SinnerSchrader — Update 18 April 2016

SinnerSchrader — Update 18 April 2016

SinnerSchrader

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SinnerSchrader

Buoyant new business

Q216 trading update

Software & comp services

18 April 2016

Price

€4.28

Market cap

€49m

Net cash (€m) at February 2016

4.4

Shares in issue

11.4m

Free float

51%

Code

SZZ

Primary exchange

FRA

Secondary exchange

NA

Share price performance

%

1m

3m

12m

Abs

(2.5)

5.8

33.7

Rel (local)

(3.6

0.5

62.7

52-week high/low

€4.70

€2.76

Business description

SinnerSchrader is a leading European independent digital agency that specialises in helping companies use the internet to sell and market goods and services. The majority of sales originate in Germany, servicing accounts such as Allianz, BMW, Deutsche Bank, Telefonica and Unity Media.

Next event

Q3 results

15 July 2016

Analysts

Bridie Barrett

+44 (0)20 3077 5757

Dan Ridsdale

+44 (0)20 3077 5729

SinnerSchrader is a research client of Edison Investment Research Limited

Strong new business wins led to a 21% increase in like-for-like revenues in Q2 for SinnerSchrader (SZZ) and, despite the pressure this can put on staffing, margins were fairly firm. With ‘significant tenders’ underway, management is confident of reaching full year guidance, a doubling of net profit. We expect the current c 30% FY16 P/E discount to peers to narrow.

Year
end

Revenue
(€m)

EBITA*
(€m)

EPS
(c)

EPS*
(c)

DPS
(c)

P/E*
(x)

Yield
(%)

08/14

48.6

4.6

16.5

27.8

12.0

15.4

2.8

08/15

47.7

4.2

13.4

25.1

12.0

17.1

2.8

08/16e

50.5

5.2

27.7

30.5

13.0

14.0

3.0

08/17e

53.9

5.6

32.8

32.7

13.7

13.1

3.2

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

Growth accelerates in Q2

On a like-for-like basis, Q2 revenues increased by approximately 21% y-o-y (13% including the impact of the now discontinued Next Audience, NA), an acceleration on Q1’s 8% (3% including NA), bringing year to date growth to 13%. The high level of new business was the main factor in the Q2 surge with a new client rate of almost 20%. Margins in Q2 held firm, resulting in a first half EBITA margin of 5.4% (we estimate 7.2% excluding the discontinued NA).

Strong new business can affect margins due to the need to add resource, and Q2 EBITA margins (4.3%), while up considerably on last year, were lower than Q1 (6.5%). Despite this, we are comfortable that margins are trending in the right direction with an H116 EBITA margin of 5.4% (vs -1.8% last year). Q2 should be the last quarter when losses from NA affect the bottom line. If we exclude final losses from this division, EBITA margins in H116 were a respectable 7.2%.

EPS on track to double this year

Management is currently involved in a significant level of tenders that should support ongoing growth, and has reiterated its guidance for the full year of revenues over €50m, EBITA (including final closure costs of NA) of €5m and reported net profit of €3m. SZZ looks firmly on track to deliver on this guidance. This would mean a doubling of net earnings in FY16 and the prospect of ongoing strong revenue growth into 2017 as SZZ benefits from the prioritisation of digital transformation projects by corporates.

Valuation: P/E rating gap should start to close

SZZ trades on an FY16e P/E of 14.0x, falling to 13.1x in FY17e. Digital agency peers, all of which are forecast to have lower EPS growth this year (Syzygy, Reply, Next Fifteen), trade at approximately 20x FY16 P/E and we see plenty of scope for a further reduction in this rating gap. In addition, with a high level of corporate activity in the sector in recent years, and as SZZ is the last remaining independent digital agency listed in Germany, the 35% EV/EBITA discount to the 13.2x multiple offered by WPP for its closest peer, Syzygy, should also be taken into consideration.

Exhibit 1: Financial summary

€'000s

2014

2015

2016e

2017e

Aug

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

48,601

47,690

50,491

53,859

Cost of Sales

(37,168)

(35,659)

(36,996)

(37,701)

Gross Profit

11,433

12,032

13,496

16,158

EBITDA

 

 

5,384

5,251

6,040

6,551

Continuing EBITA

 

 

4,600

4,200

5,217

5,646

Intangible Amortisation

(82)

0

0

0

Exceptionals

0

(614)

0

0

Discontinued operations

(1,536)

(1,503)

(500)

0

Operating Profit

2,982

2,083

4,717

5,646

Net Interest

8

(2)

4

0

Profit Before Tax (norm)

 

 

4,608

4,198

5,221

5,646

Profit Before Tax (FRS 3)

 

 

2,990

2,081

4,721

5,646

Tax

(1,147)

(563)

(1,525)

(1,818)

Profit After Tax (norm)

3,124

2,847

3,535

3,828

Profit After Tax (FRS 3)

1,843

1,518

3,196

3,828

Average Number of Shares Outstanding (m)

11.1

11.3

11.6

11.7

EPS - normalised (c)

 

 

28.0

25.2

30.6

32.8

EPS - normalised fully diluted (c)

 

 

27.8

25.1

30.5

32.7

EPS - (IFRS) (c)

 

 

16.5

13.4

27.7

32.8

Dividend per share (c)

12.0

12.0

13.0

13.7

Gross Margin (%)

23.5

25.2

26.7

30.0

EBITDA Margin (%)

11.1

11.0

12.0

12.2

Operating Margin (before GW and except.) (%)

9.5

8.8

10.3

10.5

BALANCE SHEET

Fixed Assets

 

 

7,039

6,601

6,354

6,275

Intangible Assets

5,136

4,999

4,481

4,481

Tangible Assets

1,902

1,603

1,873

1,794

Investments

0

0

0

0

Current Assets

 

 

21,512

21,130

23,075

26,073

Stocks

0

0

0

0

Debtors

15,590

14,830

15,701

16,748

Cash

5,833

5,559

6,633

8,584

Other

90

741

741

741

Current Liabilities

 

 

(13,777)

(12,475)

(12,521)

(13,188)

Creditors

(13,777)

(12,475)

(12,521)

(13,188)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(699)

(296)

(296)

(296)

Long term borrowings

0

0

0

0

Other long term liabilities

(699)

(296)

(296)

(296)

Net Assets

 

 

14,075

14,960

16,612

18,865

CASH FLOW

Operating Cash Flow

 

 

2,656

2,244

4,722

6,179

Net Interest

8

(2)

4

0

Tax

(1,147)

(563)

(1,525)

(1,818)

Capex

(1,504)

(458)

(788)

(827)

Acquisitions/disposals

(306)

(300)

0

0

Financing

177

153

0

0

Dividends

0

(1,348)

(1,339)

(1,583)

Net Cash Flow

(117)

(274)

1,074

1,951

Opening net debt/(cash)

 

 

(5,949)

(5,833)

(5,559)

(6,633)

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(5,833)

(5,559)

(6,633)

(8,584)

Source: Company 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

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: TMT

Acal — Update 18 April 2016

Acal

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