SCISYS
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SCISYS |
Back on track with a solid H2 |
Trading update |
Software & comp services |
28 January 2016 |
Share price performance
Business description
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Analysts
SCISYS is a research client of Edison Investment Research Limited |
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SCISYS has released an underlying positive trading update, which shows the difficult H1 is now firmly behind it. H2 trading was encouraging and FY16 guidance has been maintained, supported by a strong order book and healthy pipeline. Cash generation was stronger than we expected with the group ending the year with £1.0m net debt (we forecasted £1.4m). SCISYS has a long-term goal to generate revenues of £60m+ and double-digit margins, although we noted in September that the target for this has slipped back from FY18. Nevertheless, this objective keeps the shares looking attractive trading on c 10x our FY17e earnings.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/13 |
42.6 |
3.0 |
9.3 |
1.46 |
7.4 |
2.1 |
12/14 |
40.4 |
3.2 |
8.2 |
1.61 |
8.3 |
2.4 |
12/15e |
36.0 |
0.1 |
(0.9) |
1.70 |
N/A |
2.5 |
12/16e |
38.0 |
2.3 |
6.1 |
1.80 |
11.2 |
2.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Trading update: Back on track after difficult H1
SCISYS says that its H2 performance was encouraging and expects underlying FY15 results will “comfortably meet current market guidance”. Additionally, FY16 guidance has been maintained and hence we have held our forecasts. The opening order book has been boosted by a high level of activity in Q4, including two particularly large contracts. In H1, SCISYS revealed the group’s first significant problem project since FY07. This related to cost overruns on a fixed-price development project and was completely resolved by October. Consequently, SCISYS has further tightened its project risk assessment procedures.
The two significant contracts signed In Q4 were a £4m four-year contract to develop, support and host a business/regulatory application for the UK Ministry of Defence and a further contract from Thales Alenia Space France for the system extension and software enhancement in the Galileo Ground Mission Segment. The latter contract is carried out under a programme of the European Union, funded by the EU, and is worth c €5.2m over two years.
Forecasts: Net debt falls, otherwise maintained
We have reduced our end of FY15 net debt forecast by £0.4m to £1.0m on reduced working capital levels, while the end of FY16 position switches by the same amount to £0.1m net cash. All our other forecasts are maintained.
Valuation: c 10x FY17e P/E looks attractive
The stock trades on 0.6x our FY16e revenues and 6.3x EBITDA – attractive given the long-term trend of margin improvements and a strong cash flow discipline. The group retains a strong balance sheet that includes the freehold on the group’s HQ, which was sold in 2007 for £9m and repurchased in 2011 for £5m.
Exhibit 1: Financial summary
£'000s |
2012 |
2013 |
2014 |
2015e |
2016e |
2017e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
39,453 |
42,598 |
40,359 |
35,997 |
38,004 |
39,860 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
39,453 |
42,598 |
40,359 |
35,997 |
38,004 |
39,860 |
||
EBITDA |
|
|
3,581 |
4,179 |
4,156 |
1,123 |
3,360 |
3,766 |
Adjusted operating profit |
|
|
2,662 |
3,221 |
3,361 |
369 |
2,502 |
2,871 |
Amort'n of acq'd intangibles |
(45) |
(283) |
0 |
0 |
0 |
0 |
||
Exceptionals |
(328) |
(1,191) |
(135) |
0 |
0 |
0 |
||
Share based payments |
(49) |
(35) |
(42) |
(63) |
(75) |
(100) |
||
Operating Profit |
2,240 |
1,712 |
3,184 |
306 |
2,427 |
2,771 |
||
Net Interest |
(214) |
(217) |
(177) |
(230) |
(210) |
(190) |
||
Profit Before Tax (norm) |
|
|
2,448 |
3,004 |
3,184 |
139 |
2,292 |
2,681 |
Profit Before Tax (FRS 3) |
|
|
2,026 |
1,495 |
3,007 |
76 |
2,217 |
2,581 |
Tax |
(384) |
(153) |
(766) |
(400) |
(466) |
(568) |
||
Profit After Tax (norm) |
2,064 |
2,701 |
2,394 |
(261) |
1,826 |
2,113 |
||
Profit After Tax (FRS 3) |
1,642 |
1,342 |
2,241 |
(324) |
1,751 |
2,013 |
||
Average Number of Shares Outstanding (m) |
29.0 |
29.0 |
29.0 |
29.3 |
29.9 |
30.5 |
||
EPS - normalised (p) |
|
|
7.1 |
9.3 |
8.2 |
(0.9) |
6.1 |
6.9 |
EPS - FRS 3 (p) |
|
|
5.7 |
4.6 |
7.7 |
(1.1) |
5.9 |
6.6 |
Dividend per share (p) |
1.32 |
1.46 |
1.61 |
1.70 |
1.80 |
1.90 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
||
EBITDA Margin (%) |
9.1 |
9.8 |
10.3 |
3.1 |
8.8 |
9.4 |
||
Operating Margin (%) |
6.7 |
7.6 |
8.3 |
1.0 |
6.6 |
7.2 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
16,632 |
16,164 |
17,155 |
18,221 |
18,199 |
18,180 |
Intangible Assets |
7,362 |
7,006 |
8,233 |
9,333 |
9,333 |
9,333 |
||
Tangible Assets |
9,252 |
9,137 |
8,899 |
8,865 |
8,843 |
8,824 |
||
Deferred tax asset |
18 |
21 |
23 |
23 |
23 |
23 |
||
Current Assets |
|
|
19,767 |
19,270 |
18,886 |
15,729 |
17,023 |
18,393 |
Stocks |
367 |
344 |
325 |
290 |
306 |
321 |
||
Debtors |
11,466 |
13,829 |
12,334 |
11,001 |
11,614 |
12,182 |
||
Cash |
7,463 |
3,969 |
5,798 |
4,009 |
4,674 |
5,461 |
||
Current Liabilities |
|
|
(13,449) |
(12,261) |
(10,561) |
(9,581) |
(9,813) |
(9,985) |
Creditors |
(12,129) |
(9,508) |
(9,686) |
(8,956) |
(9,438) |
(9,860) |
||
Short term borrowings |
(1,320) |
(2,753) |
(875) |
(625) |
(375) |
(125) |
||
Long Term Liabilities |
|
|
(5,011) |
(4,090) |
(5,023) |
(5,112) |
(4,901) |
(4,690) |
Long term borrowings |
(4,902) |
(3,888) |
(4,595) |
(4,384) |
(4,173) |
(3,962) |
||
Other long term liabilities |
(109) |
(202) |
(428) |
(728) |
(728) |
(728) |
||
Net Assets |
|
|
17,939 |
19,083 |
20,457 |
19,257 |
20,507 |
21,898 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
5,110 |
(1,379) |
4,774 |
1,854 |
3,170 |
3,567 |
Net Interest |
(214) |
(217) |
(177) |
(230) |
(210) |
(190) |
||
Tax |
(157) |
(1,325) |
100 |
(914) |
(500) |
(413) |
||
Capex |
(1,116) |
(666) |
(618) |
(720) |
(836) |
(877) |
||
Acquisitions/disposals |
(1,952) |
0 |
(358) |
(830) |
0 |
(300) |
||
Financing |
29 |
(16) |
(61) |
(20) |
0 |
0 |
||
Dividends |
(361) |
(381) |
(435) |
(468) |
(499) |
(539) |
||
Net Cash Flow |
1,339 |
(3,984) |
3,225 |
(1,328) |
1,126 |
1,248 |
||
Opening net debt/(cash) |
|
|
33 |
(1,241) |
2,672 |
(328) |
1,000 |
(126) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(65) |
71 |
(225) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(1,241) |
2,672 |
(328) |
1,000 |
(126) |
(1,374) |
Source: SCISYS accounts, Edison Investment Research
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