NetDimensions (Holdings) — Update 11 January 2016

NetDimensions (Holdings) — Update 11 January 2016

NetDimensions (Holdings)

Analyst avatar placeholder

Written by

NetDimensions (Holdings)

Revenue grows, costs controlled

Trading update

Software & comp services

12 January 2016

Price

56p/$4.10*

Market cap

£29m/$42m

$1.46/£

*ADR price

Net cash ($m) at 30 June 2015

3.5

Shares in issue

51.1m

Free float

46%

Code

NETD/NETDY

Primary exchange

AIM

Secondary exchange

OTCQX (ADR 5:1)

Share price performance

%

1m

3m

12m

Abs

(5.8)

(8.9)

(23.1)

Rel (local)

(1.9)

(4.0)

(19.2)

52-week high/low

87.00p

56.50p

Business description

NetDimensions provides talent and learning management systems to global enterprises. The company’s solutions allow organisations to deliver personalised learning, share knowledge, enhance performance, foster collaboration and manage compliance for employees, customers, partners and suppliers.

Next event

Final results

Mid-April 2016

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

NetDimensions (Holdings) is a research client of Edison Investment Research Limited

In a brief trading update, NetDimensions (AIM: NETD, OTCQX: NETDY) has said that FY15 trading was in line with expectations. It also says that the operating cost base actually fell over the year and hence the adjusted EBITDA loss will be better than current market expectations. Despite a significant de-rating in the shares of its US-quoted human capital management software peers over the last two years, these companies continue to trade on punchy EV/sales ratios. Hence we continue to believe there is significant upside potential in NetDimensions' shares.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/13

16.2

(4.1)

(12.1)

1.0

N/A

1.2

12/14

22.7

(3.5)

(9.4)

0.9

N/A

1.1

12/15e

25.0

(2.5)

(4.3)

0.9

N/A

1.1

12/16e

28.2

(1.1)

(1.5)

1.0

N/A

1.2

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. P/E and yield calculated in pence.

Trading update: FY15 revenue up 10%, costs decline

NetDimensions says that FY15 revenue and invoiced sales are expected to be ahead of FY14 with FY15 GAAP revenue at c $25m. Further, management says the operating cost base is lower than in FY14. This indicates that the operating loss is likely to be smaller than our forecast, where we have a $200k rise in operating costs at $22.4m. We understand that costs fell for two main reasons – reduced dependency on expensive short-term contractors for delivering services and a streamlining of middle management in sales and services. NetDimensions is becoming increasingly focused on so-called high consequence industries, where there are more stringent requirements for regulatory compliance and hence training. The primary verticals currently being targeted are US healthcare (essentially hospitals and doctors surgeries, where NetDimensions currently has c 44 clients out of a potential addressable market of c 5000) and precision manufacturing, primarily in Europe (which includes the automotive sector). In November, NetDimensions raised a gross £7.2m via a placement of new ordinary shares. The new money will be used to accelerate investment in R&D and support functions. It will also bolster the balance sheet, which will make the group’s products an easier sell to its increasingly blue-chip customer base, while also providing funds for acquisitions.

Forecasts: Maintained for now

We are maintaining our forecasts, which imply 13% revenue growth in each of the next two years with a further reduced loss in FY16 and the company returning to profitability in FY17. We will review our forecasts after the final results in April.

Valuation: High-growth sector with punchy valuations

If NetDimensions can manage growth effectively, we continue to see significant upside, as the shares trade on an EV of 1.0x our FY16e revenues, compared with its larger US peers (its key competitors), which typically trade at 3.8-6.6x revenues.

Exhibit 1: Financial summary

US$000s

2012

2013

2014

2015e

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

13,796

16,208

22,701

25,005

28,238

32,042

Cost of Sales

(1,206)

(1,586)

(4,002)

(5,051)

(5,773)

(6,448)

Gross Profit

12,590

14,622

18,699

19,953

22,464

25,594

EBITDA

 

 

525

(3,992)

(3,320)

(2,269)

(835)

1,217

Adjusted Operating Profit

 

 

357

(4,158)

(3,516)

(2,484)

(1,095)

925

Amortisation of acquired intangibles

(338)

(477)

(472)

(470)

(470)

(470)

Exceptional items and exchange movements

(170)

(110)

(379)

0

0

0

Associates and joint ventures

0

0

0

0

0

0

Share based payments

(117)

(266)

(674)

(300)

(325)

(350)

Operating Profit

(268)

(5,011)

(5,041)

(3,254)

(1,890)

105

Net Interest

67

65

25

25

25

25

Profit Before Tax (norm)

 

 

424

(4,093)

(3,492)

(2,459)

(1,070)

950

Profit Before Tax (FRS 3)

 

 

(201)

(4,946)

(5,016)

(3,229)

(1,865)

130

Tax

(108)

()

(124)

689

300

(266)

Profit After Tax (norm)

315

(4,094)

(3,616)

(1,770)

(770)

684

Profit After Tax (FRS 3)

(310)

(4,946)

(5,141)

(2,540)

(1,565)

(136)

Average Number of Shares Outstanding (m)

25.2

33.8

38.5

40.8

51.4

51.8

EPS - normalised (c)

 

 

1.3

(12.1)

(9.4)

(4.3)

(1.5)

1.3

EPS - FRS 3 (c)

 

 

(1.2)

(14.6)

(13.3)

(6.2)

(3.0)

(0.3)

Dividend per share (c)

0.81

0.99

0.90

0.90

1.00

1.10

Gross Margin (%)

91.3

90.2

82.4

79.8

79.6

79.9

EBITDA Margin (%)

3.8

(24.6)

(14.6)

(9.1)

(3.0)

3.8

Operating Margin (%)

2.6

(25.7)

(15.5)

(9.9)

(3.9)

2.9

BALANCE SHEET

Fixed Assets

 

 

905

3,980

3,359

2,973

2,583

2,205

Intangible Assets

567

3,522

3,059

2,589

2,119

1,649

Tangible Assets

238

316

270

355

434

527

Other

100

142

30

30

30

30

Current Assets

 

 

13,021

15,031

13,104

21,534

21,713

23,964

Stocks

0

0

0

0

0

0

Debtors

6,194

7,303

8,197

9,028

10,196

11,569

Cash

6,827

7,728

4,907

12,505

11,517

12,395

Current Liabilities

 

 

(7,815)

(10,673)

(12,476)

(13,369)

(14,832)

(16,540)

Creditors

(7,811)

(10,671)

(12,473)

(13,367)

(14,829)

(16,538)

Short term borrowings

(3)

(2)

(2)

(2)

(2)

(2)

Long Term Liabilities

 

 

(70)

(113)

(182)

(182)

(182)

(182)

Long term borrowings

(9)

(6)

(3)

(3)

(3)

(3)

Other long term liabilities

(61)

(106)

(179)

(179)

(179)

(179)

Net Assets

 

 

6,041

8,225

3,805

10,956

9,282

9,447

CASH FLOW

Operating Cash Flow

 

 

1,115

(2,514)

(2,085)

(2,216)

(553)

1,537

Net Interest

67

65

25

25

25

25

Tax

(338)

(31)

(57)

(124)

246

214

Capex

(161)

(256)

(144)

(300)

(339)

(385)

Acquisitions/disposals

0

(2,242)

(258)

0

0

0

Equity financing

91

6,133

250

10,561

0

0

Dividends

(773)

(287)

(389)

(347)

(367)

(514)

Net Cash Flow

0

868

(2,658)

7,598

(988)

878

Opening net debt/(cash)

 

 

(6,862)

(6,814)

(7,719)

(4,902)

(12,500)

(11,512)

HP finance leases initiated

0

0

0

0

0

0

Other

(48)

37

(160)

0

()

0

Closing net debt/(cash)

 

 

(6,814)

(7,719)

(4,902)

(12,500)

(11,512)

(12,390)

Source: NetDimensions accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by NetDimensions (Holdings) and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

AlphaPoint Technology — Update 10 January 2016

AlphaPoint Technology

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free