SCISYS — Update 16 December 2015

SCISYS — Update 16 December 2015

SCISYS

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SCISYS

Contract underpins FY16 earnings

Contract win

Software & comp services

17 December 2015

Price

72.0p

Market cap

£21m

Net debt (£m) at 30 June 2015

1.9

Shares in issue

29.0m

Free float

63%

Code

SSY

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.2

4.4

(20.0)

Rel (local)

4.1

6.7

(18.7)

52-week high/low

93.5p

58.0p

Business description

SCISYS provides a range of professional services in support of the planning, development and use of computer systems in the space, media/broadcast and defence sectors, as well as to other public and private sector enterprises.

Next events

Trading update

Late January 2016

Final results

Late March 2016

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

SCISYS is a research client of Edison Investment Research Limited

SCISYS has been awarded a significant £4m four-year contract to develop, support and host a business/regulatory application for the UK Ministry of Defence (MoD). The new contract indicates that momentum is returning to the business in the wake of the contract hiccup earlier this year, which has since been rectified. The contract will boost the year-end order book and underpins our forecasts for FY16 and beyond. SCISYS has a long-term goal to generate revenues of £60m+ and double-digit margins, although we noted in September that the target for this has slipped back from FY18. Nevertheless, this objective keeps the shares looking attractive trading on c 10x our FY17e earnings.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/13

42.6

3.0

9.3

1.46

7.7

2.0

12/14

40.4

3.2

8.2

1.61

8.8

2.2

12/15e

36.0

0.1

(0.9)

1.70

N/A

2.4

12/16e

38.0

2.3

6.1

1.80

11.8

2.5

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

Contract win with Ministry of Defence

The group’s Enterprise Solutions & Defence (ESD) division has been awarded a significant contract by the UK MoD to deliver software and services to support the Defence Supply Chain Operations and Movements. The contract has a value of £4m over the next four years, and therefore represents c 3% of annual revenues over the period. The contract indicates that opportunities remain in the public sector despite the public sector cutbacks, in this case driven by regulatory and compliance requirements. While coming under the defence area, this is not a defence-type contract, but instead involves the design and delivery of a business/regulatory application (Customs Compliance Management Information System or CCMIS) and the provision of ongoing hosting and support services. The CCMIS will enable the department to be tax efficient and compliant with HMRC regulations and EU law. We note that equipment and supplies leaving the UK are required to be treated as exports and If they are returned to the country they must then be treated as imports. It will also help the MoD meet the requirements of international defence trade agreements, including the US ITAR (International Traffic in Arms Regulations) and DTCT (Defence Trade Co-operation Treaty) arrangements.

Forecasts: Contract underpins our forecasts

We are maintaining our forecasts and will review them again following the trading update in late January.

Valuation: c 10x FY17e P/E looks attractive

The stock trades on 0.6x our FY16e revenues and 6.7x EBITDA – attractive given the long-term trend of margin improvements and a strong cash flow discipline. The group retains a strong balance sheet that includes the freehold on the group’s HQ, which was sold in 2007 for £9m and repurchased in 2011 for £5m.

Exhibit 1: Financial summary

£'000s

2012

2013

2014

2015e

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

39,453

42,598

40,359

35,997

38,004

39,860

Cost of Sales

0

0

0

0

0

0

Gross Profit

39,453

42,598

40,359

35,997

38,004

39,860

EBITDA

 

 

3,581

4,179

4,156

1,123

3,360

3,766

Adjusted operating profit

 

 

2,662

3,221

3,361

369

2,502

2,871

Amort'n of acq'd intangibles

(45)

(283)

0

0

0

0

Exceptionals

(328)

(1,191)

(135)

0

0

0

Share based payments

(49)

(35)

(42)

(63)

(75)

(100)

Operating Profit

2,240

1,712

3,184

306

2,427

2,771

Net Interest

(214)

(217)

(177)

(230)

(210)

(190)

Profit Before Tax (norm)

 

 

2,448

3,004

3,184

139

2,292

2,681

Profit Before Tax (FRS 3)

 

 

2,026

1,495

3,007

76

2,217

2,581

Tax

(384)

(153)

(766)

(400)

(466)

(568)

Profit After Tax (norm)

2,064

2,701

2,394

(261)

1,826

2,113

Profit After Tax (FRS 3)

1,642

1,342

2,241

(324)

1,751

2,013

Average Number of Shares Outstanding (m)

29.0

29.0

29.0

29.3

29.9

30.5

EPS - normalised (p)

 

 

7.1

9.3

8.2

(0.9)

6.1

6.9

EPS - FRS 3 (p)

 

 

5.7

4.6

7.7

(1.1)

5.9

6.6

Dividend per share (p)

1.32

1.46

1.61

1.70

1.80

1.90

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

9.1

9.8

10.3

3.1

8.8

9.4

Operating Margin (%)

6.7

7.6

8.3

1.0

6.6

7.2

BALANCE SHEET

Fixed Assets

 

 

16,632

16,164

17,155

18,221

18,199

18,180

Intangible Assets

7,362

7,006

8,233

9,333

9,333

9,333

Tangible Assets

9,252

9,137

8,899

8,865

8,843

8,824

Deferred tax asset

18

21

23

23

23

23

Current Assets

 

 

19,767

19,270

18,886

15,293

16,599

17,981

Stocks

367

344

325

290

306

321

Debtors

11,466

13,829

12,334

11,012

11,637

12,216

Cash

7,463

3,969

5,798

3,562

4,227

5,015

Current Liabilities

 

 

(13,449)

(12,261)

(10,561)

(9,145)

(9,389)

(9,573)

Creditors

(12,129)

(9,508)

(9,686)

(8,520)

(9,014)

(9,448)

Short term borrowings

(1,320)

(2,753)

(875)

(625)

(375)

(125)

Long Term Liabilities

 

 

(5,011)

(4,090)

(5,023)

(5,112)

(4,901)

(4,690)

Long term borrowings

(4,902)

(3,888)

(4,595)

(4,384)

(4,173)

(3,962)

Other long term liabilities

(109)

(202)

(428)

(728)

(728)

(728)

Net Assets

 

 

17,939

19,083

20,457

19,257

20,507

21,898

CASH FLOW

Operating Cash Flow

 

 

5,110

(1,379)

4,774

1,407

3,170

3,567

Net Interest

(214)

(217)

(177)

(230)

(210)

(190)

Tax

(157)

(1,325)

100

(914)

(500)

(413)

Capex

(1,116)

(666)

(618)

(720)

(836)

(877)

Acquisitions/disposals

(1,952)

0

(358)

(830)

0

(300)

Financing

29

(16)

(61)

(20)

0

0

Dividends

(361)

(381)

(435)

(468)

(499)

(539)

Net Cash Flow

1,339

(3,984)

3,225

(1,775)

1,126

1,249

Opening net debt/(cash)

 

 

33

(1,241)

2,672

(328)

1,447

321

HP finance leases initiated

0

0

0

0

0

0

Other

(65)

71

(225)

0

0

0

Closing net debt/(cash)

 

 

(1,241)

2,672

(328)

1,447

321

(928)

Source: SCISYS accounts, Edison Investment Research

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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

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88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

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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

Henderson International Income Trust — Update 15 December 2015

Henderson International Income Trust

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