TXT e-solutions — Update 18 May 2016

TXT e-solutions (Euronext STAR Milan: TXT)

Last close As at 28/03/2024

9.88

−0.06 (−0.60%)

Market capitalisation

129m

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Research: TMT

TXT e-solutions — Update 18 May 2016

TXT e-solutions

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

TXT e-solutions

Profits maintained despite licensing weakness

Q1 results

Software & comp services

18 May 2016

Price

€7.52

Market cap

€89m

Net cash (€m) at end Q116

13.7

Shares in issue

11.8m

Free float

42%

Code

TXT

Primary exchange

Borsa Italiana (STAR)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.2)

(2.5)

(13.0)

Rel (local)

2.6

(3.7)

13.5

52-week high/low

€8.70

€7.11

Business description

TXT e-solutions has two divisions: TXT Perform, which provides software solutions for supply chain management in the international retail and consumer-driven industrial sectors; and TXT Next, which provides IT, consulting and R&D services to Italian aerospace, high-tech manufacturing, banking and finance customers.

Next event

H116 results

10 August 2016

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

TXT e-solutions is a research client of Edison Investment Research Limited

TXT reported a small year-on-year revenue decline for Q116. While TXT Next showed continued growth, TXT Perform saw delays in the signing of new licences, resulting in a decline in revenues. This was offset by reduced operating expenses. Management sees a more positive outlook in Q2 and maintains expectations for FY16. We leave our forecasts substantially unchanged.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/14

54.4

4.0

0.28

0.23

26.9

3.1

12/15

61.5

5.7

0.40

0.25

18.8

3.3

12/16e

70.3

7.1

0.46

0.26

16.3

3.5

12/17e

74.5

7.7

0.50

0.27

15.0

3.6

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

Weaker Q1 revenues offset by cost control

In Q116, TXT reported revenues of €14.4m, a small decline of 1.9% from a year ago. The company noted that customers in the fashion and luxury goods markets delayed or rescheduled new licence agreements, leading to TXT Perform revenues declining 8.3% y-o-y. Licensing and maintenance revenues were down 16.6% y-o-y and we estimate TXT Perform services revenues were down 2% y-o-y. Conversely, TXT Next grew 7.4% y-o-y in Q116, following on from growth of 14% in FY15. The company noted TXT Next won new international customers in Q1. The higher proportion of services revenues reduced the gross margin to 49.3% from 51.6% a year ago. Well controlled operating expenses resulted in EBITDA of €1.4m, marginally down from €1.5m reported a year ago. The high level of trade receivables outstanding at end FY15 reduced as customers paid invoices in Q1, resulting in net cash moving up to €13.7m from €8.3m at year-end.

Outlook and forecasts unchanged

The company is already seeing a more positive trend in Q216, and maintains its expectations for FY16. The PACE acquisition within the TXT Next division completed as planned on 1 April; this has already been factored into our estimates. Other than factoring in the put/call option in place to acquire the remaining 21% of PACE in 2020/21, our forecasts are substantially unchanged.

Valuation: International expansion to drive upside

TXT trades on a P/E of 16.3x FY16e and 15.0x FY17e based on normalised EPS. This is a discount to global supply chain software vendors and a small premium to European IT services companies, which is reasonable considering the current split of the business. Even after acquiring PACE, we forecast a strong net cash position and a dividend yield above 3% for FY16 and FY17. If TXT is able to successfully integrate and grow the PACE business as well as sell TXT Next’s existing services to PACE’s international customers, we see scope for stronger growth in TXT Next and margin enhancement. For TXT Perform, key growth drivers include the North American business and the recently established Asia-Pacific operations.

Financial summary

Exhibit 1: Financial summary

€'000s

2012

2013

2014

2015

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

46,499

52,560

54,410

61,540

70,277

74,486

Cost of sales

(22,351)

(24,854)

(26,455)

(29,189)

(33,008)

(34,505)

Gross profit

24,148

27,706

27,955

32,351

37,269

39,980

EBITDA

 

 

5,322

6,263

5,324

6,659

7,919

8,527

Operating Profit (before amort and except)

 

 

4,283

5,241

4,284

5,820

7,169

7,777

Amortisation of acquired intangibles

0

(285)

(285)

(285)

(285)

(285)

Exceptionals and other income

939

0

1,468

0

0

0

Other income

0

0

0

(740)

(400)

(500)

Operating Profit

5,222

4,956

5,467

4,795

6,484

6,992

Net Interest

(37)

(435)

(249)

(151)

(100)

(100)

Profit Before Tax (norm)

 

 

4,246

4,806

4,035

5,669

7,069

7,677

Profit Before Tax (FRS 3)

 

 

5,185

4,521

5,218

4,644

6,384

6,892

Tax

(188)

121

(1,046)

(762)

(1,277)

(1,378)

Profit After Tax (norm)

4,092

4,927

3,226

4,739

5,655

6,142

Profit After Tax (FRS 3)

4,997

4,642

4,172

3,882

5,107

5,514

Average Number of Shares Outstanding (m)

11.0

11.5

11.5

11.7

11.8

11.8

EPS - normalised (c)

 

 

37

43

28

41

47

51

EPS - normalised fully diluted (c)

 

 

34

41

28

40

46

50

EPS - (IFRS) (c)

 

 

45

40

36

33

43

46

Dividend per share (c)

18.2

22.7

22.7

25.0

26.0

27.0

Gross margin (%)

51.9

52.7

51.4

52.6

53.0

53.7

EBITDA Margin (%)

11.4

11.9

9.8

10.8

11.3

11.4

Operating Margin (before GW and except) (%)

9.2

10.0

7.9

9.5

10.2

10.4

BALANCE SHEET

Fixed Assets

 

 

18,570

17,850

18,019

18,132

23,617

23,302

Intangible Assets

16,621

15,370

15,078

14,692

20,177

19,862

Tangible Assets

1,154

1,118

1,249

1,361

1,361

1,361

Other

795

1,362

1,692

2,079

2,079

2,079

Current Assets

 

 

36,769

34,914

34,892

38,946

36,302

40,082

Stocks

1,388

1,451

1,820

2,075

2,175

2,275

Debtors

19,562

18,642

20,768

27,791

28,881

30,611

Cash

15,819

14,821

12,304

9,080

5,246

7,196

Other

0

0

0

0

0

0

Current Liabilities

 

 

(20,651)

(17,864)

(17,451)

(18,349)

(18,599)

(21,115)

Creditors

(15,155)

(14,512)

(15,297)

(17,528)

(17,778)

(18,294)

Short term borrowings

(5,496)

(3,352)

(2,154)

(821)

(821)

(2,821)

Long Term Liabilities

 

 

(8,666)

(6,965)

(6,491)

(5,105)

(7,105)

(5,105)

Long term borrowings

(4,301)

(2,896)

(1,685)

0

(2,000)

0

Other long term liabilities

(4,365)

(4,069)

(4,806)

(5,105)

(5,105)

(5,105)

Net Assets

 

 

26,022

27,935

28,969

33,624

34,216

37,164

CASH FLOW

Operating Cash Flow

 

 

2,760

7,630

5,404

2,412

6,379

7,814

Net Interest

(37)

(435)

(249)

(151)

(100)

(100)

Tax

64

(1,615)

(1,344)

(1,461)

(1,277)

(1,378)

Capex

(405)

(483)

(615)

(763)

(720)

(720)

Acquisitions/disposals

(8,450)

19

0

0

(5,200)

(600)

Financing

1,690

(755)

(597)

2,215

0

0

Dividends

0

(2,107)

(2,615)

(2,678)

(2,915)

(3,066)

Net Cash Flow

(4,378)

2,254

(16)

(426)

(3,833)

1,950

Opening net debt/(cash)

 

 

(10,266)

(6,023)

(8,575)

(8,465)

(8,259)

(2,425)

HP finance leases initiated

0

0

0

0

0

0

Other

135

298

(94)

220

(2,000)

0

Closing net debt/(cash)

 

 

(6,023)

(8,575)

(8,465)

(8,259)

(2,425)

(4,375)

Source: TXT e-solutions accounts, Edison Investment Research

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DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by TXT e-solutions 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.
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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

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