SCISYS — Strong H1 but more balanced year is expected

SCISYS — Strong H1 but more balanced year is expected

SCISYS has reported a strong H1 with professional fees jumping 24%. However, this was off a weak H117 and some business was brought forward from H2. Consequently, we are forecasting a more balanced H1/H2 in FY18. We have increased our FY18 revenues by £3.0m to reflect this balancing, but we have maintained our profit forecasts. All divisions posted record revenues, the order book remains robust at close to £100m and net debt continues to decline. Management’s goal of £60m in revenues and double-digit margins within the next few years looks increasingly conservative and we believe the stock is solid on c 14.6x our FY19e EPS.

Analyst avatar placeholder

Written by

SCISYS

Strong H1 but more balanced year is expected

Interim results

Software & comp services

20 September 2018

Price

185.00p

Market cap

£55m

Net debt (£m) as at 30 June 2018

3.3

Shares in issue

29.5m

Free float

64%

Code

SSY

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.1)

15.5

91.3

Rel (local)

1.4

19.4

88.4

52-week high/low

194.0p

93.5p

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

January 2019

Final results

March 2019

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 reported a strong H1 with professional fees jumping 24%. However, this was off a weak H117 and some business was brought forward from H2. Consequently, we are forecasting a more balanced H1/H2 in FY18. We have increased our FY18 revenues by £3.0m to reflect this balancing, but we have maintained our profit forecasts. All divisions posted record revenues, the order book remains robust at close to £100m and net debt continues to decline. Management’s goal of £60m in revenues and double-digit margins within the next few years looks increasingly conservative and we believe the stock is solid on c 14.6x our FY19e EPS.

Year
end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/16

45.7

3.0

9.2

1.96

20.2

1.1

12/17

57.2

3.8

10.0

2.16

18.5

1.2

12/18e

56.0

4.4

12.0

2.38

15.4

1.3

12/19e

60.1

5.0

12.7

2.62

14.6

1.4

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. IFRS 15 is applied from 1 January 2018.

H1 results: Professional fees jump 24% to £27.6m

Group revenue rose by 13% to £28.7m, while adjusted operating profit more than doubled to £2.5m. The Enterprise Solutions & Defence and Space divisions reported strong contribution growth whereas M&B and Annova recorded declines despite record sales. M&B and Annova are being integrated into a single business unit. The interim dividend has been increased by 10% to 0.65p.

New £2m contract win with Transport for London

Earlier this week SCISYS announced it has won a £2m contract to provide software design, development and support services to Transport for London (TfL) for its timetabling and scheduling as part of its Future Bus Systems programme.

Brexit redomicile decision to be made by end 2018

The company says it still does not expect any adverse operational consequences as a result of Brexit. However, it is obliged to protect its positions on Galileo and EGNOS if Brexit proceeds without specific amendments. We anticipate a decision to redomicile the group is likely to be made next month.

Forecasts: Moving up revenues, earnings maintained

We have increased our revenue forecasts by £3.0m in FY18 to £56.0m and by £3.1m in FY19 to £60.1m. We have conservatively maintained our profits forecasts and continue to forecast end FY18 net debt of £3.0m.

Valuation: Profits maintained for now

The stock trades on c 15.4x our earnings in FY18e, falling to c 14.6x in FY19e. Alternatively, the stock trades on c 0.95x our FY19e sales and c 8.5x EBITDA, which we believe is attractive if SCISYS can maintain the momentum. Our DCF model, which is based on our forecasts and organic CAGR of 3.5% over 10 years, a weighted average cost of capital of 10% and an 11.0% long-term margin target, values the stock at 183p, roughly in line with the current share price.

Exhibit 1: Financial summary

£'000s

2015

2016

2017

2018e

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

36,106

45,744

57,164

56,012

60,125

61,940

Cost of Sales

0

0

0

0

0

0

Gross Profit

36,106

45,744

57,164

56,012

60,125

61,940

EBITDA

 

 

1,548

3,995

5,619

6,160

6,689

6,984

Adjusted operating profit

 

 

818

3,214

4,520

4,983

5,472

5,761

Amort'n of acq'd intangibles

0

0

(1,982)

(1,250)

(1,200)

(1,150)

Exceptionals

0

(458)

2,075

0

0

0

Share based payments

(11)

14

0

(45)

(50)

(55)

Operating Profit

807

2,770

4,613

3,688

4,222

4,556

Net Interest

(196)

(185)

(710)

(567)

(450)

(400)

Associates

3

17

39

0

0

0

Profit Before Tax (norm)

 

 

625

3,046

3,849

4,416

5,022

5,361

Profit Before Tax (FRS 3)

 

 

614

2,602

3,942

3,121

3,772

4,156

Tax

(241)

(380)

(593)

(874)

(1,243)

(1,340)

Profit After Tax (norm)

384

2,666

3,256

3,542

3,779

4,021

Profit After Tax (FRS 3)

373

2,222

3,349

2,247

2,529

2,816

Average Number of Shares Outstanding (m)

29.0

29.0

29.2

29.4

29.7

30.0

EPS - normalised (p)

 

 

1.3

9.2

10.0

12.0

12.7

13.4

EPS - FRS 3 (p)

 

 

1.3

7.6

11.5

7.6

8.5

9.4

Dividend per share (p)

1.78

1.96

2.16

2.38

2.62

2.88

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

4.3

8.7

9.8

11.0

11.1

11.3

Operating Margin (%)

2.3

7.0

7.9

8.9

9.1

9.3

BALANCE SHEET

Fixed Assets

 

 

16,553

31,955

30,465

29,159

27,944

26,809

Intangible Assets

7,831

22,441

21,086

19,836

18,636

17,486

Tangible Assets

8,635

9,057

9,261

9,205

9,190

9,205

Deferred tax asset & associates

87

457

118

118

118

118

Current Assets

 

 

17,839

27,895

33,333

32,612

35,666

36,817

Stocks

211

261

321

315

338

348

Debtors

12,299

19,621

24,541

24,045

25,810

26,588

Cash

4,352

6,915

8,021

7,802

9,068

9,431

Current Liabilities

 

 

(12,003)

(18,763)

(23,481)

(23,393)

(24,655)

(24,894)

Creditors

(8,699)

(14,959)

(21,191)

(21,353)

(22,865)

(23,354)

Short term borrowings

(3,304)

(3,804)

(2,290)

(2,040)

(1,790)

(1,540)

Long Term Liabilities

 

 

(2,333)

(18,374)

(14,603)

(11,690)

(10,479)

(8,268)

Long term borrowings

(2,007)

(13,355)

(11,667)

(8,754)

(7,543)

(5,332)

Other long term liabilities

(326)

(5,019)

(2,936)

(2,936)

(2,936)

(2,936)

Net Assets

 

 

20,056

22,713

25,714

26,688

28,476

30,464

CASH FLOW

Operating Cash Flow

 

 

1,570

3,442

10,369

6,831

6,388

6,674

Net Interest

(196)

(185)

(710)

(567)

(450)

(400)

Tax

(583)

(1,250)

147

(930)

(1,283)

(1,405)

Capex

(619)

(663)

(1,255)

(1,120)

(1,202)

(1,239)

Acquisitions/disposals

(889)

(7,521)

82

(617)

0

0

Financing

(14)

15

(131)

0

0

0

Dividends

(340)

(671)

(586)

(652)

(725)

(806)

Net Cash Flow

(1,071)

(6,833)

7,916

2,944

2,728

2,824

Opening net debt/(cash)

 

 

(328)

959

10,244

5,936

2,992

265

Other including foreign exchange

(216)

(2,452)

(3,608)

0

0

0

Closing net debt/(cash)

 

 

959

10,244

5,936

2,992

265

(2,559)

Source: SCISYS, Edison Investment Research. Note: IFRS15 is applied from 1 January 2018.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. 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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by SCISYS 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Healthcare

InMed Pharmaceuticals — Progressing their programs

InMed continues to make progress on its biosynthesis platform, optimizing the genes that lead E. coli to express the cannabinoids and scaling up the fermentation process, both crucial steps needed to achieve commercial scale to address the market. InMed is also optimizing the formulation for INM-750 for epidermolysis bullosa (EB). A final formulation is expected by the end of 2018. The company is also conducting pharmacology, toxicology and other pre-clinical studies in preparation for detailed discussions with regulatory authorities, which it expects to occur in H119. InMed is on track for an IND filing in H219.

Continue Reading

Subscribe to Edison

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

Sign up for free