Tinexta — Confirming FY23 guidance

TMT

Tinexta

Confirming FY23 guidance

Q323 results

Professional services

20 November 2023

Price	€17.29
Market cap	€816m

Net debt (€m) at 30 September 2023		91.5

Shares in issue		47.2m
Free float		42.1%
Code		TNXT

Primary exchange	Euronext STAR Milan
Secondary exchange		N/A

Share price performance

%	1m	3m	12m
Abs	8.4	(3.5)	(29.7)
Rel (local)	4.0	(6.1)	(40.2)

52-week high/low

€26.1

€14.6

Business description

Tinexta offers innovative solutions for the digital transformation and growth of companies, professionals and institutions. It has three divisions: Digital Trust, Business Innovation and Cyber Security.

Next events

FY23 results

March 2024

Analysts

Russell Pointon	+44 (0)20 3077 5700
Max Hayes	+44 (0)20 3077 5700

tech@edisongroup.com

Edison profile page

Tinexta is a research client of Edison Investment Research Limited

Tinexta’s Q323 results showed continued strong underlying revenue and profit growth in what is typically a relatively small quarter from a revenue and profit perspective due to the inherent seasonality of its Cyber Security (CS) and Business Innovation (BI) divisions. Management’s reiteration of its previous financial guidance, albeit with different growth drivers than originally anticipated, is reassuring given the dependence of the full year results on the performance of the current, final quarter, in which more than 40% of annual profit is typically generated. Our DCF-based valuation of €30/share suggests significant upside from the current share price.

Year end	Revenue (€m)	PBT* (€m)	EPS* (€)	DPS (€)	P/E (x)	Yield (%)
12/21	301.5	57.5	0.83	0.30	20.9	1.7
12/22	357.2	73.6	1.07	0.51	16.2	2.9
12/23e	411.0	81.1	1.06	0.47	16.3	2.7
12/24e	462.3	96.0	1.22	0.26	14.2	1.5
12/25e	507.6	111.8	1.45	0.35	11.9	2.0

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

Q323 on track according to management

Tinexta reported strong underlying year-on-year revenue growth of 8.6% and adjusted EBITDA growth of 7.4% in Q323. Digital Trust (DT) and CS continued to enjoy strong double-digit revenue growth as they did through H123, but BI’s growth remained muted due to relatively weak end-markets, as well as its anticipated seasonality. The strong revenue growth of DT and CS translated into good operational gearing for both divisions, significantly so in the case of CS, but BI’s muted performance, and mix changes (ie CS’s profitability is much lower than the group average) dampened adjusted EBITDA growth relative to revenue growth.

FY23 EBITDA guidance unchanged

While management has reiterated its previous guidance for FY23 (underlying revenue growth of 11–15% and adjusted EBITDA growth of 8–12%), the divisional growth drivers are slightly different than previously anticipated. DT’s continued outperformance versus management’s initial guidance offsets our more cautious stance on the outlook for BI than we previously forecast, albeit management still expects the latter to demonstrate strong growth in the final quarter of the year, as it does typically.

Valuation: Very attractive relative to DCF

The share price has been weak year to date, declining by c 24%, with the greatest damage done in the first few months of the year. Our DCF-based valuation of €30/share continues to point to very attractive upside of c 74% from the current share price. Prospective EV/sales and EV/EBITDA multiples remain at a justified premium to historical multiples, given the change in the divisional portfolios and anticipated growth rates.

Management confident of meeting FY23 guidance

Income statement on track

Tinexta reported continued strong underlying revenue growth in Q323, which was complemented by a sequential (ie quarter-on-quarter) improvement in underlying growth in adjusted EBITDA (ie before non-recurring items). Revenue grew by c 11% to €87.1m, giving growth for the first nine months of FY23 (9M23) of c 9% and revenue of €269.5m, which took adjusted EBITDA to €19.0m for Q323 and €56.9m for 9M23. The acquisition of Ascertia contributed c 2% to Tinexta’s Q323 revenue growth but marginally diluted its adjusted EBITDA, by c 0.3%. As we show later (see Exhibit 3), the third quarter of Tinexta’s financial year is typically one of the smaller quarters for profit generation.

Group organic revenue growth of 8.6% in Q323 was driven by continued strong growth by DT and CS, while growth in BI remained weak due to seasonality issues (typically, a high proportion of annual profit is reported in the fourth quarter of any year) and ongoing weakness in core markets. There was a slight pick-up in organic revenue growth in Q323 from 7.3% in Q223, but Q323 had a slightly easier comparative on Q322, when revenue grew by just over 3%, versus the more than 6% growth that the group reported for the whole of FY22.

A combination of lower margins in Q323 versus Q322 for the two most profitable divisions – DT, albeit this was due to the first-time consolidation of Ascertia, and BI – as well as a significant improvement in the profitability of the lowest-margin division, CS, contributed to a decline in the overall adjusted EBITDA margin from 22.5% in Q322 to 21.8% in Q323.

Exhibit 1: Divisional results

€m	Q122	Q222	Q322	9M22	Q422	FY22	Q123	Q223	Q323	9M23
Group revenue	78.2	89.9	78.7	246.7	110.5	357.2	86.1	96.4	87.1	269.5
Growth y-o-y	21.9%	18.8%	16.9%	19.1%	16.9%	18.4%	10.1%	7.3%	10.7%	9.3%
Organic y-o-y	N/D	6.2%	3.3%	6.4%	6.4%	6.4%	10.1%	7.3%	8.6%	8.6%
- Digital Trust	38.0	38.9	37.0	113.9	43.1	157.0	42.4	44.0	43.8	130.2
Organic y-o-y	7.7%	8.5%	12.8%	9.6%	9.3%	9.5%	11.6%	13.3%	13.9%	12.9%
- Cyber Security	18.0	18.8	18.0	54.7	22.8	77.5	20.7	21.9	20.2	62.7
Organic y-o-y	7.1%	5.4%	2.0%	4.8%	2.4%	4.1%	14.9%	16.6%	12.4%	14.7%
- Business Innovation	22.6	32.8	24.3	79.7	46.0	125.7	24.0	32.1	24.4	80.6
Organic y-o-y	19.4%	5.8%	(7.2%)	4.9%	7.9%	6.0%	6.4%	(2.1%)	0.5%	1.1%
Group adjusted EBITDA	14.5	22.6	17.7	54.8	40.0	94.8	15.0	23.0	19.0	56.9
Margin	18.6%	25.1%	22.5%	22.2%	36.2%	26.5%	17.4%	23.8%	21.8%	21.1%
Growth y-o-y	24.5%	18.2%	9.1%	16.6%	35.5%	23.9%	3.1%	1.8%	7.2%	3.9%
Organic y-o-y	N/D	0.1%	(14.7%)	(4.3%)	19.3%	4.8%	3.1%	1.8%	7.4%	4.0%
- Digital Trust	10.4	10.7	11.7	32.8	14.5	47.3	11.6	12.7	13.3	37.7
Margin	27.3%	27.6%	31.6%	28.8%	33.7%	30.1%	27.4%	28.9%	30.4%	28.9%
Organic y-o-y	19.4%	12.1%	14.5%	15.1%	12.7%	14.3%	12.3%	18.5%	14.0%	14.9%
- Cyber Security	1.2	1.8	1.8	4.8	5.5	10.3	2.1	2.7	3.2	8.0
Margin	6.5%	9.8%	9.8%	8.7%	24.3%	13.3%	10.2%	12.3%	15.7%	12.7%
Organic y-o-y	(39.4%)	18.8%	(24.7%)	(18.0%)	29.9%	2.3%	79.2%	45.6%	79.9%	66.8%
- Business Innovation	6.4	13.6	7.7	27.7	23.9	51.6	4.9	11.4	5.8	22.1
Margin	28.3%	41.5%	31.8%	34.8%	52.0%	41.1%	20.4%	35.5%	23.8%	27.5%
Organic y-o-y	14.2%	(5.8%)	(28.9%)	(9.2%)	41.4%	2.0%	(23.2%)	(16.3%)	(24.7%)	(20.2%)
- Other	(3.4)	(3.7)	(3.5)	(10.5)	(4.0)	(14.5)	(3.7)	(3.9)	(3.3)	(10.9)

Source: Tinexta accounts

DT’s underlying revenue growth of 13.9% in Q323 was complemented by the first-time contribution from Ascertia, which added a further 4.5% growth since being consolidated from the start of August 2023. DT’s underlying revenue growth through 9M23 has been consistently above management’s guidance from the start of year of 10% for FY23 and FY23–25, and management expects this outperformance to continue into Q423. Management’s commentary suggests strong growth across the board, domestically and internationally, with some contribution to revenue growth from price increases on off-the-shelf products that were implemented towards the end of 2022 to counter underlying cost inflation. Operational gearing from the strong revenue growth, as well as the growth of products and solutions with a high standard of innovation, contributed to a marginal increase in the underlying adjusted EBITDA margin from 31.6% in Q322 to 31.7% in Q323. The acquisition of Ascertia contributed a small EBITDA loss of c €30k in Q323, according to our estimate, which is equivalent to a margin of c -2% on its reported revenue in the period.

CS’s year-on-year revenue growth of 12.4% to €20.2m in Q323 continues the double-digit revenue growth that the division had already reported through H123. Management’s commentary emphasised that the growth was broad-based across all three of the division’s subsidiaries, which has been enhanced by CS’s cooperation with DT. A combination of operational gearing on the strong revenue growth, as well as better profitability achieved on its proprietary offering, led to a sequential (ie quarter-on-quarter) improvement in the adjusted EBITDA margin through 9M23, such that Q323’s margin of 15.7% was significantly higher than Q322’s margin of 9.8%. We note that the drop-through of incremental revenue to adjusted EBITDA for CS was c 80% in Q323 and c 67% for 9M23, demonstrating a high level of operational gearing. We note that management guided to 30% organic revenue growth for FY23 at the start of the year, which requires growth of c 67% in Q4.

BI’s revenue grew by less than 1% y-o-y to €24.4m in Q323. In addition to the typical seasonality of its revenue streams, BI’s two key subsidiaries continue to demonstrate limited growth/underlying weakness. The revenue of the most significant subsidiary, Warrant Hub (WH), is affected by the lower rates of deductibility offered by the government on investment made by WH’s clients, and the delayed ‘enactment’ of a decree that was proposed by the Italian government in June, which management expects to strengthen WH’s competitive position in the market. The revenue of Co.Mark, a subsidiary that provides consulting services to help companies grow their businesses overseas, continues to suffer from a lack of financial support by the Italian Ministry of Foreign Affairs and International Cooperation. Limited revenue growth, mix changes (towards lower-margin services) and higher personnel costs ahead of expected seasonally higher revenues in Q423 led to a significant reduction in the adjusted EBITDA margin to 23.8% in Q323 from 31.8% in Q322. At the start of the year, management guided to 15% organic revenue growth for BI in FY23, which would require c 26% y-o-y revenue growth in Q423, a significant step-up from the growth reported for 9M23 of c 1%.

Cash flow and balance sheet

On a reported basis, cumulative free cash for 9M23 of c €22m was below the comparable figure of c €37m for 9M22. However, this includes the effects of discontinued operations. For continuing activities, free cash flow generation was much healthier at €40.3m, more than 11% greater than the 9M22 comparative of €36.2m. Tinexta’s free cash flow generation therefore improved at a greater rate than revenue growth of c 9% and reported EBITDA growth of c 5% in 9M23.

By the end of Q323, Tinexta’s net debt position had increased to €91.5m from €52.6m at the end of H123, partly due to the completion of the acquisition of Ascertia.

Management updated its guidance for the group’s year-end expected net debt position. The new guidance for net financial debt/adjusted EBITDA at the end of FY23 is 0.7–0.8x. This has increased from 0.2–0.3x at the time of the H123 results and expected cash positive prior to then. The new guidance updates for the acquisitions that have taken place, specifically Ascertia, and now includes the assumption of lower proceeds from the postponement of the exercise of matured stock options.

Management confirmed previous FY23 financial guidance

Based on the group’s 9M23 performance and anticipating the typical seasonality of profits in the financial year (see below), management reiterated its FY23 guidance for year-on-year revenue growth of 11–15% and adjusted EBITDA growth of 8–12% on an underlying basis (ie before any M&A undertaken in FY23). However, the mix of growth is different from that anticipated at the start of the year.

Management’s commentary on the conference call that DT’s organic revenue growth rate through 9M23 was above the guidance for FY23, and is expected to continue into Q423, implies that growth elsewhere is likely to be below the reiterated group guidance. We have therefore increased our estimates for DT to reflect the better expectations for growth, applied some caution to our estimates for BI and left our estimates for CS unchanged given management’s positive commentary about its progress. This means our overall adjusted EBITDA estimates for FY23 are unchanged.

Exhibit 2: Changes to estimates

€m	FY22	FY23e new	FY24e new	FY25e new	FY23e old	FY24e old	FY25e old	FY23e change (%)	FY24e change (%)	FY25e change (%)
Group revenue	357.2	411.0	462.3	507.6	410.4	456.7	501.5	0.1%	1.2%	1.2%
Growth y-o-y	18.4%	15.1%	12.5%	9.8%	14.9%	11.3%	9.8%
- Digital Trust	157.0	179.6	202.8	223.0	172.7	190.0	208.9	4.0%	6.7%	6.7%
Growth y-o-y	19.5%	14.4%	12.9%	10.0%	10%	10%	10%
- Cyber Security	77.5	100.8	111.8	124.1	100.8	111.8	124.1	0.0%	0.0%	0.0%
Growth y-o-y	6.4%	30.0%	11.0%	11.0%	30%	11%	11%
- Business Innovation	125.7	138.2	156.2	173.4	144.5	163.3	181.3	(4.3%)	(4.3%)	(4.3%)
Growth y-o-y	27.8%	10.0%	13.0%	11.0%	15%	13%	11%
- Intra-group	(3.0)	(7.5)	(8.5)	(13.0)	(7.5)	(8.4)	(12.9)	0.1%	1.2%	1.2%
Group adjusted EBITDA	94.8	104.1	120.7	137.8	104.1	119.8	136.7	0.1%	0.8%	0.8%
Margin	26.5%	25.3%	26.1%	27.1%	25.4%	26.2%	27.2%
Growth y-o-y	23.9%	9.9%	15.9%	14.2%	9.8%	15.1%	14.1%
- Digital Trust	47.3	53.6	62.5	72.5	52.5	60.4	70.0	2.1%	3.5%	3.5%
Margin	30.1%	29.9%	30.8%	32.5%	30.4%	31.8%	33.5%
Growth y-o-y	30.0%	13.3%	16.6%	16.0%	11.0%	15.0%	16.0%
- Cyber Security	10.3	14.7	18.4	21.2	14.7	18.4	21.2	0.0%	0.0%	0.0%
Margin	13.3%	14.6%	16.5%	17.1%	14.6%	16.5%	17.1%
Growth y-o-y	2.1%	43.0%	25.0%	15.0%	43.0%	25.0%	15.0%
- Business Innovation	51.6	53.2	60.6	69.1	54.2	61.8	70.5	(1.9%)	(1.9%)	(1.9%)
Margin	41.1%	38.5%	38.8%	39.9%	37.5%	37.9%	38.9%
Growth y-o-y	23.3%	3.0%	14.0%	14.0%	5.0%	14.0%	14.0%
- Other	(14.5)	(17.4)	(20.9)	(25.1)	(17.4)	(20.9)	(25.1)	0.0%	0.0%	0.0%
Growth y-o-y	21.9%	20.0%	20.0%	20.0%	20.0%	20.0%	20.0%

Source: Tinexta accounts, Edison Investment Research

Our new forecasts imply strong year-on-year growth for revenue and adjusted EBITDA in Q423 of c 28% and c 18% respectively.

To demonstrate the seasonality of Tinexta’s profitability, in Exhibit 3 we show the proportion of group annual profit (adjusted EBITDA before central costs) that was generated in FY22 and is expected to be generated in FY23 by division and for the company as a whole in each financial quarter of the year. The FY22 figures are based on reported figures for the year, while the estimated Q423 contribution is based on our updated forecasts for FY23.

Exhibit 3: Annual group profit* by division

Source: Tinexta accounts, Edison Investment Research. Note: *Group profit is adjusted EBITDA before central costs.

Exhibit 3 demonstrates a number of key points:

■

Tinexta’s group adjusted EBITDA is clearly skewed to higher profit generation in the second and fourth quarters of the financial year; 24% and 40% of FY22 profit was earned in those periods.

■

DT’s relative contribution to group profit is quite consistent through the year, albeit with a modest bias towards greater absolute profit as the year progresses, and its strong underlying growth provides some operating leverage.

■

While still in the early days of ownership, CS’s relative profit generation appears to be skewed towards the latter part of the year, although we highlight that the FY22 results were affected by restructuring and investment following the division’s creation. As its profitability grows according to management’s medium-term guidance, it should come to represent a greater share of group profit. The skewing of CS’s profit generation to the latter part of a financial year is consistent with ‘budget flush’ or the ‘spend-it-or-lose-it’ nature of many IT projects.

■

BI’s profitability is demonstrably skewed towards the fourth quarter of any financial year. In the case of WH, this is explained by a similar ‘spend-it-or-lose-it’ mentality with respect to investment by clients before the year-end in order to claim tax deductions. For Co.Mark, seasonality reflects lower general economic activity in the summer months.

Our new forecasts for FY23 are consistent with a similar skewing in profitability to Q4, albeit there is a greater dependence on the period in FY23 than the prior year due to strong growth still anticipated by BI and CS’s expected higher profitability. We believe the expected strong performance of BI in Q423 is more likely to be due to growth from WH than Co.Mark.

Valuation

Rolling forward our DCF to take account of Tinexta’s 9M23 results leads to a broadly unchanged valuation of €30/share (€30.4/share previously) based on a WACC of 8% and a terminal growth rate of 2%. The valuation suggests significant upside potential from the current share price.

To provide some perspective on Tinexta’s current valuation, in Exhibits 4 and 5 we show its prospective EV/sales and EV/EBITDA multiples for FY23–25e and how they compare with historical trading multiples, showing the high, average and low forward multiples for previous financial years. With respective to EV/sales, the prospective multiples for FY23–25e of 3.0x, 2.7x and 2.4x are above the long-term average multiple of 2.4x in the first two forecast years but in line for FY25. We feel a premium is justified given the company’s greater scale and better structural growth following the disposal of its Credit Information and Management division and acquisition of Cyber Security. Similarly, the prospective EV/EBITDA multiples for FY23 and FY24 of 11.9x and 10.2x are above to line with the long-term average of 10.2x, although FY25’s 9.0x is at a discount.

Exhibit 4: Tinexta’s EV/sales multiple	Exhibit 5: Tinexta’s EV/EBITDA multiple

Source: Tinexta, Edison Investment Research, Refinitiv. Note: Priced at 17 November 2023.	Source: Tinexta, Edison Investment Research, Refinitiv. Note: Priced at 17 November 2023.

Exhibit 4: Tinexta’s EV/sales multiple

Source: Tinexta, Edison Investment Research, Refinitiv. Note: Priced at 17 November 2023.

Exhibit 5: Tinexta’s EV/EBITDA multiple

Source: Tinexta, Edison Investment Research, Refinitiv. Note: Priced at 17 November 2023.

Exhibit 6: Financial summary

	€m	2021	2022	2023e	2024e	2025e
Year end 31 December		IFRS	IFRS	IFRS	IFRS	IFRS
INCOME STATEMENT
Revenue		301.5	357.2	411.0	462.3	507.6
Operating costs		(225.1)	(262.4)	(306.9)	(341.6)	(369.8)
EBITDA		76.5	94.8	104.1	120.7	137.8
EBITDA (not adjusted)		71.3	86.3	94.1	110.7	129.8
Operating profit (before amort. and excepts.)		61.1	77.6	83.4	97.6	112.4
Amortisation of acquired intangibles		(11.0)	(17.5)	(17.5)	(17.5)	(17.5)
Exceptionals		(2.6)	(6.4)	(6.2)	(5.0)	(4.0)
Share-based payments		(2.6)	(2.1)	(4.0)	(5.0)	(4.0)
Reported operating profit		45.0	51.6	55.7	70.1	86.9
Net Interest		(3.1)	(6.2)	(2.8)	(2.2)	(1.2)
Joint ventures & associates (post tax)		(0.2)	(0.2)	0.5	0.5	0.5
Exceptionals		0.0	0.0	0.0	0.0	0.0
Profit Before Tax (norm)		57.5	73.6	81.1	96.0	111.8
Profit Before Tax (reported)		41.7	45.1	53.4	68.5	86.3
Reported tax		(13.0)	(12.5)	(16.5)	(20.5)	(25.0)
Profit After Tax (norm)		40.3	52.4	55.9	67.2	79.3
Profit After Tax (reported)		28.7	32.6	36.8	47.9	61.2
Minority interests		(1.2)	(2.4)	(6.7)	(10.9)	(12.5)
Discontinued operations		10.0	45.5	36.1	0.0	0.0
Net income (normalised)		39.1	50.0	49.2	56.3	66.8
Net income (reported)		37.5	75.7	66.2	37.0	48.7

Average Number of Shares Outstanding (m)		47.2	46.8	46.5	46.3	46.1
EPS - normalised (c)		84.7	108.8	108.0	124.0	148.0
EPS - normalised fully diluted (c)		82.8	106.7	105.9	121.5	145.1
EPS - basic reported (€)		0.81	1.65	1.45	0.82	1.08
Dividend (c)		30.00	51.00	47.04	26.39	34.90

Revenue growth (%)		12.1	18.4	15.1	12.5	9.8
EBITDA Margin before non-recurring costs (%)		25.4	26.5	25.3	26.1	27.1
Normalised Operating Margin (%)		20.3	21.7	20.3	21.1	22.1

BALANCE SHEET
Fixed Assets		602.9	574.0	646.8	634.7	622.5
Intangible Assets		550.4	487.3	539.1	535.0	531.8
Tangible Assets		25.2	48.4	44.3	36.3	27.3
Investments & other		27.4	38.3	63.4	63.4	63.4
Current Assets		213.2	403.5	375.6	407.2	457.7
Stocks		1.3	1.9	1.9	1.9	1.9
Debtors		119.5	129.5	143.6	162.1	178.0
Cash & cash equivalents		68.3	115.3	84.1	97.2	131.8
Other financial assets		4.1	125.8	125.8	125.8	125.8
Other		20.0	31.0	20.2	20.2	20.2
Current Liabilities		(207.5)	(260.9)	(264.4)	(272.6)	(279.3)
Creditors		(146.8)	(156.4)	(169.9)	(183.1)	(194.8)
Tax and social security		(3.6)	(2.9)	(2.9)	(2.9)	(2.9)
Short term borrowings		(54.1)	(93.6)	(88.6)	(83.6)	(78.6)
Other		(3.1)	(8.0)	(3.0)	(3.0)	(3.0)
Long Term Liabilities		(357.9)	(314.6)	(286.4)	(286.4)	(286.4)
Long term borrowings		(281.5)	(235.2)	(207.0)	(207.0)	(207.0)
Other long term liabilities		(35.0)	(42.4)	(42.4)	(42.4)	(42.4)
Net Assets		250.8	402.0	471.6	482.8	514.6
Minority interests		(46.9)	(36.4)	(66.4)	(67.4)	(68.7)
Shareholders' equity		203.9	365.7	405.2	415.4	445.9

CASH FLOW
Operating Cash Flow		72.5	72.8	70.3	77.9	91.4
Capex and intangibles		(16.2)	(24.1)	(35.0)	(16.0)	(17.0)
Acquisitions/disposals		(92.8)	84.5	26.9	0.0	0.0
Net interest		(2.3)	(2.4)	(2.8)	(2.2)	(1.2)
Equity financing		(9.3)	(8.1)	(3.5)	(10.0)	(10.0)
Dividends		(12.5)	(20.8)	(28.6)	(31.7)	(23.5)
Borrowings		42.9	(40.2)	(28.2)	0.0	0.0
Other		6.6	1.4	30.0	0.0	0.0
Net Cash Flow		(24.6)	48.6	(32.8)	13.0	34.7
Opening net debt/(cash)		91.9	264.4	77.6	77.0	59.0
Closing net debt/(cash)		264.4	77.6	77.0	59.0	19.3

Source: Tinexta accounts, Edison Investment Research

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General disclaimer and copyright

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This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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