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Piteco — EPS beat on favourable Italian tax changes

Piteco (MI: PITE)

Last close As at 20/12/2024

EUR9.48

▲ 0.24 (2.60%)

Market capitalisation

EUR192m

More on this equity

Research: TMT

Piteco — EPS beat on favourable Italian tax changes

FY16 net revenues grew by 5% to €13.5m (we forecast €13.7m), while EBITDA eased by 2% to €5.6m (€6.0m). Revenue and the EBITDA margin both showed a small improvement in H2. The numbers were slightly below expectations, largely due to the challenging economic backdrop. However, EPS beat by 4% on lower than expected tax. We have conservatively eased our revenue and EBITDA forecasts, although EPS remains the same after taking into account favourable tax changes (expanded ‘Patent Box’ rules and reduced corporate tax charges). Given the attractive growth opportunities, strong cash generation and the healthy balance sheet, we believe the shares remain attractive on c 15x our FY18e earnings.

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Written by

TMT

Piteco

EPS beat on favourable Italian tax changes

Final results

Software & comp services

3 April 2017

Price

€4.90

Market cap

€89m

Net cash (€m) at end FY16

1.9

Shares in issue

18.1m

Free float

14.7%

Code

PITE

Primary exchange

AIM Italia

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.0)

3.2

15.2

Rel (local)

(4.5)

(2.4)

9.7

52-week high/low

€4.56

€3.594

Business description

Piteco is Italy’s leading company in designing, developing and implementation of software for treasury, finance and financial planning management.

Next events

AGM

28 April 2017

Interim results

28 September 2017

Analysts

Richard Jeans

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

Piteco is a research client of Edison Investment Research Limited

FY16 net revenues grew by 5% to €13.5m (we forecast €13.7m), while EBITDA eased by 2% to €5.6m (€6.0m). Revenue and the EBITDA margin both showed a small improvement in H2. The numbers were slightly below expectations, largely due to the challenging economic backdrop. However, EPS beat by 4% on lower than expected tax. We have conservatively eased our revenue and EBITDA forecasts, although EPS remains the same after taking into account favourable tax changes (expanded ‘Patent Box’ rules and reduced corporate tax charges). Given the attractive growth opportunities, strong cash generation and the healthy balance sheet, we believe the shares remain attractive on c 15x our FY18e earnings.

Year end

Net sales revenue* (€m)

EBITDA**
(€m)

EPS**
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/15

12.8

5.7

21.5

10.0

22.7

2.0

12/16

13.5

5.6

25.1

15.0

19.5

3.1

12/17e

14.5

6.3

28.3

17.5

17.3

3.6

12/18e

15.5

6.9

31.2

20.0

15.7

4.1

Note: *Excludes the capitalisation of development costs, change in work in progress and other revenues (largely expenses charged back to customers). **Normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY16 results: 26 new clients added during the year

EBITDA represented 41.6% of net sales, down from 44.5% a year earlier, reflecting additional costs. However, H2 recovered to 45.4%, from 37.6% in H1. The 26 new clients in FY16 indicates that four were added since our note in late October. Cash flow was strong with operating cash flow (before interest and tax) representing 99% of EBITDA. While the group closed the year with €1.9m of net cash, which is similar as at end-June, it was after the payment of a €1.9m dividend during H2. Also, the net cash position includes the €4.6m convertible bond, which is well above its 420c conversion price; if the bonds all converted, the net cash position would be €6.5m. Management hopes to move from AIM to the main market by December, and it believes this will help to boost the stock’s liquidity as the free float will rise to c 30%.

Forecasts: Sales and EBITDA eased, EPS maintained

We have conservatively cut our forecasts to reflect the challenging economic backdrop in Italy. Revenue comes back by 4% in FY17 and by 5% in FY18 while EBITDA falls by 9% and 11%, respectively. However, our EPS forecasts remain broadly unchanged due to the tax benefits from extended ‘Patent Box’ rules in Italy and lower Italian corporate tax rates from FY17.

Valuation: DCF suggests fair value

The stock looks attractive, trading on c 17.3x our EPS in FY17e, falling to c 15.7x in FY18e and to c 15.1x in FY19e. Our DCF model suggests a valuation of 497c, slightly above the current price. The calculation uses conservative assumptions including a 4.7% CAGR in net sales revenue over 10 years, a long-term EBITDA margin (40% to net sales) that is below current levels and a discount rate of 9%. It has also been adjusted for the dilution impact of the convertible bonds.

Final results: 26 new clients added during the year

26 new clients were added in FY16 meaning the total is now approaching 700. The 26 gains imply that four clients were added since our last note in late October. This was below our expectations, reflecting the challenging economic backdrop in Italy and some management time spent on the group’s internationalisation strategy. However, management is optimistic that activity will improve in FY17, given the recent modest improvements in the Italian economy along with a greater management focus. This optimism is reflected in the dividend, which is boosted by 50% to 15c (total cost of €2.7m), and is 60% covered by earnings.

Piteco has one pilot project in Mexico, which was through its local distributor, PAGAFLEX, and management anticipates initial sales will be made in FY17. While a typical licence size remains the same, the company did not get the benefit from any abnormally large deal in FY16, as is often the case. EBITDA represented 41.6% of net sales in FY16, down from 44.5% a year earlier, reflecting additional costs including the listing, an additional salesman and costs in preparation for expansion, which includes a new ‘cloud’ solution. The sales team stands at seven, including the sales director. The H2 EBITDA margin recovered to 45.4%, up from 37.6% in H1 when there was a c €0.2m one-off cost relating to the listing. Cash flow was strong with operating cash flow (before interest and tax) representing 99% of EBITDA. The group closed the year with €1.9m of net cash, which was below our €2.9m forecast. While this was similar as at end-June, there were also €1.9m in dividend payments made during H2. The net cash position includes the €4.6m convertible bond, which is well above its 420c conversion price; if the bonds all converted, the net cash position would be €6.5m. The convertibles can convert at any time up until 2020; therefore any early conversions will boost the net cash position.

The group tax charge fell from €1.1m in FY15 to €0.5m in FY16, for a 10% tax rate, as Piteco benefited from the newly implemented ‘Patent Box’ rules. These ‘Patent Box’ rules are set to be expanded in FY17 to bring them in line with other countries in Europe. This will mean the group’s entire recurring revenue book will be covered. Further, the corporate tax rate in Italy is falling from 27.5% to 24% in FY17. We also note that there have recently been significant tax incentives announced for retirement investment plans to invest in small companies, which could help the company to expand its shareholder base.

The company began a share buyback scheme in January to purchase up to 5% of the shares, over an 18-month period. No shares have yet been purchased. However, share purchases are expected to take place over the coming months.

Forecasts: Sales and EBITDA eased, EPS maintained

We have conservatively cut our forecasts to reflect the challenging economic backdrop in Italy. Revenue comes back by 4% in FY17 and by 5% in FY18, while EBITDA falls by 9% and 11%, respectively. However, EPS remains broadly unchanged due to the tax benefits from extended ‘Patent Box’ rules and lower Italian corporate tax rates. We have also introduced FY19 forecasts. In all, we forecast net sales revenue to grow by 7.5% in FY17, 6.9% in FY18 and 6.1% in FY19, with adjusted EBITDA rising from €6.3m to €7.4m over the period and EPS showing a CAGR of 8.9% over the three-year period. We also note that the group could potentially benefit from a €0.5m exceptional gain, as the expanded ‘Patent Box’ rules should apply to FY16’s taxes also, but we have not yet included this in our model.

Exhibit 1: Forecast changes

Net sales revenue (€m)

Adjusted EBITDA (€m)

EPS (c)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2016

13.7

13.5

(2)

6.0

5.6

(7)

24.1

25.1

(4)

2017e

15.1

14.5

(4)

6.9

6.3

(9)

28.2

28.3

0

2018e

16.4

15.5

(5)

7.7

6.9

(11)

31.3

31.2

0

2019e

N/A

16.4

N/A

N/A

7.4

N/A

N/A

32.4

N/A

Source: Edison Investment Research


Exhibit 2: Financial summary

€'000s

2014

2015

2016

2017e

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Turnover

 

12,334

13,384

14,122

15,281

16,332

17,328

Net Sales Revenue

11,550

12,838

13,477

14,484

15,480

16,425

EBITDA

 

5,229

5,719

5,606

6,271

6,889

7,374

Adjusted Operating Profit

 

5,149

5,620

5,466

6,026

6,542

6,913

Amortisation of acquired intangibles

(623)

(157)

(157)

0

0

0

Exceptionals

17

(323)

106

0

0

0

Share based payments

0

0

0

0

0

0

Operating Profit

4,543

5,140

5,415

6,026

6,542

6,913

Net Interest

(1,011)

(585)

(365)

(200)

(100)

Profit Before Tax (norm)

 

4,139

5,035

5,102

5,826

6,442

6,913

Profit Before Tax (FRS 3)

 

3,532

4,555

5,050

5,826

6,442

6,913

Tax

(1,090)

(1,130)

(547)

(699)

(789)

(1,037)

Profit After Tax (norm)

3,049

3,905

4,554

5,127

5,653

5,876

Profit After Tax (FRS 3)

2,443

3,426

4,503

5,127

5,653

5,876

Average Number of Shares Outstanding (m)

0.0

18.1

18.1

18.1

18.1

18.1

EPS - normalised (c)

 

0.0

21.5

25.1

28.3

31.2

32.4

EPS - FRS 3 (c)

 

0.0

18.9

24.8

28.3

31.2

32.4

Dividend per share (c)

0.00

10.00

15.00

17.50

20.00

22.50

Gross Margin (%)

0.0

0.0

0.0

0.0

0.0

0.0

EBITDA Margin (%)

42.4

42.7

39.7

41.0

42.2

42.6

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

41.7

42.0

38.7

39.4

40.1

39.9

BALANCE SHEET

Fixed Assets

 

29,303

30,055

30,090

30,251

30,337

30,337

Intangible assets and deferred tax

27,442

28,522

28,626

28,790

28,950

29,013

Tangible Assets

1,455

1,421

1,365

1,361

1,288

1,224

Investments

406

112

99

99

99

99

Current Assets

 

6,005

14,846

15,531

16,463

17,958

19,470

Stocks

0

0

0

0

0

0

Debtors

4,013

4,494

4,524

4,661

4,770

4,850

Cash

1,862

10,198

10,870

11,665

13,050

14,482

Current Liabilities

 

(4,994)

(5,408)

(5,023)

(5,523)

(6,002)

(6,451)

Creditors

(3,794)

(3,688)

(3,304)

(3,804)

(4,283)

(4,731)

Short term borrowings

(1,200)

(1,720)

(1,719)

(1,719)

(1,719)

(1,719)

Long Term Liabilities

 

(12,052)

(10,114)

(8,576)

(6,826)

(5,514)

(4,201)

Long term borrowings

(10,694)

(8,825)

(7,204)

(5,454)

(4,142)

(2,829)

Other long term liabilities

(1,359)

(1,289)

(1,372)

(1,372)

(1,372)

(1,372)

Net Assets

 

18,262

29,379

32,022

34,365

36,779

39,155

CASH FLOW

Operating Cash Flow

 

5,739

5,056

5,525

6,416

7,044

7,538

Net Interest

(1,011)

(585)

(365)

(200)

(100)

0

Tax

(973)

(1,146)

(661)

(547)

(641)

(709)

Capex

(273)

(330)

(347)

(406)

(433)

(460)

Acquisitions/disposals

0

(972)

0

0

0

0

Financing

(2,265)

7,671

0

0

0

0

Dividends

0

0

(1,860)

(2,719)

(3,172)

(3,625)

Net Cash Flow

1,217

9,695

2,293

2,545

2,698

2,744

Opening net debt/(cash)

 

11,249

10,032

347

(1,946)

(4,491)

(7,189)

Other

()

(10)

0

0

0

()

Closing net debt/(cash)

 

10,032

347

(1,946)

(4,491)

(7,189)

(9,933)

Source: Piteco (historics), Edison Investment Research (forecasts)

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 Piteco 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

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Germany

London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 Piteco 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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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