All for One Steeb is the largest SAP solutions supplier in the German speaking mid-market segment and a major multi-cloud service provider. The group is achieving steady double-digit top-line growth and has invested heavily to profit from strong demand for cloud transformation services. Growing recurring revenues also support future margin growth. Management recently confirmed increased earnings guidance, despite the adverse impact on EBIT of restructuring costs and high staff investments in 9M18. The stock trades at a 16% PER discount to its eurozone peers.
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All for One Steeb |
Software services |
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Sustainable momentum
All for One Steeb is the largest SAP solutions supplier in the German-speaking mid-market segment and a major multi-cloud service provider. The group is achieving steady double-digit top-line growth and has invested heavily to profit from strong demand for cloud transformation services. Growing recurring revenues also support future margin growth. Management recently confirmed increased earnings guidance, despite the adverse impact on EBIT of restructuring costs and high staff investments in 9M18. The stock trades at a 16% PER discount to its eurozone peers.
Pushing cloud transformation, recurring revenues
Strong demand for cloud transformation services, boosted by upgrades to SAP S/4HANA and adoption of the Microsoft Azure platform, is driving rapid growth in high margin software revenues. These form an important part of recurring revenues, which grew 15% in 9M18 to total 46.4% of group revenues, up from 45.1% in 9M17. We see growth in the group’s highly scalable recurring revenues as key to unlocking margin growth and driving profitability and cash flow. Capacity constraints are also diminishing, with employee numbers rising 13% y-o-y boosted by high employer rankings and staff retention levels.
Double-digit revenue growth and investment
All for One Steeb achieved double-digit revenue growth to report sales of €248.4m in 9M18, with all but two percentage points of the 11% growth being organic. Assisted by strong demand for digital and cloud transformations, key drivers were a 29% growth in revenues from cloud and support services to €43.6m and a 10% increase in high margin licence revenues to €32.9m. Consulting and software support revenues grew a sustainable 8% and 7%, respectively. Heavy investments in SAP S/4HANA, the Internet of Things, machine learning and the platform business plus restructuring costs of €0.6m led EBIT to decline 6% to €13.9m. Full-year revenue guidance of €325–335m has been confirmed, although guidance is now at the lower end of the EBIT range of €20.5–22.0m after high 9M costs.
Valuation: Re-rating potential
After a 10% decline over the course of this year, All for One Steeb shares currently trade at a 16% current-year PE discount to its eurozone peers. We see potential for significant outperformance if the group is able to generate margin expansion from ongoing growth in recurring revenues and more moderate investment in staff.
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Consensus estimates
Source: Bloomberg |
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Research: TMT
Due to product launch delays at the end of FY17, Cliq Digital (CLIQ) saw H1 revenues and operating profits fall by 12% and 38% y-o-y. However, net income benefited from a non-recurring credit of €0.8m due to reductions in estimated contingent consideration. Nevertheless, we are encouraged by the growing marketing expenditure, which should drive improved performance in H2. The shares trade at a substantial discount to peers.