Utilitywise — Update 18 February 2016

Utilitywise — Update 18 February 2016

Utilitywise

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Utilitywise

On track for FY16

Trading update

Industrial support services

19 February 2016

Price

173.50p

Market cap

£134m

Net debt (£m) at end January 2016

10.4

Shares in issue

77.2m

Free float

80.4%

Code

UTW

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.6

11.6

(18.2)

Rel (local)

2.7

17.5

(7.2)

52-week high/low

279.50p

125.25p

Business description

Utilitywise is an independent cost management consultancy offering energy procurement and management products to the business market in the UK.

Next event

H116 results

19 April 2016

Analysts

Graeme Moyse

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

Utilitywise is a research client of Edison Investment Research Limited

Utilitywise’s (UTW) trading update states the business is progressing in line with management expectations and indicates that the company remains on track for FY16. Encouragingly, the proportion of extensions business is said to be declining. A continuation of the reduction in the proportion of contract extensions in H2 would have a beneficial impact on cash flow and, in our view, market perception of the business. Potential upside remains.

Year end

Revenue (£m)

EBITDA*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

07/14

48.9

14.5

14.6

4.0

11.9

2.3

07/15

69.1

17.8

17.9

5.0

9.7

2.9

07/16e

93.3

20.8

20.0

5.8

8.7

3.3

07/17e

104.9

23.9

23.0

7.0

7.5

4.0

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

Trading update shows progress

UTW’s trading update states that for the six months to the end of January the business performed in line with management expectations. UTW highlighted revenue growth in the UK and European operations, year-on-year growth in customer numbers (29,228 vs 22,048, 31 January 2015) and an expansion of the revenue pipeline (£24.7m vs £23.5m, 31 January 2015), although the pipeline showed a small decline vs the year-end figure of £26.2m. Consultant headcount reached 625 (449 at 31 January 2015) and net debt stood at £10.4m. The CEO, Geoff Thompson, said the company continues to make progress in negotiating new commercial terms with suppliers and, significantly, that “the rate of new customer acquisition has increased compared to extensions and renewals”.

Outlook unchanged

We have made some fine-tuning adjustments to our projections for FY16 and FY17 but, based on the trading update, we are not minded to make significant alterations. Our forecasts include 36% expected revenue growth and an increase in consultant headcount to 743, which will require a challenging (although not unprecedented given the addition of 247 consultants in FY15) pick up in H2. Importantly for cash flow, we assume a decline in the proportion of the extension business to 30% for FY16 and 25% for FY17 compared to 40% in FY15. Our FY16 projection for net debt (£5.0m) remains sensitive to the proportion of renewals business achieved.

Valuation: Potential upside remains

We continue to examine short- and long-term approaches to provide a valuation framework for UTW. Short-term approaches such as PEG and peer multiple analysis produce an average valuation of 216p per share, while longer-term methods (transaction/DCF) produce a higher valuation of 293p. Averaging the two approaches suggests a valuation of 255p. Excluding the DCF from the calculation yields an average valuation of 232p/share.

Exhibit 1: Financial summary

 

 

2014

2015

2016e

2017e

31st July

 

IFRS

IFRS

IFRS

IFRS

 

 

£'000

£'000

£'000

£'000

PROFIT & LOSS

 

 

 

 

 

Revenue

 

48,947

69,106

93,306

104,921

Cost of Sales

 

(26,586)

(38,810)

(53,651)

(60,644)

Gross Profit

 

22,361

30,296

39,655

44,277

EBITDA

 

14,467

17,785

20,805

23,937

Operating Profit (before amort and except)

13,751

16,920

20,013

22,960

Intangible Amortisation

 

(946)

(1,297)

(1,410)

(1,963)

Exceptionals

 

(22)

(570)

0

0

Share Based Payments

 

(737)

(695)

(720)

(756)

Other

 

0

0

0

0

Operating Profit

 

12,046

14,357

17,883

20,242

Net Interest

 

(373)

(235)

(605)

(570)

Profit Before Tax (norm)

 

13,379

16,685

19,408

22,390

Profit Before Tax (FRS 3)

 

11,673

14,123

17,279

19,671

Tax

 

(2,170)

(2,927)

(3,629)

(3,934)

Profit After Tax (norm)

 

11,208

13,758

15,780

18,456

Profit After Tax (FRS 3)

 

9,503

11,196

13,650

15,737

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

72.5

75.3

77.7

79.2

EPS - normalised (p)

 

15.4

18.3

20.3

23.3

EPS - normalised fully diluted (p)

 

14.6

17.9

20.0

23.0

EPS - (IFRS) (p)

 

13.0

14.9

17.6

19.9

Dividend per share (p)

 

4.0

5.0

5.8

7.0

 

 

 

 

 

 

Gross Margin (%)

 

45.7

43.8

42.5

42.2

EBITDA Margin (%)

 

29.6

25.7

22.3

22.8

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

28.1

24.5

21.4

21.9

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

Fixed Assets

 

36,975

66,048

73,234

79,043

Intangible Assets

 

21,926

37,171

35,761

33,798

Tangible Assets

 

4,838

5,899

6,073

6,062

Investments & Other

 

10,211

22,978

31,400

39,183

Current Assets

 

30,436

23,075

37,203

47,496

Stocks

 

98

643

889

1,004

Debtors

 

13,958

15,939

28,111

30,662

Cash

 

15,823

6,492

8,203

15,829

Other

 

557

0

0

0

Current Liabilities

 

(18,315)

(18,420)

(26,289)

(28,289)

Creditors

 

(18,315)

(18,420)

(26,289)

(28,289)

Short term borrowings

 

0

0

0

0

Long Term Liabilities

 

(15,494)

(24,581)

(25,696)

(27,198)

Long term borrowings

 

(6,000)

(13,175)

(13,175)

(13,175)

Other long term liabilities

 

(9,494)

(11,406)

(12,521)

(14,023)

Net Assets

 

33,602

46,121

58,451

71,052

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

Operating Cash Flow

 

11,615

(2,567)

8,438

17,074

Net Interest

 

(373)

(235)

(605)

(570)

Tax

 

(1,910)

(2,208)

(3,629)

(3,934)

Capex

 

(631)

(1,882)

(965)

(965)

Acquisitions/disposals

 

(835)

(6,398)

0

0

Financing

 

101

149

2,531

924

Dividends

 

(2,158)

(3,365)

(4,060)

(4,902)

Net Cash Flow

 

5,810

(16,506)

1,711

7,626

Opening net debt/(cash)

 

(4,013)

(9,823)

6,683

4,972

HP finance leases initiated

 

0

0

0

0

Other

 

0

0

(0)

0

Closing net debt/(cash)

 

(9,823)

6,683

4,972

(2,654)

Source: Utilitywise and Edison Investment Research

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