SinnerSchrader
Written by
SinnerSchrader |
Buoyant new business |
Q216 trading update |
Software & comp services |
18 April 2016 |
Share price performance
Business description
Next event
Analysts
SinnerSchrader is a research client of Edison Investment Research Limited |
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Strong new business wins led to a 21% increase in like-for-like revenues in Q2 for SinnerSchrader (SZZ) and, despite the pressure this can put on staffing, margins were fairly firm. With ‘significant tenders’ underway, management is confident of reaching full year guidance, a doubling of net profit. We expect the current c 30% FY16 P/E discount to peers to narrow.
Year |
Revenue |
EBITA* |
EPS |
EPS* |
DPS |
P/E* |
Yield |
08/14 |
48.6 |
4.6 |
16.5 |
27.8 |
12.0 |
15.4 |
2.8 |
08/15 |
47.7 |
4.2 |
13.4 |
25.1 |
12.0 |
17.1 |
2.8 |
08/16e |
50.5 |
5.2 |
27.7 |
30.5 |
13.0 |
14.0 |
3.0 |
08/17e |
53.9 |
5.6 |
32.8 |
32.7 |
13.7 |
13.1 |
3.2 |
Note: *EBITA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items, share-based payments and discontinued activities.
Growth accelerates in Q2
On a like-for-like basis, Q2 revenues increased by approximately 21% y-o-y (13% including the impact of the now discontinued Next Audience, NA), an acceleration on Q1’s 8% (3% including NA), bringing year to date growth to 13%. The high level of new business was the main factor in the Q2 surge with a new client rate of almost 20%. Margins in Q2 held firm, resulting in a first half EBITA margin of 5.4% (we estimate 7.2% excluding the discontinued NA).
Strong new business can affect margins due to the need to add resource, and Q2 EBITA margins (4.3%), while up considerably on last year, were lower than Q1 (6.5%). Despite this, we are comfortable that margins are trending in the right direction with an H116 EBITA margin of 5.4% (vs -1.8% last year). Q2 should be the last quarter when losses from NA affect the bottom line. If we exclude final losses from this division, EBITA margins in H116 were a respectable 7.2%.
EPS on track to double this year
Management is currently involved in a significant level of tenders that should support ongoing growth, and has reiterated its guidance for the full year of revenues over €50m, EBITA (including final closure costs of NA) of €5m and reported net profit of €3m. SZZ looks firmly on track to deliver on this guidance. This would mean a doubling of net earnings in FY16 and the prospect of ongoing strong revenue growth into 2017 as SZZ benefits from the prioritisation of digital transformation projects by corporates.
Valuation: P/E rating gap should start to close
SZZ trades on an FY16e P/E of 14.0x, falling to 13.1x in FY17e. Digital agency peers, all of which are forecast to have lower EPS growth this year (Syzygy, Reply, Next Fifteen), trade at approximately 20x FY16 P/E and we see plenty of scope for a further reduction in this rating gap. In addition, with a high level of corporate activity in the sector in recent years, and as SZZ is the last remaining independent digital agency listed in Germany, the 35% EV/EBITA discount to the 13.2x multiple offered by WPP for its closest peer, Syzygy, should also be taken into consideration.
Exhibit 1: Financial summary
€'000s |
2014 |
2015 |
2016e |
2017e |
||
Aug |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
48,601 |
47,690 |
50,491 |
53,859 |
Cost of Sales |
(37,168) |
(35,659) |
(36,996) |
(37,701) |
||
Gross Profit |
11,433 |
12,032 |
13,496 |
16,158 |
||
EBITDA |
|
|
5,384 |
5,251 |
6,040 |
6,551 |
Continuing EBITA |
|
|
4,600 |
4,200 |
5,217 |
5,646 |
Intangible Amortisation |
(82) |
0 |
0 |
0 |
||
Exceptionals |
0 |
(614) |
0 |
0 |
||
Discontinued operations |
(1,536) |
(1,503) |
(500) |
0 |
||
Operating Profit |
2,982 |
2,083 |
4,717 |
5,646 |
||
Net Interest |
8 |
(2) |
4 |
0 |
||
Profit Before Tax (norm) |
|
|
4,608 |
4,198 |
5,221 |
5,646 |
Profit Before Tax (FRS 3) |
|
|
2,990 |
2,081 |
4,721 |
5,646 |
Tax |
(1,147) |
(563) |
(1,525) |
(1,818) |
||
Profit After Tax (norm) |
3,124 |
2,847 |
3,535 |
3,828 |
||
Profit After Tax (FRS 3) |
1,843 |
1,518 |
3,196 |
3,828 |
||
Average Number of Shares Outstanding (m) |
11.1 |
11.3 |
11.6 |
11.7 |
||
EPS - normalised (c) |
|
|
28.0 |
25.2 |
30.6 |
32.8 |
EPS - normalised fully diluted (c) |
|
|
27.8 |
25.1 |
30.5 |
32.7 |
EPS - (IFRS) (c) |
|
|
16.5 |
13.4 |
27.7 |
32.8 |
Dividend per share (c) |
12.0 |
12.0 |
13.0 |
13.7 |
||
Gross Margin (%) |
23.5 |
25.2 |
26.7 |
30.0 |
||
EBITDA Margin (%) |
11.1 |
11.0 |
12.0 |
12.2 |
||
Operating Margin (before GW and except.) (%) |
9.5 |
8.8 |
10.3 |
10.5 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
7,039 |
6,601 |
6,354 |
6,275 |
Intangible Assets |
5,136 |
4,999 |
4,481 |
4,481 |
||
Tangible Assets |
1,902 |
1,603 |
1,873 |
1,794 |
||
Investments |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
21,512 |
21,130 |
23,075 |
26,073 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
15,590 |
14,830 |
15,701 |
16,748 |
||
Cash |
5,833 |
5,559 |
6,633 |
8,584 |
||
Other |
90 |
741 |
741 |
741 |
||
Current Liabilities |
|
|
(13,777) |
(12,475) |
(12,521) |
(13,188) |
Creditors |
(13,777) |
(12,475) |
(12,521) |
(13,188) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(699) |
(296) |
(296) |
(296) |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(699) |
(296) |
(296) |
(296) |
||
Net Assets |
|
|
14,075 |
14,960 |
16,612 |
18,865 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
2,656 |
2,244 |
4,722 |
6,179 |
Net Interest |
8 |
(2) |
4 |
0 |
||
Tax |
(1,147) |
(563) |
(1,525) |
(1,818) |
||
Capex |
(1,504) |
(458) |
(788) |
(827) |
||
Acquisitions/disposals |
(306) |
(300) |
0 |
0 |
||
Financing |
177 |
153 |
0 |
0 |
||
Dividends |
0 |
(1,348) |
(1,339) |
(1,583) |
||
Net Cash Flow |
(117) |
(274) |
1,074 |
1,951 |
||
Opening net debt/(cash) |
|
|
(5,949) |
(5,833) |
(5,559) |
(6,633) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(5,833) |
(5,559) |
(6,633) |
(8,584) |
Source: Company accounts, Edison Investment Research
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