Blancco Technology Group plc

Transcription

1 Technology Group plc imated 43% top line growth drives FY17 upgrades 18 January, 2017 Cyber-crime is not only the scourge of corporates, consumers and governments alike, but also the bane of many politicians. Just ask Hillary Clinton after highly embarrassing data was stolen from her Democratic Party s servers during the recent US elections and posted on the internet. Not surprisingly President-elect Trump plans to stamp this out, vowing to spend $billions beefing up America s online defences to stop the country being hacked by everybody, including Russia and China. Unfortunately the situation is probably no better elsewhere. Indeed, if this type of thing can happen right under the noses of the world s most technologically advanced economy, then there s probably also a great deal of work required to tighten up security ahead of this year s crucial Dutch, French and German elections. The good news is that there s help at hand from the likes of cyber-security expert, who we estimate delivered a thumping 43% jump in H1 17 revenues (~25% LFL) to 14.2m (vs 9.9m), on the back of a buoyant data erasure market, better than expected diagnostics growth and forex tailwinds (weaker ). Likewise we predict H1 adjusted EBITA came in at a healthy 3.6m (up 28% vs 2.7m LY), despite a period of heavy sales, marketing and R&D investment, including the filing of two UK patents to further strengthen the group s IPR and competitive moat. Our valuation climbs 8% to 275p/share Accordingly, going forward we have lifted our FY17 turnover and EBITA forecasts (see below) to 32.0m (+5.1%) and 8.1m (+8.0%) respectively, on top of bumping up our valuation to 275p/share (from 255p). Moving to the balance sheet, we understand underlying cash generation was strong, albeit offset in H1 by the payment of prior period expenses and one-off M&A costs thus leaving net debt of 6m as at 31 st Dec 16 (vs 1m net cash Jun 16). On top there is 2.2m of deferred consideration expected in H2, which coupled with other corporate expenses, means net debt is set to close June 2017 at circa 3.5m, vs 1.7m of net cash previously anticipated. FY17 to be modestly ahead of consensus Company Data EPIC AIM:BLTG Price (last close) 222p 52 week Hi/Lo 241p/165p Market cap 129m ED valuation 275p/share Avg. daily volume 100k Share Price, p 260p 240p 220p 200p 180p 160p 140p 120p Source: DigitalLook Description is the world s leading developer of data erasure software, used to protect governments and corporates from ID/data theft and cyber-crime, along with being a pioneer in smartphone diagnostics (Xcaliber). It is roughly 7x larger than its closest competitor, and led by CEO Pat Clawson, who has 20 years experience in technology/it security. Next news: H1 17 results in March CEO Pat Clawson adding The Group s erasure division saw good organic growth as the business executes its strategy of targeting larger customers, while the Group s mobile diagnostics division has been fully integrated and performed strongly, ahead of management s expectations. Both divisions, which have high levels of customer retention, have a strong pipeline of new business opportunities. Payments related to the disposals of the Regenersis repairs business and later disposal of the related insurance business, as well as the costs related to the acquisition of part owned subsidiaries have reduced cash balances since the financial year end, however, excluding these M&A related costs, the underlying business is cash generative. Paul Hill (Analyst) paul.hill@equitydevelopment.co.uk Hannah Crowe hannah@equitydevelopment.co.uk Please refer to the important disclosures shown on the back page and note that this information is Non-independent and categorised as Marketing Material

2 Technology Group plc 18 January, 2017 Forecasts Financials Projections, 000s (June year end) 2015 Act 2016 Act Erasure 15,014 21,659 28,911 35,271 43,031 52,498 Diagnostics ,125 3,906 4,883 6,104 Turnover 15,014 22,387 32,036 39,177 47,914 58,601 % growth rates Erasure 44.3% 33.5% 22.0% 22.0% 22.0% Diagnostics 329.3% 25.0% 25.0% 25.0% Group 49.1% 43.1% 22.3% 22.3% 22.3% Adjusted EBITDA 6,870 9,875 13,511 17,965 23,100 Margin % 30.7% 30.8% 34.5% 37.5% 39.4% Adjusted Operating Profit (EBIT) Erasure 5,382 7,605 9,454 11,710 14,286 17,429 Diagnostics ,221 Corporate expenses -1,359-1,516-1,561-1,608-1,657-1,706 Total (pre goodwill & SBPs) 4,023 6,089 8,111 10,570 13,411 16,944 EBIT margins % Erasure 35.8% 35.1% 32.7% 33.2% 33.2% 33.2% Diagnostics 0.0% 7.0% 12.0% 16.0% 20.0% Group 26.8% 27.2% 25.3% 27.0% 28.0% 28.9% Underlying net interest Xcaliber (49% owned pre Jan'16) Adjusted PBT (pre goodwill & SBPs) 2,653 5,586 7,811 10,370 13,311 16,944 Minorities ( sales offices) ,121-1,288 Effective tax rate -27.7% -15.8% -20.0% -21.0% -22.0% -23.0% Adjusted EPS (p) EPS growth rate 98.1% 63.0% 32.3% 27.0% 25.7% Dividend (p) Yield 2.3% 0.9% 1.0% 1.1% 1.2% 1.3% Valuation benchmarks P/E ratio PER (excluding net cash) EV/Sales EV/EBIT EV/EBITDA PEG ratio Dividend cover Unlevered free cash flow yield (FCF/EV) 2.6% 4.1% 4.3% 5.6% 7.1% 8.9% Reported share count 77,550 71,537 58,806 59,423 60,040 60,656 Net cash/(debt) 7,786 1,042-3,500-1,096 3,117 8,528 Share price (p) 222 Note: Adjusted EBITA, PBTA and EPS excludes non-recurring items, share based payments and the amortisation of purchased goodwill but is stated after capitalised R&D (FY16 0.5m). Source: Company historic data, ED estimates 2

3 18 January, 2017 Technology Group plc Stock rated lower, too, compared to peers Finally, in terms of valuation continues to trade at a discount to its peers (see below), which to us appears surprising in light of the firm s excellent prospects, EBIT margins and FY17 PEG ratio of 0.4x. Current year (CY) EV/sales multiples vs cyber security peers Proofpoint 9.1 Mimecast 5.8 Rapid7 2.4 Imperva 3.8 FireEye Source: Equity Development - prices as at 18th January 2017 CY EV/EBITDA multiples Source: Equity Development prices as at 18th January

4 Technology Group plc 18 January, 2017 CY EV/EBIT multiples Source: Equity Development - as at 18th January CY + 1 revenue growth 18% 22% 19% 15% 15% 5% 22% 15% 10% Proofpoint 30% 30% Mimecast 23% Rapid7 27% Imperva 20% FireEye 6% 0% 10% 20% 30% 40% Source: Equity Development 4

5 18 January, 2017 Technology Group plc CY adjusted EBIT margins 20.4% 18.2% 25.3% 12.3% 14.7% 52.8% 23.1% 23.8% 8.9% 20.2% Proofpoint 5.2% 0% 10% 20% 30% 40% 50% 60% Source: Equity Development Key risks Unforeseen events, such as severe economic downturn, potentially delaying client IT investments. Anticipated growth/profitability may take longer than originally envisaged, cost more or not be fully realised. Larger software deals can lead to more lumpy revenues. Foreign exchange fluctuations, albeit this is primarily a translation risk with 90% of s revenues being generated outside of the UK. Regulatory and tax changes. Competition may intensify due to new/existing players. 5

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