GFT — Deferrals at largest investment bank customers

GFT — Deferrals at largest investment bank customers

GFT has lowered its FY17 guidance due to delayed decision making at its two largest investment banking customers – Deutsche Bank (DB) and Barclays. GFT said that management changes at the banks have resulted in deferred orders. However, investment banking revenue outside these two customers has been guided upwards, as has the group’s retail banking segment. But these factors were outweighed by the revenue declines at the two investment banks, and management has cut its FY17 revenue guidance by 6% to €425m, while EBITDA comes back by 13% to €42m.

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Written by

GFT

Deferrals at largest investment bank customers

Guidance lowered

Software & comp services

11 July 2017

Price

€16.20

Market cap

€426m

Net debt (€m) as at 31 March

61.2

Shares in issue

26.3m

Free float

64%

Code

GFT

Primary exchange

Frankfurt (Xetra)

Secondary exchange

N/A

Share price performance

Business description

GFT (legal name: GFT Technologies SE) is a global technology services business primarily focused on banks and insurance companies.

Analysts

Richard Jeans

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

GFT is a research client of Edison Investment Research Limited

GFT has lowered its FY17 guidance due to delayed decision making at its two largest investment banking customers – Deutsche Bank (DB) and Barclays. GFT said that management changes at the banks have resulted in deferred orders. However, investment banking revenue outside these two customers has been guided upwards, as has the group’s retail banking segment. But these factors were outweighed by the revenue declines at the two investment banks, and management has cut its FY17 revenue guidance by 6% to €425m, while EBITDA comes back by 13% to €42m.

Year
end

Revenue (€m)

EBT*
(€m)

EPS*
(c)

Adjusted EPS** (c)

P/E
(x)

Yield
(%)

12/15

373.5

32.5

96.2

119.4

13.6

1.9

12/16

422.6

33.0

92.0

115.4

14.0

1.9

Note: *Earnings before tax and EPS are statutory, after the amortisation of acquired intangibles and exceptional items. **Adjusted EPS is before amortisation and exceptionals.

In order to explain the downgrades, GFT provided a table of revenues by client groups. This shows investment banking revenues from Barclays and DB coming back by 23% from the previous guidance to €126m while their retail banking revenues increase by 11% to €69m. The cuts in investment banking are mainly due to deferrals in regulatory projects. DB is expected to produce 39-40% of GFT’s FY17 revenues, down from 44-45% in FY18, while Barclays’ share is expected to fall to 4-5%, down from 7-8%. This is the first time that the two largest accounts have been cut back significantly simultaneously at GFT. Nevertheless, management believes its guidance is now conservative.

GFT’s FY17 revenue guidance falls from €450m to €425m, still slightly ahead of the FY16 result. Outside the top two investment banking clients, that reflects revenue growth of 13% on management’s assumptions and, at €299m, is 4% above GFT’s previous guidance. Guidance for FY17 restructuring costs rises from €1m to €1.8m and management has made a €2m impairment for the Barclays client relationship account, which came to GFT via the Rule Financial acquisition three years ago.

Utilisation rates across the business remain strong, albeit for the UK, as was stated at the time of the Q1 results. Going forward, management anticipates a pick-up in investment banking in H218. Digitisation projects in the Retail banking segment remain a strong growth driver, and management is seeking to extend the target market into the broader corporate sector.

Disclaimer

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Germany

London +44 (0)20 3077 5700

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United Kingdom

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US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

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 and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by GFT 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.
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 2017. “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 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Real Estate

Custodian REIT plc — Forecasts revised after FY17 results

Custodian REIT (CREI) reported a 2.2% increase in FY17 EPRA NAVPS, boosted by revaluation gains and disposal profits. With a dividend of 6.35p (+1.6%), the share price total return for the year was 10.3%. We have made minor changes to our forecasts following the results. Our EPRA NAV forecasts have increased by 1% in both FY18 and FY19, as CREI has made acquisitions worth £19m in the year to date, with another £19m under offer. Management’s focus is on long-term secure income, to deliver the earnings to cover a sustainable growth in dividends and generate less volatile returns. We believe the 9% premium to FY18e NAV is justified by the conservative gearing and one of the highest dividend yields in the sector.

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