Regenersis — Update 13 January 2016

Regenersis — Update 13 January 2016

Regenersis

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Regenersis

Disposal process on track

Trading update

Tech hardware & equipment

14 January 2016

Price

185.50p

Market cap

£147m

Net cash (£m) at 30 June 2015

7.8

Shares in issue

79.0m

Free float

92.9%

Code

RGS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.4

(4.9)

(24.9)

Rel (local)

1.4

0.2

(19.6)

52-week high/low

242.00p

139.50p

Business description

Regenersis provides a suite of lifecycle support services and technologies designed to help companies and their customers successfully deploy, protect, sustain, retire and reuse digital technology.

Next events

Interim results

8 March 2016

Analysts

Ian Robertson

+44 (0)20 3681 2523

Dan Ridsdale

+44 (0)20 3077 5729

Regenersis is a research client of Edison Investment Research Limited

The trading update confirms that trading is in line with expectations and, more importantly, that the disposal process for the Aftermarket Services division is going to plan, with a number of indicative offers having been received. We have increased our FY16 year-end net debt estimate by £1.4m, mainly as a result of exceptional deal costs, but we see no real change to the investment story, with our sum of the parts continuing to suggest that the shares are significantly undervalued.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/14

197.5

9.9

16.2

4.0

11.5

2.2

06/15

202.6

14.5

16.2

5.0

11.5

2.7

06/16e

197.4

13.9

15.8

6.0

11.7

3.2

06/17e

208.3

16.1

17.6

7.2

10.5

3.9

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

All-important disposal process on track

The H1 update confirms that trading was in line with expectations. The Software division, principally Blancco, the data erasure business, has seen further strong revenue growth in the first half. The Aftermarket Services division has also seen performance in line with expectations. The big issue for Regenersis investors, however, is not short-term trading, but the sale process for the Aftermarket Services division. The investment case rests on this potential release of value and the subsequent ability to focus investment and management time on driving the global growth of the Software division (see our October 2015 Update note) across the data erasure space. It is therefore particularly encouraging to hear that this process is running according to plan and that several indicative offers have been received.

Underlying profit forecasts unchanged

In our estimates we have slightly adjusted the mix of underlying profits, but not revenues, from Aftermarket Services to Software, driven primarily by comments that the Software division has been maintaining its operating margin, rather than seeing the decline in margins that we had anticipated. We also have a higher level of exceptional costs due to the progress with the disposal process resulting in legal and corporate due diligence costs not previously included (FY16e £1.75m to £4.25m, with much of this figure still being contingent on the deal). We have reduced our estimates of the level of capital expenditure for both tangible assets and software development (FY16e £9.75m to £7.25m). The effect of these changes is to increase FY16 year-end net debt estimate from £6.8m to £8.2m.

Valuation: Our SOTP continues to suggest upside

We considered the valuation in detail in our October 2015 Update note and calculated a sum-of-the-parts valuation of 224p per share based on EV/Sales multiples for the divisions. Our revenue estimates have not changed following this trading update and so our sum-of-the-parts valuation remains unchanged at 224p, c 21% ahead of the current share price.

Exhibit 1: Financial summary

Year end June

£'000s

2013

2014

2015

2016e

2017e

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

179,714

197,482

202,564

197,441

208,278

EBITDA

 

 

11,841

14,152

18,231

19,024

21,537

Operating Profit (before amort. and except.)

9,507

10,965

15,426

15,624

17,837

Intangible Amortisation

(90)

(589)

(3,349)

(3,350)

(3,350)

Exceptionals

(1,874)

(9,395)

(5,175)

(4,250)

0

Other

(465)

(518)

(1,277)

(950)

(750)

Operating Profit

7,078

463

5,625

7,074

13,737

Net Interest

(868)

(1,225)

(1,196)

(2,200)

(2,200)

Exceptional Financial

(539)

3,632

2,368

0

0

Profit Before Tax (norm)

 

 

8,645

9,859

14,501

13,924

16,137

Profit Before Tax (FRS 3)

 

 

5,671

2,870

6,797

4,874

11,537

Tax

(978)

381

(1,680)

(731)

(1,731)

Profit After Tax (norm)

7,667

10,240

12,821

13,193

14,406

Profit After Tax (FRS 3)

4,693

3,251

5,117

4,143

9,806

Average Number of Shares Outstanding (m)

44.6

54.6

77.2

79.0

79.0

EPS - normalised (p)

 

 

16.8

16.2

16.2

15.8

17.6

EPS - normalised and fully diluted (p)

 

16.8

16.2

16.2

15.8

17.6

EPS - (IFRS) (p)

 

 

10.5

5.5

7.0

5.6

12.4

Dividend per share (c)

2.5

4.0

5.0

6.0

7.2

EBITDA Margin (%)

6.6

7.2

9.0

9.6

10.3

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

5.3

5.6

7.6

7.9

8.6

BALANCE SHEET

Fixed Assets

 

 

52,957

117,548

119,086

128,086

128,786

Intangible Assets

45,029

110,270

110,198

120,148

121,998

Tangible Assets

4,381

5,341

6,355

5,405

4,255

Investments

3,547

1,937

2,533

2,533

2,533

Current Assets

 

 

38,497

68,674

56,179

42,669

46,249

Stocks

7,924

10,137

9,480

10,278

10,842

Debtors

26,054

37,742

34,556

36,243

39,373

Cash

4,519

20,795

12,143

149

534

Other

0

0

0

0

0

Current Liabilities

 

 

(34,316)

(46,598)

(41,486)

(38,375)

(37,538)

Creditors

(34,316)

(46,598)

(41,486)

(38,375)

(37,538)

Short term borrowings

0

0

0

(4,000)

(4,500)

Long Term Liabilities

 

 

(17,740)

(9,211)

(11,113)

(10,113)

(11,113)

Long term borrowings

(6,423)

(194)

(4,357)

(4,357)

(4,357)

Other long term liabilities

(11,317)

(9,017)

(6,756)

(5,756)

(6,756)

Net Assets

 

 

39,398

130,413

122,666

122,267

126,384

CASH FLOW

Operating Cash Flow

 

 

11,015

(4,224)

7,651

8,928

16,756

Net Interest

(368)

(706)

(758)

(1,700)

(1,700)

Tax

(795)

(816)

(963)

(731)

(1,731)

Capex

(4,181)

(6,457)

(6,347)

(7,250)

(7,750)

Acquisitions/disposals

(7,488)

(51,229)

(4,655)

(10,500)

0

Financing

4,065

90,808

(3,630)

0

0

Dividends

(799)

(1,530)

(3,381)

(4,741)

(5,690)

Net Cash Flow

1,449

25,846

(12,083)

(15,994)

(115)

Opening net debt/(cash)

 

 

2,877

1,904

(20,601)

(7,786)

8,208

HP finance leases initiated

0

0

0

0

0

Other

(476)

(3,341)

(732)

0

(0)

Closing net debt/(cash)

 

 

1,904

(20,601)

(7,786)

8,208

8,323

Source: Regenersis, Edison Investment Research

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Epigenomics — Update 12 January 2016

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