SCISYS
Written by
SCISYS |
Contract underpins FY16 earnings |
Contract win |
Software & comp services |
17 December 2015 |
Share price performance
Business description
Next events
Analysts
SCISYS is a research client of Edison Investment Research Limited |
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SCISYS has been awarded a significant £4m four-year contract to develop, support and host a business/regulatory application for the UK Ministry of Defence (MoD). The new contract indicates that momentum is returning to the business in the wake of the contract hiccup earlier this year, which has since been rectified. The contract will boost the year-end order book and underpins our forecasts for FY16 and beyond. 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 |
7.7 |
2.0 |
12/14 |
40.4 |
3.2 |
8.2 |
1.61 |
8.8 |
2.2 |
12/15e |
36.0 |
0.1 |
(0.9) |
1.70 |
N/A |
2.4 |
12/16e |
38.0 |
2.3 |
6.1 |
1.80 |
11.8 |
2.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Contract win with Ministry of Defence
The group’s Enterprise Solutions & Defence (ESD) division has been awarded a significant contract by the UK MoD to deliver software and services to support the Defence Supply Chain Operations and Movements. The contract has a value of £4m over the next four years, and therefore represents c 3% of annual revenues over the period. The contract indicates that opportunities remain in the public sector despite the public sector cutbacks, in this case driven by regulatory and compliance requirements. While coming under the defence area, this is not a defence-type contract, but instead involves the design and delivery of a business/regulatory application (Customs Compliance Management Information System or CCMIS) and the provision of ongoing hosting and support services. The CCMIS will enable the department to be tax efficient and compliant with HMRC regulations and EU law. We note that equipment and supplies leaving the UK are required to be treated as exports and If they are returned to the country they must then be treated as imports. It will also help the MoD meet the requirements of international defence trade agreements, including the US ITAR (International Traffic in Arms Regulations) and DTCT (Defence Trade Co-operation Treaty) arrangements.
Forecasts: Contract underpins our forecasts
We are maintaining our forecasts and will review them again following the trading update in late January.
Valuation: c 10x FY17e P/E looks attractive
The stock trades on 0.6x our FY16e revenues and 6.7x 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 |
15,293 |
16,599 |
17,981 |
Stocks |
367 |
344 |
325 |
290 |
306 |
321 |
||
Debtors |
11,466 |
13,829 |
12,334 |
11,012 |
11,637 |
12,216 |
||
Cash |
7,463 |
3,969 |
5,798 |
3,562 |
4,227 |
5,015 |
||
Current Liabilities |
|
|
(13,449) |
(12,261) |
(10,561) |
(9,145) |
(9,389) |
(9,573) |
Creditors |
(12,129) |
(9,508) |
(9,686) |
(8,520) |
(9,014) |
(9,448) |
||
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 |
1,407 |
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 |
(1,775) |
1,126 |
1,249 |
||
Opening net debt/(cash) |
|
|
33 |
(1,241) |
2,672 |
(328) |
1,447 |
321 |
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) |
1,447 |
321 |
(928) |
Source: SCISYS accounts, Edison Investment Research
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Research: Investment Companies
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