Update Note Price as of 21/02/13: 4 24 February 2014 Company / Sector Fair Value Recommendation InVision 49.0 Buy Technology: Cloud Computing ( 34) (Buy) Excellent margin trend in Prelims Share price performance Investment Case InVision s profit margins in Q4 reached 19.7% which lends support to our forecast that margins will reach close to 30% in 2014. We revise up our target price, mainly on account of the strong execution by InVision itself, but also because of the stock market s increased confidence in growth stocks. As a result, we lower the WACC from 10.4% to 8.3%. We note that our sample of Cloud computing stocks rallied 23% over the last 3 months compared with 43% for InVision. Share data Reuters IVXG Bloomberg IVX No. of shares (m) 2.24m Daily volume 2,556 Free float 15.1% Market cap. (m) 89.4 EV (m) 84.5 Valuation 2014e 2015e EV/Sales 6.0 5.6 EV/ EBITDA 19.1 16.3 EV/EBIT 21.0 17.6 PER 24.2 20.8 FCF Yield 3.7% 4.5% RoCE 89.1% 78.0% RoE 41.0% 32.0% GROWTH SEGMENT Even in its training product line, the company recently increased its focus on delivering Cloud products by stopping sales of conventional training methods. In its Call Center School it now concentrates exclusively on Online training modules, rather than seminars and webinars. The consolidated sales of the whole InVision company were flat in 2013 ( 13.6m vs. 13.2m) with new Cloud based business compensating for a slight decline in license income. We forecast the same pattern for 2014. CLOUD DELIVERY PAYS OFF Cloud based products are seeing a surge of new adoption currently and this was of benefit to the company last year already. However, one of the most attractive features of this business model for InVision is the very low costs associated with SaaS delivery. We now expect only 9.4m costs in 2014, compared with an estimated 11.4m in 2013. But the improvement in our target price also derives from the higher valuation of growth stocks, the increased growth rate of sales forecast by us over the next decade, combined with the increased margins. For additional disclosures please refer to the appendix Analyst Forecasts 2011 2012 2013e 2014e 2015e Sales 12.38 13.23 13.56 13.70 14.70 EBITDA -3.64 1.17 2.11 4.30 4.90 EBIT -3.86 0.82 1.75 3.92 4.54 Adrian Hopkinson, CFA Adj. EPS -3.39 0.28 0.74 1.65 1.92 Tel.: +44 790 9934 353 Dividend adrian.hopkinson@matelan.de Oper. CF -2.10 1.29 3.61 3.82 4.40
FOCUSSING ON CLOUD PRODUCTS The company s disposal of its call centre consultancy business in the US, and reduction of its seminar business would normally contribute a reduction in sales for 2014 by around 6%. We have incorporated this reduction into the new forecasts. Also the lower costs associated with the termination of these activities: we forecast US employee costs alone to be over 1m lower. Our revised forecasts are as follows. Forecast revisions 2013 2014 e 2015e Old (e) New (a) Old New Old New Sales 13.5 13.6 14.9 13.7 16.3 14.7 EBIT 1.73 1.75 3.09 3.92 3.5 4.54 Net profit (adj.) 1.65 1.65 2.95 3.7 3.15 4.29 Eps 0.74 0.74 1.32 1.65 1.41 1.92 As can be seen, the lower sales results in an improved product mix and consequently higher margins. Whereas previously we forecast margins in 2014 of 21%, we now forecast margins of 29%. As far as the medium term is concerned we slightly increase our margin forecast to the range 28% to 31%, in line with the software sector average. Previously our margin forecast was in the range 21% to 26%. We include slightly higher growth rates of sales in the medium term, with an average growth rate increased from 5.3% to 8.3%. CLOUD COMPUTING MOMENTUM INCREASES Sector grows sales at 36% compound The rate of innovation in the consumer sector has recently been more rapid than in the corporate sector as far as Cloud computing is concerned. Apple and Microsoft have made individual users familiar with the Cloud storage possibilities, and the possibilities of collaborative systems. The call centre environment is now catching up rapidly and we have included that in our forecasts, as evidenced by the positive feed-back from the Call Centre trade fair February 2014. Corporate use of collaborative products on the Cloud continues to grow rapidly and this is shown by the strong performance of our sample of Cloud based software developers. They show average compound growth rates of 36%. Sales and multiples of peers Sales No of sh. Price Mkt. Cap. MC / Sales 2013e 2014e 2013 2013e 2014e Salesforce.com (CRM.) 3067 3950 596.4 63 37.57 12.25 9.51 NetSuite (N.) 439 571 73.96 112 8.28 18.87 14.51 Workday (WDAY) 440 640 174.2 97 16.9 38.4 26.4 Concur Tech (CNQR) 546 690 55.8 125 6.98 12.77 10.11 Average 20.57 15.13-2 -
DCF Valuation of InVision EURm 2010 2016e 2017e 2018e 2019e 2020e 2021e 2022e TV Sales 16.0 12.4 13.2 13.6 13.7 14.7 15.8 17.1 18.6 20.3 22.2 24.4 27.0 28.3 Growth 0-22.6% 6.8% 2.5% 1.0% 7.3% 7.7% 8.2% 8.6% 9.1% 9.5% 9.9% 10.4% 5.0% EBIT 1.0-3.9 0.8 1.8 3.9 4.5 4.9 5.3 5.7 6.2 6.8 7.4 8.2 7.9 Margin 6.5% -31.2% 6.2% 12.9% 28.6% 30.9% 30.8% 30.7% 30.7% 30.6% 30.5% 30.5% 30.4% 28.0% Depreciation 0.2 0.2 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.6 0.6 0.6 Other non cash items 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Cash taxes -0.1-3.7-0.2-0.1-0.2-0.3-0.3-0.4-0.5-0.6-0.7-0.8-0.9-1.0 Change in NWC 0.0 5.1 0.3 1.7 0.5 0.4-0.2-0.3-0.3-0.3-0.4-0.4-0.5-0.3 Capex 0.7-0.9-0.5-0.2-0.8-0.8-0.9-0.9-0.9-1.0-1.0-1.1-1.1-1.1 Free Cash Flow 1.9-3.0 0.8 3.5 3.7 4.2 3.9 4.1 4.5 4.8 5.2 5.7 6.2 6.2 PV of Free Cash Flows (EV) 104.1 3.2 3.2 3.3 2.8 2.8 2.8 2.8 2.8 2.8 2.8 74.8 - Net financial debt 7.0 0 - Pension provisions 0.0 Risk free rate 1.8% TV growth rate 5.0% - Minorities 0.0 Credit spread 4.0% Risk prem. 5.0% TV EBIT margin 28.0% + Participations 0.0 Cash tax rate 15.0% Beta 1.3 TV depreciation ra 2.2% Equity Value 111.1 Share of debt 0.0% Share of equity 100.0% TV NWC ratio 18.0% No of shares 2.235 WACC 8.3% TV Investment rati 4.0% Fair Value per share 49.70-3 -
Sales and EBIT margin Adj. EPS and DPS 20.0 40.0% 3.00 15.0 20.0% 1.00 10.0 0.0% -1.00 2010 2011 2012 2013 2014e 5.0 0.0-20.0% -40.0% Integr. Services Softw. & Subscrip. EBIT margin (r.s.) - -3.00-4.00 Adj. EPS DPS Cash Flow 1 6.00 4.00 5.00 - -5.00-4.00-1 -6.00 Capex Change in NWC Cash Earnings Free Cash Flow (r.s.) In EUR RoCE 6.00 5.00 4.00 3.00 1.00 Intangibles NWC PPE RoCE (r.s.) 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% -80.0% Balance Sheet Shareholder structure 1 9.00 8.00 7.00 6.00 5.00 4.00 3.00 1.00 Assets Liabilities Intangibles Tangibles Working Cap. Other Assets Cash Equity Pensions Financial debt Working Cap. Other Liab. 4.1% 15.1% 11.4% 69.4% Management Investors Free float Treasury - 4 -
P & L EURm Sales 12.4 13.2 13.6 13.7 14.7 Growth -0.2 6.8% 2.5% 1.0% 7.3% Personnel costs -10.0-8.6-7.8-6.2-6.5 Gross profit 2.3 4.7 5.8 7.5 8.2 Gross margin 18.9% 35.2% 42.5% 54.7% 55.8% Other operating costs -5.9-3.5-3.7-3.2-3.3 EBITDA -3.6 1.2 2.1 4.3 4.9 Margin -29.4% 8.9% 15.6% 31.4% 33.3% Depreciation -0.2-0.4-0.4-0.4-0.4 EBIT -3.9 0.8 1.8 3.9 4.5 Margin -31.2% 6.2% 12.9% 28.6% 30.9% Financial result 0.2-0.1 0.1 0.2 0.2 EBT -3.7 0.7 1.9 4.1 4.7 Taxes -3.9 0.2-0.3-0.8-0.9 Net profit -7.6 0.9 1.6 3.3 3.8 Minorities 0.1-0.2 0.0 0.0 0.0 Net profit a.m. -7.6 0.7 1.6 3.3 3.8 Growth n.a. n.a. 130.7% 112.6% 15.0% No of shares 2.2 2.2 2.2 2.2 2.2 EPS -3.39 0.30 0.69 1.47 1.70 Adj. EPS -3.39 0.28 0.74 1.65 1.92 Growth n.a. n.a. 161.9% 124.0% 16.1% Dividend Balance Sheet EURm Intangible assets 1.25 1.05 0.89 0.90 0.90 Tangible assets 0.31 0.25 0.25 0.29 0.29 Participations 0.04 0.03 0.03 0.03 Other non-current assets 1.12 0.77 0.60 1.00 1.00 Non-current assets 2.68 2.11 1.77 2.22 2.22 Inventories 0.02 0.01 0.03 0.03 0.03 Receivables 3.84 2.83 2.30 2.38 3.80 Cash 1.67 2.49 4.88 7.20 9.57 Other current assets 0.30 0.80 0.29 0.50 0.50 Current Assets 5.83 6.13 7.50 10.11 13.90 Total assets 8.51 8.24 9.27 12.33 16.12 Equity 3.79 3.90 4.75 8.05 11.84 Minorities -0.22 Total equity 3.57 4.40 4.75 8.05 11.84 LT financial liabilities Pension provisions OtherLT liabilities Non-current liabilities ST financial liabilities 0.02 0.03 0.04 0.04 Payables 0.24 0.15 0.19 0.20 0.20 Other ST liabilities 4.68 3.70 4.30 4.04 4.04 Current liabilities 4.94 3.85 4.52 4.28 4.28 Total liabilities 8.51 8.25 9.27 12.33 16.12 Cash Flow EURm EBIT -3.86 0.82 1.75 3.92 4.54 Depreciation 0.22 0.35 0.36 0.37 0.35 Other non-cash items 0.10 Cash taxes -3.70-0.18-0.20-0.42-0.45 Cash earnings -7.24 0.99 1.91 3.87 4.44 Change in NWC 5.14 0.30 1.70-0.05-0.05 CF from operations -2.10 1.29 3.61 3.82 4.40 Capex -0.88-0.40-0.40-0.80-0.80 Other investm./divestm. -0.12 CF from investing -0.88-0.52-0.40-0.80-0.80 CF from fin. and other -0.80 0.07-0.73 0.07 0.07 Change in cash -3.78 0.84 2.54 3.09 3.67 Segments EURm Software and Subscript 8.8 10.6 10.8 10.9 11.8 Change -0.3 19.9% 2.0% 1.3% 8.3% Integration services 3.6 2.7 2.8 2.8 2.9 Change -0.1-25.3% 4.6% 0.0% 3.6% Sales total 12.4 13.2 13.6 13.7 14.7 Change -0.2 6.8% 2.5% 1.0% 6.0% Software and Subscript -0.9 0.8 1.7 2.8 2.8 Margin -0.1 7.8% 15.8% 25.7% 23.7% Integration services -3.0 0.0 0.1 1.1 1.7 Margin -0.8 0.0% 1.8% 40.0% 60.0% EBIT total -3.9 0.8 1.8 3.9 4.5 Margin -0.3 6.2% 12.9% 28.6% 26.5% Valuation multiples Share price 17.10 13.70 40.20 40.20 4 x No of shares (m) 2.235 2.235 2.235 2.235 2.235 Market Capitalisation 38.22 30.62 89.40 89.40 89.40 + Net financial debt -1.65-2.49-4.85-7.16-9.53 + Pension provision + Minorities -0.22 - Participations -0.04-0.03-0.03-0.03 Enterprise Value 36.35 28.09 84.52 82.21 79.84 Sales 12.38 13.23 13.56 13.70 14.70 Adj. EBITDA -3.6 1.2 2.1 4.3 4.9 Adj. EBIT -3.9 0.8 1.8 3.9 4.5 Adj. Net profit a.m. -7.6 0.6 1.7 3.7 4.3 EV / Sales 2.9 2.1 6.2 6.0 5.4 EV / EBITDA -10.0 24.0 40.1 19.1 16.3 EV / EBIT -9.4 34.4 48.3 21.0 17.6 PE -5.0 48.6 54.2 24.2 20.8 Key operational indicators Equity ratio 42.0% 53.4% 51.2% 65.3% 73.4% Gearing 0.0 0.0 0.0 0.0 0.0 Asset turnover 4.6 6.4 7.8 6.3 0.1 NWC / sales 29.2% 20.4% 15.8% 16.1% 24.7% Payable days outstanding 7.1 4.1 5.1 5.3 0.1 Receivable days outstandi 113.2 78.1 61.9 63.4 94.4 Fix operating assets 2.68 2.07 1.74 2.19 2.19 NWC 3.62 2.69 2.14 2.21 3.63 Capital employed 6.30 4.77 3.88 4.40 5.82 RoE -213.2% 19.4% 32.6% 41.0% 32.0% RoA -45.4% 9.9% 18.9% 31.8% 28.2% RoCE -61.3% 17.1% 45.1% 89.1% 78.0% Gross margin 18.9% 35.2% 42.5% 54.7% 55.8% EBITDA margin -29.4% 8.9% 15.6% 31.4% 33.3% EBIT margin -31.2% 6.2% 12.9% 28.6% 30.9% Net profit margin -61.1% 5.1% 11.4% 24.1% 25.8% - 5 -
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