Utilitywise
Written by
Utilitywise |
On track for FY16 |
Trading update |
Industrial support services |
19 February 2016 |
Share price performance
Business description
Next event
Analysts
Utilitywise is a research client of Edison Investment Research Limited |
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Utilitywise’s (UTW) trading update states the business is progressing in line with management expectations and indicates that the company remains on track for FY16. Encouragingly, the proportion of extensions business is said to be declining. A continuation of the reduction in the proportion of contract extensions in H2 would have a beneficial impact on cash flow and, in our view, market perception of the business. Potential upside remains.
Year end |
Revenue (£m) |
EBITDA* |
EPS* |
DPS |
P/E |
Yield |
07/14 |
48.9 |
14.5 |
14.6 |
4.0 |
11.9 |
2.3 |
07/15 |
69.1 |
17.8 |
17.9 |
5.0 |
9.7 |
2.9 |
07/16e |
93.3 |
20.8 |
20.0 |
5.8 |
8.7 |
3.3 |
07/17e |
104.9 |
23.9 |
23.0 |
7.0 |
7.5 |
4.0 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Trading update shows progress
UTW’s trading update states that for the six months to the end of January the business performed in line with management expectations. UTW highlighted revenue growth in the UK and European operations, year-on-year growth in customer numbers (29,228 vs 22,048, 31 January 2015) and an expansion of the revenue pipeline (£24.7m vs £23.5m, 31 January 2015), although the pipeline showed a small decline vs the year-end figure of £26.2m. Consultant headcount reached 625 (449 at 31 January 2015) and net debt stood at £10.4m. The CEO, Geoff Thompson, said the company continues to make progress in negotiating new commercial terms with suppliers and, significantly, that “the rate of new customer acquisition has increased compared to extensions and renewals”.
Outlook unchanged
We have made some fine-tuning adjustments to our projections for FY16 and FY17 but, based on the trading update, we are not minded to make significant alterations. Our forecasts include 36% expected revenue growth and an increase in consultant headcount to 743, which will require a challenging (although not unprecedented given the addition of 247 consultants in FY15) pick up in H2. Importantly for cash flow, we assume a decline in the proportion of the extension business to 30% for FY16 and 25% for FY17 compared to 40% in FY15. Our FY16 projection for net debt (£5.0m) remains sensitive to the proportion of renewals business achieved.
Valuation: Potential upside remains
We continue to examine short- and long-term approaches to provide a valuation framework for UTW. Short-term approaches such as PEG and peer multiple analysis produce an average valuation of 216p per share, while longer-term methods (transaction/DCF) produce a higher valuation of 293p. Averaging the two approaches suggests a valuation of 255p. Excluding the DCF from the calculation yields an average valuation of 232p/share.
Exhibit 1: Financial summary
|
|
2014 |
2015 |
2016e |
2017e |
31st July |
|
IFRS |
IFRS |
IFRS |
IFRS |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
PROFIT & LOSS |
|
|
|
|
|
Revenue |
|
48,947 |
69,106 |
93,306 |
104,921 |
Cost of Sales |
|
(26,586) |
(38,810) |
(53,651) |
(60,644) |
Gross Profit |
|
22,361 |
30,296 |
39,655 |
44,277 |
EBITDA |
|
14,467 |
17,785 |
20,805 |
23,937 |
Operating Profit (before amort and except) |
13,751 |
16,920 |
20,013 |
22,960 |
|
Intangible Amortisation |
|
(946) |
(1,297) |
(1,410) |
(1,963) |
Exceptionals |
|
(22) |
(570) |
0 |
0 |
Share Based Payments |
|
(737) |
(695) |
(720) |
(756) |
Other |
|
0 |
0 |
0 |
0 |
Operating Profit |
|
12,046 |
14,357 |
17,883 |
20,242 |
Net Interest |
|
(373) |
(235) |
(605) |
(570) |
Profit Before Tax (norm) |
|
13,379 |
16,685 |
19,408 |
22,390 |
Profit Before Tax (FRS 3) |
|
11,673 |
14,123 |
17,279 |
19,671 |
Tax |
|
(2,170) |
(2,927) |
(3,629) |
(3,934) |
Profit After Tax (norm) |
|
11,208 |
13,758 |
15,780 |
18,456 |
Profit After Tax (FRS 3) |
|
9,503 |
11,196 |
13,650 |
15,737 |
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
72.5 |
75.3 |
77.7 |
79.2 |
|
EPS - normalised (p) |
|
15.4 |
18.3 |
20.3 |
23.3 |
EPS - normalised fully diluted (p) |
|
14.6 |
17.9 |
20.0 |
23.0 |
EPS - (IFRS) (p) |
|
13.0 |
14.9 |
17.6 |
19.9 |
Dividend per share (p) |
|
4.0 |
5.0 |
5.8 |
7.0 |
|
|
|
|
|
|
Gross Margin (%) |
|
45.7 |
43.8 |
42.5 |
42.2 |
EBITDA Margin (%) |
|
29.6 |
25.7 |
22.3 |
22.8 |
Operating Margin (before GW and except.) (%) |
28.1 |
24.5 |
21.4 |
21.9 |
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
Fixed Assets |
|
36,975 |
66,048 |
73,234 |
79,043 |
Intangible Assets |
|
21,926 |
37,171 |
35,761 |
33,798 |
Tangible Assets |
|
4,838 |
5,899 |
6,073 |
6,062 |
Investments & Other |
|
10,211 |
22,978 |
31,400 |
39,183 |
Current Assets |
|
30,436 |
23,075 |
37,203 |
47,496 |
Stocks |
|
98 |
643 |
889 |
1,004 |
Debtors |
|
13,958 |
15,939 |
28,111 |
30,662 |
Cash |
|
15,823 |
6,492 |
8,203 |
15,829 |
Other |
|
557 |
0 |
0 |
0 |
Current Liabilities |
|
(18,315) |
(18,420) |
(26,289) |
(28,289) |
Creditors |
|
(18,315) |
(18,420) |
(26,289) |
(28,289) |
Short term borrowings |
|
0 |
0 |
0 |
0 |
Long Term Liabilities |
|
(15,494) |
(24,581) |
(25,696) |
(27,198) |
Long term borrowings |
|
(6,000) |
(13,175) |
(13,175) |
(13,175) |
Other long term liabilities |
|
(9,494) |
(11,406) |
(12,521) |
(14,023) |
Net Assets |
|
33,602 |
46,121 |
58,451 |
71,052 |
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
Operating Cash Flow |
|
11,615 |
(2,567) |
8,438 |
17,074 |
Net Interest |
|
(373) |
(235) |
(605) |
(570) |
Tax |
|
(1,910) |
(2,208) |
(3,629) |
(3,934) |
Capex |
|
(631) |
(1,882) |
(965) |
(965) |
Acquisitions/disposals |
|
(835) |
(6,398) |
0 |
0 |
Financing |
|
101 |
149 |
2,531 |
924 |
Dividends |
|
(2,158) |
(3,365) |
(4,060) |
(4,902) |
Net Cash Flow |
|
5,810 |
(16,506) |
1,711 |
7,626 |
Opening net debt/(cash) |
|
(4,013) |
(9,823) |
6,683 |
4,972 |
HP finance leases initiated |
|
0 |
0 |
0 |
0 |
Other |
|
0 |
0 |
(0) |
0 |
Closing net debt/(cash) |
|
(9,823) |
6,683 |
4,972 |
(2,654) |
Source: Utilitywise and Edison Investment Research
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