Trading remains in line and we have maintained our forecasts, which imply 2.7% FY19 organic revenue growth. Management’s two key priorities for FY19 are 1) improving EBITDA margins in all areas of the business and 2) ensuring the Delta integration is a success. In the longer run, margins stand to benefit from the group’s increasing scale and costs dropping out as the group’s three software platforms are consolidated over the next few years. In our view, the shares continue to look attractive, given the group’s c £56m recurring revenue book and the declining rating (c 15x FY20e), especially in light of the active M&A backdrop in the financial software sector. We note that Axioma, a StatPro competitor in the risk space, was recently acquired by Deutsche Börse for $850m or c 8.5x sales.
Written by
StatPro Group |
Trading remains in line with expectations |
AGM trading update |
Software & comp services |
23 May 2019 |
Share price performance
Business description
Next events
Analysts
StatPro Group is a research client of Edison Investment Research Limited |
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Trading remains in line and we have maintained our forecasts, which imply 2.7% FY19 organic revenue growth. Management’s two key priorities for FY19 are 1) improving EBITDA margins in all areas of the business and 2) ensuring the Delta integration is a success. In the longer run, margins stand to benefit from the group’s increasing scale and costs dropping out as the group’s three software platforms are consolidated over the next few years. In our view, the shares continue to look attractive, given the group’s c £56m recurring revenue book and the declining rating (c 15x FY20e), especially in light of the active M&A backdrop in the financial software sector. We note that Axioma, a StatPro competitor in the risk space, was recently acquired by Deutsche Börse for $850m or c 8.5x sales.
Year |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
49.3 |
3.3 |
5.8 |
2.9 |
22.8 |
2.2 |
12/18 |
54.8 |
5.0 |
7.3 |
2.9 |
18.2 |
2.2 |
12/19e |
58.0 |
6.2 |
8.0 |
2.9 |
16.5 |
2.2 |
12/20e |
61.0 |
7.4 |
9.1 |
2.9 |
14.6 |
2.2 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Two new contract wins underpin our forecasts
StatPro has recently announced two new contract wins: 1) a three-year contract with an EU investment manager for Revolution Delta, with a minimum contract value of €1.2m, including the addition of a new module to cover the new EU Money Market Regulations; and 2) a three-year contract extension with a top 20 fund administrator for Revolution, with a minimum contract value of £2.44m.
Extension of banking facilities
The group has increased its financing facilities to an aggregate £49m and extended them to April 2024. The funding is available for acquisitions, share buy-backs and general corporate purposes.
SiSoft legal case update
The SiSoft legal case was initiated in 2011, and in January 2017 the Commercial Court of Paris found in favour of StatPro. However, the Court of Appeal of Paris has now found in favour of the SiSoft shareholders and partially overturned the original ruling. StatPro strongly rejects the interpretation of the agreement by the Appeal Court and is considering an appeal to the French Supreme Court. We have assumed £0.85m of additional acquisition costs and £0.15m of interest. We now forecast the group to end FY19 with net debt of £22.2m (previously £21.2m).
Valuation: Highly scalable cloud computing upside
StatPro’s stock trades on c 17x our maintained FY19e EPS, which falls to c 15x in FY20e and to c 12x in FY21e. Alternatively, the shares trade on c 1.9x FY19 EV/Sales, around a third of the level of StatPro’s larger US financial software peers and a quarter of the level of US-based pure software-as-a-service companies. Our DCF model, when incorporating 10-year organic revenue CAGR of c 3.7%, terminal growth of 2%, a long-term operating margin target of 24.0% and a WACC of 9%, values the shares at 230p, 74% above the current share price.
Exhibit 1: Financial summary
£'000s |
2016 |
2017 |
2018 |
2019e |
2020e |
2021e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
37,545 |
49,260 |
54,841 |
58,000 |
61,000 |
64,287 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
37,545 |
49,260 |
54,841 |
58,000 |
61,000 |
64,287 |
||
EBITDA |
|
|
5,104 |
6,838 |
9,011 |
9,499 |
10,499 |
12,303 |
Adjusted Operating Profit |
|
|
3,461 |
4,917 |
7,214 |
7,880 |
8,886 |
10,641 |
Amortisation of acquired intangibles |
(1,060) |
(2,243) |
(3,161) |
(3,161) |
(3,161) |
(3,161) |
||
Exceptionals |
(11,378) |
(3,934) |
(2,578) |
(1,000) |
0 |
0 |
||
Share based payments |
(361) |
(626) |
(207) |
(675) |
(700) |
(725) |
||
Operating Profit |
(9,338) |
(1,886) |
1,268 |
3,044 |
5,025 |
6,755 |
||
Net Interest |
(786) |
(1,585) |
(2,256) |
(1,664) |
(1,464) |
(1,264) |
||
Profit Before Tax (norm) |
|
|
2,675 |
3,332 |
4,958 |
6,217 |
7,423 |
9,377 |
Profit Before Tax (FRS 3) |
|
|
(10,124) |
(3,471) |
(988) |
1,381 |
3,562 |
5,491 |
Tax |
(489) |
563 |
(141) |
(932) |
(1,410) |
(1,875) |
||
Profit After Tax (norm) |
2,843 |
4,505 |
5,434 |
5,284 |
6,013 |
7,502 |
||
Profit After Tax (FRS 3) |
(10,613) |
(2,908) |
(1,129) |
448 |
2,152 |
3,616 |
||
Minority interests |
(94) |
(131) |
(21) |
0 |
0 |
0 |
||
Net income (norm) |
2,186 |
3,764 |
4,796 |
5,284 |
6,013 |
7,502 |
||
Net income (statutory) |
(10,707) |
(3,039) |
(1,150) |
448 |
2,152 |
3,616 |
||
Average Number of Shares Outstanding (m) |
65.3 |
64.8 |
65.7 |
65.9 |
66.2 |
66.5 |
||
EPS - normalised (p) |
|
|
3.3 |
5.8 |
7.3 |
8.0 |
9.1 |
11.3 |
EPS - FRS 3 (p) |
|
|
(16.4) |
(4.7) |
(1.8) |
0.7 |
3.2 |
5.4 |
Dividend per share (p) |
2.90 |
2.90 |
2.90 |
2.90 |
2.90 |
2.90 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
||
EBITDA Margin (%) |
13.6 |
13.9 |
16.4 |
16.4 |
17.2 |
19.1 |
||
Operating Margin (before GW & except.) (%) |
9.2 |
10.0 |
13.2 |
13.6 |
14.6 |
16.6 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
59,088 |
70,864 |
69,615 |
67,658 |
65,542 |
63,394 |
Intangible Assets |
55,696 |
64,793 |
63,701 |
61,913 |
59,885 |
57,791 |
||
Tangible Assets |
2,742 |
3,303 |
3,447 |
3,278 |
3,191 |
3,136 |
||
Other assets |
650 |
2,768 |
2,467 |
2,467 |
2,467 |
2,467 |
||
Current Assets |
|
|
19,081 |
20,912 |
18,438 |
21,112 |
25,967 |
32,433 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
14,725 |
16,601 |
15,867 |
16,781 |
17,649 |
18,600 |
||
Cash |
4,356 |
4,311 |
2,571 |
4,331 |
8,318 |
13,833 |
||
Current Liabilities |
|
|
(35,686) |
(38,171) |
(35,224) |
(37,376) |
(39,534) |
(41,851) |
Creditors |
(27,227) |
(30,720) |
(27,433) |
(29,585) |
(31,743) |
(34,060) |
||
Short term borrowings |
(8,459) |
(7,451) |
(7,791) |
(7,791) |
(7,791) |
(7,791) |
||
Long Term Liabilities |
|
|
(9,897) |
(22,989) |
(25,444) |
(22,518) |
(19,591) |
(16,665) |
Long term borrowings |
(5,961) |
(17,076) |
(19,418) |
(18,719) |
(18,019) |
(17,320) |
||
Other long term liabilities |
(3,936) |
(5,913) |
(6,026) |
(3,799) |
(1,572) |
655 |
||
Net Assets |
|
|
32,586 |
30,616 |
27,385 |
28,877 |
32,384 |
37,311 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
7,454 |
10,676 |
12,839 |
15,702 |
17,117 |
19,183 |
Net Interest |
(500) |
(1,227) |
(1,873) |
(1,814) |
(1,464) |
(1,264) |
||
Tax |
(1,294) |
(144) |
(763) |
(350) |
(870) |
(1,336) |
||
Capex |
(6,445) |
(7,213) |
(7,794) |
(7,942) |
(8,176) |
(8,440) |
||
Acquisitions/disposals |
(4,786) |
(10,269) |
(3,417) |
(1,225) |
0 |
0 |
||
Equity financing |
(2,079) |
926 |
147 |
0 |
0 |
0 |
||
Dividends |
(1,877) |
(2,012) |
(1,980) |
(1,912) |
(1,921) |
(1,929) |
||
Net Cash Flow |
(9,527) |
(9,263) |
(2,841) |
2,459 |
4,686 |
6,214 |
||
Opening net debt/(cash) |
|
|
(1,283) |
10,065 |
20,217 |
24,638 |
22,179 |
17,493 |
Other |
(1,821) |
(889) |
(1,580) |
() |
0 |
0 |
||
Closing net debt/(cash) |
|
|
10,065 |
20,217 |
24,638 |
22,179 |
17,493 |
11,279 |
Source: StatPro accounts, Edison Investment Research
|
|
The recent investor day confirmed the opportunities we see for ERM Power from an evolving energy market, which we expect will create medium-term growth potential especially for the Energy Solutions business. In the meantime, investors will benefit from strong forecasted cash flow generation, with total free cash flow over the period FY19–21 equivalent to c 40% of the current market cap. We expect this to be allocated in a balanced way between shareholders’ remuneration and growth capex.