Brady — Update 20 July 2016

Brady — Update 20 July 2016

Brady

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Brady

Acquisitions return business to growth

Trading update

Software & comp services

20 July 2016

Price

66p

Market cap

£55m

Net cash (£m) at 30 June 2016

>6.0

Shares in issue

83.0m

Free float

98%

Code

BRY

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.0

25.7

(36.3)

Rel (local)

(6.0)

21.4

(35.1)

52-week high/low

105.5p

41.2p

Business description

Brady is the largest Europe-based E/CTRM player. It provides a range of transaction and risk management software applications, which help producers, consumers, financial institutions and trading companies manage their commodity transactions in a single, integrated solution.

Next events

Interim results

5 September 2016

Customer Advisory Board (Stockholm)

21-23 September 2016

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Brady is a research client of Edison Investment Research Limited

In another in-line trading update, Brady has reported that H1 revenues grew by 4%, which includes the impact from acquisitions (energycredit and ScrapRunner) and currency movements. New business was spread across the three divisions, with nine new contracts signed. The trading update reveals that the group is continuing to stabilise in spite of a tough commodities-related backdrop. The outcome for the year will depend on the busy Q4. We are maintaining our forecasts and continue to believe the shares look attractive, trading on c 15x our cash-adjusted FY17e earnings.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14

31.0

5.1

5.3

1.9

12.4

2.8

12/15

27.4

1.0

1.0

0.0

64.1

N/A

12/16e

30.5

3.5

3.5

1.7

19.1

2.6

12/17e

32.2

4.1

3.9

1.9

17.0

2.9

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

Trading update: Nine contracts signed in H1

Nine new contracts were signed in the period, seven of which were signed in the Americas. Brady’s hosted cloud product is the default solution for new business and seven of the deals were cloud deployed – these were distributed across the group’s three business lines. Cloud deals add to the group’s recurring revenues and Brady says that the ability to offer cloud-deployed solutions is becoming a key differentiator from the competition. While foreign-denominated revenues exceed foreign-denominated costs, the decline of sterling following the Brexit vote was only marginally positive in H1 since the fall in sterling was late in the period.

Market backdrop: Stabilising after a difficult 2015

Brady is the largest Europe-based E/CTRM vendor and the fourth largest globally (c 3% market share), and is increasingly winning business around the world. E/CTRM covers both the energy (ETRM) and commodity (CTRM) markets. Within ETRM, Brady Energy primarily offers solutions to the Nordic electricity markets. Within CTRM, Brady offers software solutions across a broad range of commodities to trading companies, miners, fabricators and recycling companies. Both areas remain challenging and the global CTRM market is expected to grow by a modest 4% in 2016 to $1.65bn (source: ComTech Advisory). Despite challenging conditions, many participants are underinvested in IT and the sector benefits from growth drivers including regulation, compliance and risk-related factors.

Valuation: Well positioned for commodities recovery

Brady trades on c 15x our maintained cash-adjusted FY17e EPS, 1.5x EV/sales and c 10.3x EV/EBITDA. In our view, the group’s strong balance sheet (more than £6m cash and no debt) and streamlined cost base position Brady well for recovery. We note that Brady bounced back in FY14 from a disappointing FY13, and the shares now look undervalued if it can stage a similar recovery in FY16/17.

Exhibit 1: Financial summary

£'000s

2012

2013

2014

2015

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

28,136

29,355

31,015

27,374

30,527

32,170

Cost of Sales

(10,063)

(11,119)

(10,977)

(10,867)

(10,957)

(11,547)

Gross Profit

18,073

18,236

20,038

16,507

19,570

20,623

EBITDA

 

 

5,440

3,122

5,592

1,506

4,038

4,640

Adjusted Operating Profit

 

 

4,924

2,470

5,019

924

3,434

4,003

Amortisation of acquired intangibles

(1,276)

(1,613)

(1,613)

(1,640)

(1,640)

(1,640)

Exceptionals items

(2,563)

355

(2,143)

(469)

0

0

Share based payments

(345)

(313)

(232)

(243)

(263)

(275)

Operating Profit

740

899

1,031

(1,428)

1,532

2,088

Net Interest

64

29

58

31

50

60

Profit Before Tax (norm)

 

 

4,988

2,499

5,077

955

3,484

4,063

Profit Before Tax (FRS 3)

 

 

804

928

1,089

(1,397)

1,582

2,148

Tax

(345)

189

(630)

(329)

(610)

(813)

Profit After Tax (norm)

4,643

2,249

4,315

813

2,874

3,250

Profit After Tax (FRS 3)

459

1,117

459

(1,726)

972

1,335

Average Number of Shares Outstanding (m)

75.6

80.9

81.3

82.7

83.2

83.6

EPS – normalised (p)

 

 

6.1

2.8

5.3

1.0

3.5

3.9

EPS – FRS 3 (p)

 

 

0.6

1.4

0.6

(2.1)

1.2

1.6

Dividend per share (p)

1.60

1.70

1.85

0.00

1.70

1.90

Gross Margin (%)

64.2

62.1

64.6

60.3

64.1

64.1

EBITDA Margin (%)

19.3

10.6

18.0

5.5

13.2

14.4

Adjusted Operating Margin (%)

17.5

8.4

16.2

3.4

11.2

12.4

BALANCE SHEET

Fixed Assets

 

 

42,851

39,137

32,614

31,461

30,229

28,598

Intangible Assets

40,999

37,519

30,996

29,831

28,532

26,830

Tangible Assets

1,158

983

1,076

1,147

1,214

1,285

Deferred tax

694

635

542

483

483

483

Current Assets

 

 

16,874

15,420

16,948

13,633

14,846

16,800

Stocks

0

0

0

0

0

0

Debtors

9,036

8,198

7,368

7,039

7,850

8,272

Cash

7,838

7,222

9,580

6,594

6,996

8,528

Current Liabilities

 

 

(11,401)

(11,200)

(10,545)

(10,804)

(10,423)

(10,504)

Creditors

(11,401)

(11,200)

(10,545)

(10,804)

(10,423)

(10,504)

Short-term borrowings

0

0

0

0

0

0

Long-Term Liabilities

 

 

(6,717)

(4,467)

(4,651)

(4,814)

(4,814)

(4,814)

Long-term borrowings

0

0

0

0

0

0

Other long-term liabilities

(6,717)

(4,467)

(4,651)

(4,814)

(4,814)

(4,814)

Net Assets

 

 

41,607

38,890

34,366

29,476

29,838

30,080

CASH FLOW

Operating Cash Flow

 

 

1,459

4,277

6,209

2,363

3,717

6,179

Net Interest

64

29

58

31

50

60

Tax

(168)

(378)

(420)

(416)

(488)

(650)

Capex

(2,374)

(2,442)

(2,419)

(2,591)

(2,312)

(2,506)

Acquisitions/disposals

(17,983)

(751)

0

(1,186)

(566)

(66)

Financing

17,780

125

338

469

0

0

Dividends

(1,206)

(1,296)

(1,378)

(1,524)

0

(1,485)

Net Cash Flow

(2,428)

(436)

2,388

(2,854)

402

1,532

Opening net debt/(cash)

 

 

(10,304)

(7,838)

(7,222)

(9,580)

(6,594)

(6,996)

Other

(38)

(180)

(30)

(132)

0

0

Closing net debt/(cash)

 

 

(7,838)

(7,222)

(9,580)

(6,594)

(6,996)

(8,528)

Source: Brady (historicals), Edison Investment Research (forecasts)

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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

SinnerSchrader — Update 19 July 2016

SinnerSchrader

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