Reply consists of a network of 145 highly specialised companies, focused on digital transformation, with different areas of expertise. Reply has continued to support its customers in their digital transformation journey during 2020, a year of unprecedented disruption. The company’s impressive track record of revenue growth and double-digit profitability continued into H120, resulting in a strengthened balance sheet. Reply’s network of specialised companies are well-positioned to benefit from the increased speed of digitisation forced on firms by the COVID-19 pandemic.
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Reply |
Well positioned for growth
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Technology |
Deutsches Eigenkapitalforum 2020
2 November 2020 |
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Reply consists of a network of 145 highly specialised companies, focused on digital transformation, with different areas of expertise. Reply has continued to support its customers in their digital transformation journey during 2020, a year of unprecedented disruption. The company’s impressive track record of revenue growth and double-digit profitability continued into H120, resulting in a strengthened balance sheet. Reply’s network of specialised companies are well-positioned to benefit from the increased speed of digitisation forced on firms by the COVID-19 pandemic.
Impressive track record
Reply’s unique structure has led the group’s companies to function as innovative and entrepreneurial technology start-ups, which benefit from the processes and stability of a larger parent company. Their focus has been on early adoption of newer technologies, as well as staying away from commoditised products. Additionally, M&A – specifically to gain new technology competencies, as well as international expansion (key focus markets: Germany, the UK, the US and France) – has contributed to Reply’s impressive long-term track record. Group revenues increased at a solid 23% CAGR, from €19m in 1999 to €1,183m in 2019 (13.3% CAGR in the past decade). Reply managed to grow its top line even during the 2008–09 global financial crisis, while also maintaining double-digit EBITDA margins since it was founded in 1996. The company aims to grow revenue by 10% annually and targets an EBITDA margin in the range of 14-to-16%.
Growth has continued into 2020
Reply’s deep expertise in fast-growing technologies such as AI, cloud and the IoT has helped the company grow its revenue and profitability in H120, a period affected by the onset of the COVID-19 pandemic and resultant lockdowns. H120 revenue increased 7.2% y-o-y to €615.2m, on which it earned EBITDA of €90.2m (+5.3% y-o-y), equating to a 14.7% EBITDA margin. Reply ended the period with a 16.8% higher net cash position of €122.6m (vs €105m net cash at the end of 2019).
Valuation premium on above-average growth
Reply’s shares have gained 38% year-to-date and trade at 29.2x 2021e consensus earnings. Although this may look expensive, we note that Reply has: (i) a long-term track record of solid growth, combined with (ii) consensus growth forecasts ahead of the industry average. Consensus forecasts for Reply imply top-line growth of 5.3% in 2020 and 9.9% in 2021, which is robustly ahead of the 5.4% decline forecasted for global IT spending by Gartner in 2020, and 4% growth for 2021.
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Consensus estimates
Source: Company data and Refinitiv |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Novabase is a leading IT services company and the largest technology company listed on the Lisbon Stock Exchange. The company is currently in the midst of a major transformation, to focus on new fast-growing technologies such as AI, analytics, automation and cloud. Novabase has continued to grow in 2020 and is in a strong position to gain from the increased speed of digitisation COVID-19 has forced on organisations.