GFT Group — Update 10 February 2016

GFT Group — Update 10 February 2016

GFT Group

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GFT Group

De-rating provides an opportunity

Customer exposure

Software & comp services

18 March 2016

Price

€21.90

Market cap

€576m

Net debt (€m) at 30 September 2015

55.2

Shares in issue

26.3m

Free float

64.1%

Code

GFT

Primary exchange

Frankfurt

Secondary exchange

N/A

Share price performance

Business description

GFT Group (legal name: GFT Technologies) is a global technology services business primarily focused on banks and insurance companies.

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

GFT Group is a research client of Edison Investment Research Limited

GFT's shares have fallen sharply recently, tracking a steep fall in Deutsche Bank’s shares, along with broad declines across the banking sector. We note that Deutsche Bank generates c 40% of GFT’s revenues. At the time of the Q3 results, GFT said it expects stable revenues from Deutsche in FY16, with the growth coming from other parts of the business. GFT is on Deutsche’s strategic partner list, and GFT handles complex IT projects for Deutsche, along with maintenance of its core business. Competition in this space is low. The IT area at risk in the case of cost-cutting is the commodity IT business, which GFT is not involved in, and is mostly handled by large IT service providers (including the India-based majors). GFT's shares traded at c €32 in early December and, in the wake of the share price de-rating, now look significantly more attractive, trading on c 15x our maintained FY17 earnings.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/13

264.3

18.5

55.3

25.0

39.6

1.1

12/14

365.3

32.8

97.7

25.0

22.4

1.1

12/15e

368.0

37.3

103.8

25.0

21.1

1.1

12/16e

404.0

47.3

131.2

27.0

16.7

1.2

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

The whole European banking sector has been hit in the recent market sell-off, but Deutsche’s decline has been particularly harsh, with a c 10% decline on Monday and c 4% on Tuesday. We note that Deutsche’s co-chief executive John Cryan sent a message to all staff on Tuesday, in which he assured them the bank was in a strong financial position, and its stock rallied c 10% yesterday. Up to 2013, GFT shares were loosely correlated with Deutsche Bank shares. However, the correlation has broken down over the last few years as GFT has evolved into a larger international business with a broader customer base, following the acquisitions it has made in Italy (Sempla), the UK (Rule Financial) and Spain (Adesis Netlife).

We will review our forecasts following the final results on 3 March.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: Investment Companies

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