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HUF701.00
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HUF209,652m
Research: TMT
FY21 was a record year for 4iG, with net revenues rising 62% y-o-y to HUF93bn and EBITDA rising 125% to HUF11.4bn, driven by a mix of organic growth and M&A. 4iG completed six acquisitions in the year, with the acquisitions of DIGI Group, ALBtelecom and ONE completed in Q122. These have been funded by the HUF371bn bond issue from December 2021, together with the HUF125bn share placing, which brought in Rheinmetall as a strategic investor. FY21 net debt rose to HUF165bn and is likely to rise further in H122 with the closing of the additional acquisitions. Given the degree of uncertainty, we have chosen to withdraw our forecasts temporarily, pending greater clarity on the shape and financial structure of the enlarged group, with ongoing uncertainty over Spacecom. Assuming all announced acquisitions complete, Scope Ratings expects total pro-forma FY21 revenues of c HUF380bn and EBITDA above HUF100bn.
4iG |
Strong end to FY21, awaiting clarity for FY22 |
Q421 update |
IT services |
6 April 2022 |
Share price performance
Business description
Next events
Analysts
4iG is a research client of Edison Investment Research Limited |
FY21 was a record year for 4iG, with net revenues rising 62% y-o-y to HUF93bn and EBITDA rising 125% to HUF11.4bn, driven by a mix of organic growth and M&A. 4iG completed six acquisitions in the year, with the acquisitions of DIGI Group, ALBtelecom and ONE completed in Q122. These have been funded by the HUF371bn bond issue from December 2021, together with the HUF125bn share placing, which brought in Rheinmetall as a strategic investor. FY21 net debt rose to HUF165bn and is likely to rise further in H122 with the closing of the additional acquisitions. Given the degree of uncertainty, we have chosen to withdraw our forecasts temporarily, pending greater clarity on the shape and financial structure of the enlarged group, with ongoing uncertainty over Spacecom. Assuming all announced acquisitions complete, Scope Ratings expects total pro-forma FY21 revenues of c HUF380bn and EBITDA above HUF100bn.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/19 |
41.1 |
3.3 |
31.5 |
22.0 |
26.0 |
2.7 |
12/20 |
57.3 |
4.2 |
37.2 |
22.5 |
22.1 |
2.7 |
12/21** |
93.0 |
8.1 |
62.0 |
39.6 |
13.2 |
4.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Unaudited results.
Strong Q4 helped 4iG beat our FY21 estimates
Supported by contributions from its acquisitions, Invitech and ONE Montenegro (formerly Telenor Montenegro), Q421 was a record quarter for 4iG, with net revenues up 68% y-o-y to HUF40bn and EBITDA soaring 251% y-o-y to HUF7.8bn. For the full year, in its unaudited preliminary results 4IG reported revenues of HUF93bn, c 12% above our estimate and EBITDA of HUF11.4bn, 27% above our estimate. Year-end net debt of HUF165bn is likely to rise further in H122 with the acquisitions of DIGI Group, ALBtelecom and ONE closed in Q122.
Withdrawal of forecasts pending company guidance
With the transformation of the group evident but not yet complete, we do not feel that we are in a position to update our forecasts with any degree of accuracy, particularly given uncertainties over Spacecom. As such, we are temporarily withdrawing our forecasts pending clearer guidance from the company. We hope that this will be forthcoming in Q222, once there is greater clarity on the pending acquisitions and the group’s new capital structure.
Valuation: Low rating reflects execution risk
In December 2021, assuming completion of all announced deals, Scope Ratings indicated pro-forma FY21 revenues for 4iG of c HUF380bn (c €1bn) and EBITDA above HUF100bn (c €260m), with group EBITDA margins of 25–30%. This would create a group with attractive EBITDA margins, higher recurring revenues and an expanding regional footprint. With the shares trading on an EV/EBITDA multiple of 2.5x Scope Rating’s pro forma FY21 EBITDA (versus 9–10x for the sector), much of the execution risk seems to be priced into 4iG’s share price.
Q421 update
FY21: A transformative year for 4iG
Supported by contributions from its acquisitions, Invitech and ONE Montenegro (formerly Telenor Montenegro), Q421 net revenues rose to HUF40bn, up 68% y-o-y (Q420: HUF24bn). Q421 EBITDA rose 251% y-o-y to HUF7.8bn (Q420: HUF2.2bn), delivering a net profit of HUF3.4bn, a 119% increase y-o-y (Q420: HUF1.6bn). As can be seen in Exhibits 1 and 2 below, Q421 was a record quarter for 4iG, delivering 43% of FY21 revenues and 69% of the total annual EBITDA. Although the company has not provided a detailed breakdown, we estimate that the three acquisitions noted above may have contributed c HUF15bn of revenues and HUF3.5bn of EBITDA based on historic disclosures.
Exhibit 1: Quarterly revenues FY21 versus FY20 |
Exhibit 2: Quarterly EBITDA FY21 versus FY20 |
Source: 4iG |
Source: 4iG |
Exhibit 1: Quarterly revenues FY21 versus FY20 |
Source: 4iG |
Exhibit 2: Quarterly EBITDA FY21 versus FY20 |
Source: 4iG |
For the year as a whole, 4IG delivered net revenues of HUF93bn, c 12% above our estimates and EBITDA of HUF11.4bn, 27% above our estimate. Both gross margin and the EBITDA margin closed above our estimates as well as the FY20 margin, with a 35% gross margin (FY20: 28%) and a 12% EBITDA margin (FY20: 9%). The EBITDA margin in Q421, boosted by acquisitions, was 20% versus 7% for the first nine months of the year. Normalised net income of HUF5.9bn rose 75% y-o-y (FY20: HUF3.4bn), with normalised EPS rising 67% y-o-y.
Exhibit 3: Unaudited FY21 results versus Edison estimates
HUFm |
2020 |
2021e |
2021 |
FY21 |
y-o-y |
Actual |
Edison |
Actual |
Variance |
growth |
|
Revenues |
57,300 |
82,710 |
92,983 |
12% |
62% |
Gross profit |
15,928 |
24,987 |
32,666 |
31% |
105% |
Gross margin |
27.8% |
30.2% |
35.1% |
||
EBITDA |
5,047 |
8,916 |
11,360 |
27% |
125% |
EBITDA margin |
8.8% |
10.8% |
12.2% |
||
Normalised PBT |
4,175 |
7,254 |
8,060 |
11% |
93% |
Normalised net income |
3,393 |
5,398 |
5,940 |
10% |
75% |
Normalised basic EPS (HUF) |
37.2 |
55.5 |
62.0 |
12% |
67% |
Net debt/(cash) |
(2.7) |
5.7 |
164.7 |
N/M |
Source: 4iG, Edison Investment Research
Having completed a further HUF371bn bond issue in December 2021 (in addition to the HUF15bn issue in March 2021) to fund its announced acquisitions, net debt at the year end was HUF165bn, a significant step-up from the net cash of HUF3bn at the end of FY20. Net debt is likely to rise further in H122 following the completion of DIGI Group, which closed in January 2022, as well as ALBtelecom and ONE, which closed in March 2022, alongside the completion of the HUF125bn share placing.
Partnership with Rheinmetall delivers a strong message
Rheinmetall, a leading German defence group, has acquired a 25.1% minority stake in 4iG, validating 4iG’s strategy and underpinning the group’s valuation. The partnership positions 4iG for future revenue opportunities, with 4iG operating as a strategic IT partner to Rheinmetall, using the relationship to identify and address new digital market opportunities.
Rheinmetall’s investment makes it 4iG’s largest strategic investor, accelerating its development as a leading security technology systems supplier in CEE. Rheinmetall purchased 24.9m 4iG shares off-market from KZF (an investment vehicle controlled by Gellért Jászai), as well as participating in the HUF125bn share placing at a price of HUF670 per share, with iG COM (a separate investment vehicle controlled by Gellért Jászai) and a fund managed by Alpac Capital also participating alongside Rheinmetall.
The investment closed on 3 March 2022, following approval of the transaction by the Ministry of the Interior as well as by shareholders at 4iG’s extraordinary general meeting on 24 February 2022.
M&A: Six deals closed in FY21, three more in Q122
In FY21, 4iG closed six deals: Rotors & Cams (24%); ACE Network (formerly Spacenet) (70%); Poli Computer; Hungaro DigiTel (HDT) (75%); Invitech; and ONE Montenegro. As a result, the total number of employees in the 4iG group has increased to over 5,500 people, including over 600 engineers. The group also now has close to 100 vendor partners.
In addition to the M&A noted above, in February 2022 4iG acquired a 72% controlling stake in Antenna Hungária through the injection of its assets, DIGI Group (which closed in January 2022), ONE Montenegro and Invitech, into the holding company, to create a regional telecoms group in Hungary and the CEE region. The Hungarian government currently holds the remaining 28% in Antenna Hungária. 4iG’s holding is expected to increase in the near future (although its maximum holding is capped at 80% of the equity) with the injection of further telecoms assets (ALBTelecom, ONE) as these acquisitions have now completed.
The assets 4iG injected in the equity swap were valued at HUF402bn, providing a read-across equity value for Antenna Hungária of HUF561bn. This implied asset valuation stands at a substantial premium to 4iG’s enterprise value, currently HUF240bn.
Exhibit 4: M&A update Q421–Q122 |
Source: 4iG |
Sensitivities: Uncertainties remain for the moment
In FY21, 4iG announced a series of transformational acquisitions that will create a new regional ICT/telecoms group, funded by a bond placing (HUF371bn raised in December 2021) and the HUF125bn equity raise (ongoing). 4iG also achieved another of its medium-term goals, by becoming the market leading (by revenues) IT systems integrator in Hungary.
However, with the other pending M&A deals having completed, we note the delayed closure of Spacecom, initially expected to complete by the end of February 2022, now expected in Q222. Management’s intention was that Spacecom would be owned 51% by HDT, which in turn is 75% owned by 4iG and 25% by Antenna Hungária (in which 4iG will own a 72–80% stake).
With the transformation of the group evident but not yet complete, we are not able to update our forecasts with any degree of accuracy. As such, we are temporarily withdrawing our forecasts pending guidance from the company. We hope this will be forthcoming in Q222, once there is greater clarity on the remaining acquisitions and the group’s new capital structure.
Finally, press reports from January 2022 indicate that the Hungarian government has been referred to the EU by opposition parties over alleged illegal state aid to 4iG and circumvention of rules around competition clearance. We are not in a position to validate the truth or materiality of these reports. However, from conversations with the company, we understand that it is usual for MNB (Central Bank of Hungary) and MFB (Hungarian Development Bank) to participate in domestic bond auctions. With further details not publicly available, we are not able to ascertain if their level of participation was exceptional.
Exhibit 5: Financial summary
31-December |
HUFm |
2018 |
2019 |
2020 |
2021 |
|
INCOME STATEMENT |
IFRS |
IFRS |
IFRS |
IFRS |
||
Revenue |
|
|
14,007 |
41,129 |
57,300 |
92,983 |
Cost of Sales |
(8,938) |
(30,126) |
(41,372) |
(60,317) |
||
Gross Profit |
5,070 |
11,003 |
15,928 |
32,666 |
||
EBITDA |
|
|
842 |
4,075 |
5,047 |
11,360 |
Normalised operating profit |
|
|
240 |
3,332 |
4,211 |
7,243 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Share-based payments |
0 |
0 |
0 |
0 |
||
Reported operating profit |
240 |
3,332 |
4,211 |
7,243 |
||
Net Interest |
(21) |
(18) |
(36) |
817 |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
219 |
3,314 |
4,175 |
8,060 |
Profit Before Tax (reported) |
|
|
219 |
3,314 |
4,175 |
8,060 |
Reported tax |
(117) |
(488) |
(736) |
(1,709) |
||
Profit After Tax (norm) |
102 |
2,827 |
3,439 |
6,351 |
||
Profit After Tax (reported) |
102 |
2,827 |
3,439 |
6,351 |
||
Minority interests |
0 |
66 |
(46) |
(411) |
||
Discontinued operations |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
102 |
2,893 |
3,393 |
5,940 |
||
Net income (reported) |
102 |
2,893 |
3,393 |
5,940 |
||
Basic average number of shares outstanding (m) |
91.6 |
91.7 |
91.3 |
95.7 |
||
EPS - basic normalised (HUF) |
|
|
1.11 |
31.54 |
37.17 |
62.04 |
EPS - diluted normalised (HUF) |
|
|
1.08 |
30.77 |
36.09 |
61.24 |
EPS - basic reported (HUF) |
|
|
1.11 |
30.82 |
37.68 |
66.33 |
Dividend (HUF) |
0.00 |
22.00 |
22.49 |
39.60 |
||
Revenue growth (%) |
(17.2) |
193.6 |
39.3 |
62.3 |
||
Gross Margin (%) |
36.2 |
26.8 |
27.8 |
35.1 |
||
EBITDA Margin (%) |
6.0 |
9.9 |
8.8 |
12.2 |
||
Normalised Operating Margin |
1.7 |
8.1 |
7.3 |
7.8 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
1,571 |
1,948 |
3,989 |
183,163 |
Intangible Assets |
1,221 |
890 |
2,043 |
127,820 |
||
Tangible Assets |
140 |
322 |
777 |
36,715 |
||
Lease rights |
0 |
636 |
966 |
17,530 |
||
Investments & other |
210 |
101 |
203 |
1,098 |
||
Current Assets |
|
|
6,824 |
22,161 |
33,874 |
433,970 |
Stocks |
242 |
523 |
3,360 |
2,788 |
||
Debtors |
4,306 |
12,892 |
17,494 |
36,972 |
||
Cash & cash equivalents |
176 |
6,238 |
7,205 |
266,474 |
||
Other |
2,101 |
2,508 |
5,815 |
127,736 |
||
Current Liabilities |
|
|
(5,657) |
(18,225) |
(29,117) |
(52,815) |
Creditors |
(3,894) |
(16,361) |
(25,628) |
(50,342) |
||
Tax and social security |
0 |
0 |
0 |
0 |
||
Short term borrowings |
(1,758) |
(1,500) |
(3,019) |
(0) |
||
Other (including finance lease liabilities) |
(5) |
(364) |
(470) |
(2,473) |
||
Long Term Liabilities |
|
|
(18) |
(392) |
(1,067) |
(429,531) |
Long term borrowings |
0 |
0 |
(106) |
(409,075) |
||
Other long term liabilities |
(18) |
(392) |
(962) |
(20,456) |
||
Net Assets |
|
|
2,720 |
5,493 |
7,679 |
134,787 |
Minority interests |
0 |
64 |
(376) |
(1,905) |
||
Shareholders' equity |
|
|
2,720 |
5,556 |
7,303 |
132,882 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
842 |
4,075 |
5,047 |
11,360 |
||
Working capital |
(1,369) |
3,587 |
(797) |
(115,246) |
||
Exceptional & other |
(26) |
(5) |
91 |
0 |
||
Tax |
(117) |
(415) |
(773) |
(2,059) |
||
Net operating cash flow |
|
|
(671) |
7,243 |
3,568 |
(105,945) |
Capex |
(120) |
(1,471) |
(1,230) |
(4,527) |
||
Acquisitions/disposals |
0 |
3 |
(383) |
(7,007) |
||
Net interest |
(11) |
(13) |
(42) |
817 |
||
Equity financing |
0 |
185 |
(495) |
0 |
||
Change in finance lease |
9 |
(356) |
28 |
0 |
||
Dividends |
0 |
0 |
(2,001) |
(2,212) |
||
Other |
(3) |
36 |
(323) |
0 |
||
Net Cash Flow |
(795) |
5,626 |
(878) |
(118,875) |
||
Opening net debt/(cash) |
|
|
792 |
1,587 |
(4,039) |
(2,740) |
FX |
0 |
0 |
30 |
0 |
||
Other non-cash movements |
0 |
0 |
(451) |
(48,531) |
||
Closing net debt/(cash) |
|
|
1,587 |
(4,039) |
(2,740) |
164,665 |
Source: 4iG accounts, Edison Investment Research
|
|
Research: TMT
Supply chain issues affecting the global coatings industry meant that although Applied Graphene Materials’ (AGM) H122 revenues were similar to those in H121, they were below management expectations, leading the company to moderate its full year expectations. Nevertheless, the company made progress on multiple projects during the period, strengthening its position by taking it into complementary markets.
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