 |
558 |
||
Deferred tax |
58 |
423 |
90 |
90 |
90 |
90 |
||
Current Assets |
|
|
14,640 |
14,724 |
10,227 |
9,143 |
10,304 |
13,554 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
7,297 |
4,787 |
5,600 |
5,881 |
6,155 |
6,587 |
||
Cash |
7,343 |
4,089 |
4,627 |
3,262 |
4,149 |
6,967 |
||
Other current assets |
0 |
5,848 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(12,669) |
(14,927) |
(12,252) |
(12,365) |
(12,461) |
(12,709) |
Creditors |
(12,669) |
(13,543) |
(12,019) |
(12,132) |
(12,228) |
(12,476) |
||
Short-term borrowings |
0 |
0 |
(233) |
(233) |
(233) |
(233) |
||
Other current liabilities |
0 |
(1,384) |
0 |
0 |
0 |
0 |
||
Long-Term Liabilities |
|
|
(5,670) |
(4,593) |
(4,322) |
(4,322) |
(4,322) |
(4,322) |
Long-term borrowings |
0 |
0 |
(296) |
(296) |
(296) |
(296) |
||
Other long-term liabilities |
(5,670) |
(4,593) |
(4,026) |
(4,026) |
(4,026) |
(4,026) |
||
Net Assets |
|
|
33,336 |
22,205 |
20,938 |
19,494 |
19,276 |
20,491 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
2,737 |
(316) |
1,002 |
3,253 |
4,596 |
5,722 |
Net Interest |
3 |
(22) |
(251) |
30 |
45 |
60 |
||
Tax |
(428) |
247 |
(73) |
(2,198) |
(1,000) |
(691) |
||
Capex |
(2,167) |
(2,806) |
(3,289) |
(3,450) |
(2,755) |
(2,272) |
||
Acquisitions/disposals |
(326) |
0 |
2,936 |
1,000 |
0 |
0 |
||
Financing |
47 |
190 |
0 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(134) |
(2,707) |
325 |
(1,365) |
887 |
2,818 |
||
Opening net debt/(cash) |
|
|
(6,594) |
(7,343) |
(4,089) |
(4,098) |
(2,733) |
(3,620) |
Other |
883 |
(547) |
(316) |
0 |
0 |
() |
||
Closing net debt/(cash) |
|
|
(7,343) |
(4,089) |
(4,098) |
(2,733) |
(3,620) |
(6,438) |
Source: Brady (historicals), Edison Investment Research (forecasts). Note: IFRS 9 and IFRS 15 have been applied from FY17. FY17 excludes the recycling business.
|
|
Research: Industrials
In the first four months of FY19, Tyman’s headline revenue increased by 15% y-o-y and was flat in underlying terms (excluding FX and acquisition effects). While activity levels were slightly lower than management expected, full year operating profit guidance and our estimates are unchanged. Earnings multiples remain in single digit territory and Tyman now offers a prospective 5.6% dividend yield also.