Vista Group International

Transcription

1 NEW ZEALAND VGL NZ Price (at 03:15, 26 Feb 2015 GMT) Outperform NZ$4.35 Valuation NZ$ DCF (WACC 9.9%, beta 1.0, ERP 7.0%, RFR 4.0%, TGR 2.0%) 12-month target NZ$ month TSR % +9.5 Volatility Index Low/Medium GICS sector Software & Services Market cap NZ$m day avg turnover NZ$m 0.2 Number shares on issue m Investment fundamentals Year end 31 Dec 2014A 2015E 2016E 2017E Revenue m EBIT m Reported profit m Adjusted profit m Gross cashflow m CFPS CFPS growth % nmf PGCFPS x PGCFPS rel x EPS adj EPS adj growth % nmf PER adj x PER rel x Total DPS Total div yield % Franking 1 % nmf nmf ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x NZ imputation credits are only able to be used by shareholders to offset NZ income tax liability. VGL NZ vs NZSE50, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, February 2015 (all figures in NZD unless noted) 27 February 2015 Macquarie Securities (NZ) Limited Great start Event Vista Group released its 2014 results. Impact Vista Cinema is the highlight of this result. The software was installed at 1,103 sites (prospectus=890), which drove revenues by an estimated $3.1 million above prospectus. The additional sites at the end of 2014 will lead to greater maintenance revenues in 2015 and beyond, and as a result we have upgraded our Vista Cinema revenue estimates. The company also indicated that it was investing in the Veezi platform to allow increased growth in this business. Movio also contributed $0.3 million more than prospectus forecasts. We thought two comments made by management were interesting. First, Vista stated that Movio s functionality was acting as a draw card for potential Vista cinema customers; a couple of years ago Movio leveraged off Vista cinema. Second, Studios have provided feedback on the changes required before they would pay to use Movio Media, which suggests that they value the product; we do not include revenues from this product in our forecasts. MACCS lagged prospectus forecasts by $1.5 million. The forecasts assumed that they would successfully sell the product in the US market. While it seems they are close, the process is taking longer than they hoped. Management are confident that they will meet their 2015 forecasts and so we have left our 2015 forecasts unchanged. Numero is collecting box office information from 90% of cinemas in Australia, but needs 100% coverage before they can start to sell the platform to customers. At this stage, Numero is very small and we have elected to assume that it remains that way. Consequently, the miss has a modest impact. Vista management have elected not to provide updated guidance on 2015 prospectus forecasts. We are comfortable with higher forecasts, driven by slightly higher growth from Veezi revenues, higher levels of revenues from Vista Cinema and a depreciation in the Kiwi dollar since the IPO forecasts were set. Earnings and target price revision EPS revisions: FY14=11%, FY15=3% and FY16=4%. Price target raised from $3.90 to $4.75. Price catalyst 12-month price target: NZ$4.75 based on a DCF methodology. Catalyst: First half result or updates on 2015 prospectus forecasts. Action and recommendation We rate Vista an Outperform with a $4.75 price target. While this target price implies a modest TSR, we have not incorporated any revenues from Movio Media. This product has significant potential and is getting closer to commercialisation. Please refer to page 5 for important disclosures and analyst certification, or on our website

2 Result analysis Given the timing of the IPO (August), we decided to adopt the prospectus forecast for Segmental revenue split. While Vista did not provide a segmental break down by business, information in Note 13 of the accounts can be used to calculate revenues (on both a pro-forma and statutory basis). More specifically, Note 13 provides the revenue contributions from Movio and MACCS; Cinema software is the residual. Vista Cinema outperformed forecasts by $3.1 million. The Vista Cinema software was installed at a staggering 1031 sites in 2014 (Macq=890). To put this into perspective, the second largest player in the Cinema enterprise software market, NCR, is installed at less than 1,000 sites. Movio outperformed forecasts by $0.3 million. This represents a rebound on a slower than expected first half (the commentary made by management very carefully focused on the result since the buyout of minorities). The acceleration in this business during the year is extremely impressive. MACCS underperformed forecasts by $1.5 million. Vista acquired 50% of MACCS because they believed that they could assist MACCS in the sale process of their software, in particular the US. It seems that MACCs is getting close to securing its first US customer, but they failed to sign them up before the end of the year. Vista is confident that these delays are transitionary and that MACCS will make FY15 prospectus forecasts. Given the conservatism of Vista management, we are happy to give them the benefit of the doubt. Operating expenses were $0.5 million higher than forecast. Vista management indicated on the call that they made stock based payments to employees to the value of $1 million that were not included in the prospectus. Sales and Market expense was $0.7 million higher than forecast. Given the high level of Vista Cinema sales, we are not surprised that this expense item is above that of the prospectus. Fig 1 Comparison of the result with forecasts Divisional revenue ($m) Actual Forecast Difference % Cinema Software (Vista Ent) % Data Analytics (Movio) % Film Distribution (MACCS) % Total revenue % Operating expenses % Opex as % of sales 48% 49% -1% -1.9% Sales and Marketing expense % S&M as % of sales 7% 5% 2% 28.0% Administration expense % Admin as % of sales 25% 26% -1% -5.0% EBITDA % EBITDA margin 20% 20% 0% 0.8% Depreciation & amortisation % EBIT % Net interest expense % Abnormals % Earnings from associates % Net profit before tax % Taxation % Minorities % Net profit after tax % Source: Company data, Macquarie Research, February 2015 Forecast changes The changes we have made to our forecasts are confined to two areas: Vista Cinema and Currency. Vista Cinema: we have not changed the number of new sites installed in FY15 and so our License revenues have not changed, but the higher number of sites at the end of 2014 increases the maintenance revenues generated by Vista Cinema. It is important to note that we have applied lower maintenance revenue per site for the DADI sites, because we understand that this region provides lower revenues per site. 27 February

3 Currency: we have incorporated current exchange rates in our forecasts. The last time we updated exchange rates was in mid-november. More specifically, our new rates are (previous rates are in brackets): US Dollars =0.75 (0.77), British Pounds = 0.49 (0.51), Euro =0.67 (0.62), Australian Dollars 0.96 (0.92) and Renminbi 4.7 (4.7). Change in Valuation Figure 2 provides a breakdown of our valuation increase. We expect the inclusion of Movio will allow a significant uplift in DCF; at this stage the changes are all modest. Time = 10cps. It has been three months since we last updated our valuation. Roll forward = $0.14cps we have added another year to our forecast extending the forecast period back to 10 years. Change in net debt = $0.16cps. Cash increased when we rolled forward a period. Customer churn = $0.24cps. We have incorporated 4% customer churn in our terminal year, which allows Vista to generate a modest level of License revenue from Vista Cinema. Upgrades = $0.11cps. The stronger than expected new site additions and Kiwi decline has led to modest upgrades. Fig 2 Change in DCF valuation Impact $3.56 $0.10 $0.14 $0.16 $0.24 $0.11 $ Old DCF Time Roll forward Change in net debt Customer churn Upgrades New DCF 4 Source: Company data, Macquarie Research, February February

4 Fig 3 Financial summary PROFIT & LOSS 1H14a 2H14a 1H15e 2H15e PROFIT & LOSS FY14a FY15e FY16e FY17e Divisional revenue Divisional revenue Cinema Software (Vista Ent) Cinema Software (Vista Ent) Data Analytics (Movio) Data Analytics (Movio) Film Distribution (MACCS) Film Distribution (MACCS) Total revenue Total revenue Operating expenses Operating expenses Opex as % of sales Opex as % of sales 48% 45% 44% 43% Sales and Marketing expense Sales and Marketing expense S&M as % of sales S&M as % of sales 7% 6% 6% 6% Administration expense Administration expense Admin as % of sales 28% 23% 24% 23% Admin as % of sales 25% 24% 24% 24% EBITDA EBITDA EBITDA margin 16% 22% 22% 25% EBITDA margin 20% 24% 24% 25% Depreciation & amortisation Depreciation & amortisation EBIT EBIT Net interest expense Net interest expense Abnormals Abnormals Earnings from associates Earnings from associates Net profit before tax Net profit before tax Taxation Taxation Minorities Minorities Net profit after tax Net profit after tax Adjustments Adjustments Adjusted earnings Adjusted earnings KEY ASSUMPTIONS (%) 1H14a 2H14a 1H15e 2H15e KEY ASSUMPTIONS (%) FY14a FY15e FY16e FY17e Vista Cinema installed sites 3,273 4,066 4,322 4,577 Vista Cinema installed sites 4,066 4,577 5,077 5,477 New sites New sites Veezi customers Veezi customers ,170 New customers New customers NZD\USD exchange rate NZD\USD exchange rate MULTIPLES AND PER-SHARE METRICS 1H14a 2H14a 1H15e 2H15e MULTIPLES AND PER-SHARE METRICS FY14a FY15e FY16e FY17e Earnings per share (cps) Earnings per share (cps) Price/earnings ratio 180.3x 55.8x 35.3x 28.5x Price/earnings ratio 85.2x 31.5x 24.2x 21.6x Payout ratio 0% 0% 0% 0% Payout ratio 0% 0% 48% 49% Dividend per share (cps) Dividend per share (cps) Imputation level 0% 0% 0% 0% Imputation level 100% 100% Dividend yield (gross) 0.0% 0.0% 0.0% 0.0% Dividend yield (gross) 0.0% 0.0% 2.7% 3.1% Net Assets per share Net Assets per share Price/Net Assets 15.4x 5.3x 4.9x 4.5x Price/Net Assets 5.3x 4.5x 4.1x 3.7x EV/EBIT 63.3x 25.9x 23.6x 19.2x EV/EBIT 36.7x 21.1x 16.5x 14.4x EV/EBITDA 55.5x 23.3x 21.7x 17.9x EV/EBITDA 32.8x 19.6x 15.5x 13.6x Weighted average shares (M) Weighted average shares (M) KEY RATIOS 1H14a 2H14a 1H15e 2H15e KEY RATIOS FY14a FY15e FY16e FY17e Revenue growth -2.2% 42.4% 70.9% 10.8% Revenue growth 21.9% 33.0% 22.0% 12.9% Operating expense growth 7.1% 44.2% 68.0% 14.2% Operating expense growth 27.1% 35.1% 20.6% 12.5% EBITDA growth -32.8% 36.9% 156.2% 30.2% EBITDA growth 4.8% 67.4% 26.3% 14.0% NPAT growth 0.0% 0.0% 400.4% 88.3% NPAT growth 160.0% 34.5% 15.0% EPS growth 0.0% 0.0% 400.4% 88.3% EPS growth 160.0% 34.5% 15.0% DPS growth 0.0% 0.0% 0.0% 0.0% DPS growth 15.2% ROA 11.8% 12.6% 12.6% 14.6% ROA 8.8% 13.2% 15.6% 16.6% ROE 8.0% 9.2% 12.7% 14.7% ROE 5.9% 13.2% 16.1% 16.6% Debt/(debt + equity) 6.2% -27.5% -37.4% -39.3% Debt/(debt + equity) -27.5% -39.3% -40.7% -42.8% Interest coverage 4.9x -8.5x -25.1x -16.4x Interest coverage BALANCE SHEET 1H14a 2H14a 1H15e 2H15e BALANCE SHEET FY14a FY15e FY16e FY17e Cash and cash equivalents Cash and cash equivalents Trade and other receivables Trade and other receivables Property, plant and equipment Property, plant and equipment Intangible assets Intangible assets Other assets Other assets Total Assets Total Assets Trade and other payables Trade and other payables Interest-bearing liabilities Interest-bearing liabilities Other liabilities Other liabilities Total Liabilities Total Liabilities Shareholders' equity Shareholders' equity DCF VALUATION Total $/share % CASH FLOW FY14a FY15e FY16e FY17e Riskfree rate 4.00% Receipts from customers Equity market risk premium 7.00% Payments to suppliers and employees Asset beta 1.00 Other cashflows from operations WACC 9.88% Net operating cash flows TGR 2.00% Purchases of PP&E Other cashflows from investments Forecast cashflows % Net investment cash flows Terminal value % Issue of share capital Enterprise value % Net increase in net debt Net debt % Dividends paid Equity value % Net financing cash flows Source: Company data, Macquarie Research, February February

5 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie First South - South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 December 2014 AU/NZ Asia RSA USA CA EUR Outperform 51.80% 58.06% 45.07% 44.42% 60.54% 46.81% (for US coverage by MCUSA, 5.29% of stocks followed are investment banking clients) Neutral 31.80% 27.37% 30.99% 50.10% 35.37% 33.51% (for US coverage by MCUSA, 3.08% of stocks followed are investment banking clients) Underperform 16.39% 14.57% 23.94% 5.48% 4.08% 19.68% (for US coverage by MCUSA, 0.44% of stocks followed are investment banking clients) VGL NZ vs NZSE50, & rec history (all figures in NZD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, February month target price methodology VGL NZ: NZ$4.75 based on a DCF methodology Company-specific disclosures: VGL NZ: MACQUARIE SECURITIES (NZ) LIMITED or one of its affiliates managed or co-managed a public offering of securities of Vista Group International Ltd in the past 12 months, for which it received compensation. Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 12-Nov-2014 VGL NZ Outperform NZ$ Sep-2014 VGL NZ Outperform NZ$3.10 Target price risk disclosures: VGL NZ: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN , AFSL No ) ( MGL ) and its related entities (the Macquarie Group ) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN , AFSL No ) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Equities Limited (ABN , AFSL No ) ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act Any MGL subsidiary noted in this research, apart from MBL, is not an authorised deposit-taking institution for the purposes of the Banking Act 27 February

6 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return and delete the document. We do not guarantee the integrity of any s or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at 27 February