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CREALOGIX Group — Expanding into the Middle Eastern markets

CREALOGIX (SW: CLXN)

Last close As at 04/11/2024

124.50

— 0.00 (0.00%)

Market capitalisation

174m

More on this equity

Research: TMT

CREALOGIX Group — Expanding into the Middle Eastern markets

CREALOGIX is acquiring Innofis, a Barcelona-based digital banking competitor, for an undisclosed price, to expand its core digital banking business into the lucrative Middle Eastern markets. Noting that Innofis is fast growing and highly profitable, we would expect the value of the deal to be priced above the average of comparable transactions. As well as expanding the group’s geographical coverage the acquisition broadens its product offering and creates an opportunity to grow the employee base in a significantly lower-cost market. We estimate that the deal will boost the group’s operating margins by 200bp, but the level of value creation is dependent on the deal cost, and we are retaining our forecasts until more information is available.

Analyst avatar placeholder

Written by

TMT

CREALOGIX Group

Expanding into the Middle Eastern markets

Acquisition

Software & comp services

18 January 2018

Price

CHF175

Market cap

CHF192m

Net cash (CHFm) as at 30 June 2017

9.8

Shares in issue

1.09m

Free float

32%

Code

CLXN

Primary exchange

Switzerland

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.0

16.5

29.6

Rel (local)

(0.4)

11.8

8.4

52-week high/low

CHF100.0

CHF81.0

Business description

CREALOGIX Group provides digital banking technology solutions to banks, wealth managers and other financial services companies. The company’s suite of solutions includes online and mobile banking, digital payments, digital learning and security.

Next events

Interim results

20 March 2018

Final results

18 September 2018

Analysts

Richard Jeans

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

CREALOGIX Group is a research client of Edison Investment Research Limited

CREALOGIX is acquiring Innofis, a Barcelona-based digital banking competitor, for an undisclosed price, to expand its core digital banking business into the lucrative Middle Eastern markets. Noting that Innofis is fast growing and highly profitable, we would expect the value of the deal to be priced above the average of comparable transactions. As well as expanding the group’s geographical coverage the acquisition broadens its product offering and creates an opportunity to grow the employee base in a significantly lower-cost market. We estimate that the deal will boost the group’s operating margins by 200bp, but the level of value creation is dependent on the deal cost, and we are retaining our forecasts until more information is available.

Year
end

Revenue (CHFm)

PBT*
(CHFm)

EPS*
(CHF)

DPS
(CHF)

P/E
(x)

Yield
(%)

06/16

63.3

2.2

1.65

0.00

106.3

N/A

06/17

74.9

5.0

2.67

0.50

65.6

0.3

06/18e

82.3

8.1

5.24

1.00

33.4

0.6

06/19e

89.7

10.5

6.89

1.50

25.4

0.9

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

Acquisition of Innofis

The acquisition fits with the group’s strategy to target new markets and acquire customers and add product offerings. Innofis generates more than CHF10m of revenues and is highly profitable. CREALOGIX says the purchase will be mainly settled in CREALOGIX shares. David Moreno, the CEO and founder of Innofis, is selling his entire 98% shareholding and will hold more than 10% of the enlarged share capital; this suggests he would hold at least 145k CREALOGIX shares worth at least CHF25.4m at current market prices. Mr Moreno is staying with the company and will head its Middle Eastern operations.

Forecasts: Unchanged until we have more details

CREALOGIX has not disclosed precise details of the transaction and we need more information before we update our forecasts. Full details of the transaction will be available in a prospectus which is expected to be published before the end of March. While we could assume that two thirds of the consideration is in shares, the number of shares issued would depend on the share price used in the calculation. Based on the size of the share issue to the vendors, this would indicate a deal value of CHF35-40m at the current market price. Assuming that Innofis’s operating margins were 30%, we estimate that the acquisition would boost CREALOGIX’s operating margins by c 200bp. However, the level of earnings accretion and value creation will depend on the overall consideration, including the number of shares that will be issued.

Valuation: Deal solidifies the investment case

The acquisition creates a range of opportunities for management to accelerate revenue growth and boost margins. The stock trades on 33.4x our existing pre-deal earnings in FY18e, which falls to 25.4x in FY19e and to 22.5x in FY20e.

Acquisition of Innofis

CREALOGIX is buying Innofis for an undisclosed sum from David Moreno, its CEO and founder. The company says that most of the purchase price will be settle in shares, which suggests that potentially a third will be paid in cash and there is no mention of any deferred consideration. Given the size of the share issue, the company is issuing a prospectus and further details on the transaction will be given at the time of the results in March. David Moreno will become a member of the executive group management of CREALOGIX and will continue to be responsible for the Middle Eastern market. We understand that the reason the vendor chose to sell was because Innofis was looking for a strong partner to expand its markets.

Background on Innofis

Founded in 2012, Innofis has 120 staff, all of whom are based in Barcelona, Spain, which will increase the number of employees in the enlarged CREALOGIX group to c 540. Importantly, Innofis has tier one Middle Eastern bank customers, including NCB (National Commercial Bank) and the Al Rajhi Banking Corporation. This reflects the company’s strategy to focus on the Middle Eastern markets which require English speaking skills. Innofis has smaller customers also, including non-banking Spanish domestic customers, but c 90% of revenues relate to digital banking.

Innofis operates a similar business model as CREALOGIX with on premise licence and maintenance along with hosted offerings. There is a strong preference for the traditional on premise software licensing model in the Middle Eastern market. Innofis has been growing consistently in double digits and generated revenues of c CHF10m in the year to December 2017. Innofis is highly profitable, and noting its relatively low cost base in Spain and lucrative customer base, we understand that it has 30%+ operating margins.

Key attractions of Innofis to CREALOGIX

While there is clearly an overlap of products, Innofis adds some interesting products to the CREALOGIX portfolio including predictive analytics (for marketing), a SaaS-based digital loyalty programme (facilitates a points-based reward system for retail customers), and a suite of specific modules for Islamic banking. As the CREALOGIX Digital Banking Hub is open, these modules can be integrated easily (while CREALOGIX’s modules could also be integrated easily into the Innofis platform). Additionally, Innofis has greater experience with microservices, which will be advantageous for product development. Over time, the enlarged group will transition its customers to the CREALOGIX Digital Banking Hub and new customers will be encouraged to take the CREALOGIX platform.

CREALOGIX will aim to cross-sell its modules to Innofis customers, including its Wealth Management and Financial Advisory modules.

Previously without a Spanish office, CREALOGIX plans to take advantage of its new office infrastructure in Barcelona to prioritise staff growth in a market where staff are 50-75% cheaper than the group’s core markets of Switzerland and Germany.

CREALOGIX wants to benefit from what it sees as a strategic shift away from oil in the Middle East towards a more diversified working environment which will include the need for more digital banking.

Exhibit 1: Financial summary

CHF'000s

2015

2016

2017

2018e

2019e

2020e

Year end 30 June

Swiss GAAP

Swiss GAAP

Swiss GAAP

Swiss GAAP

Swiss GAAP

Swiss GAAP

PROFIT & LOSS

Revenue

 

49,307

63,317

74,858

82,345

89,707

97,090

Gross Profit

37,017

51,693

59,695

67,198

74,814

82,428

EBITDA

 

(10,555)

3,696

7,304

9,879

12,170

13,983

Adjusted Operating Profit

 

(11,815)

2,264

5,916

8,579

10,920

12,783

Amortisation of acquired intangibles

(1,616)

(2,634)

(1,799)

(1,799)

(1,799)

(1,799)

Exceptionals

0

0

0

0

0

0

Operating Profit

(13,431)

(370)

4,117

6,780

9,121

10,984

Associates

(837)

517

(21)

250

263

276

Net Interest

95

(630)

(936)

(750)

(650)

(100)

Profit Before Tax (norm)

 

(12,557)

2,151

4,959

8,079

10,532

12,959

Profit Before Tax (Statutory)

 

(14,173)

(483)

3,160

6,280

8,733

11,160

Tax

3,899

(130)

(1,751)

(2,192)

(2,876)

(3,551)

Profit After Tax (norm)

(8,658)

2,021

3,208

5,887

7,657

9,407

Profit After Tax (Statutory)

(10,274)

(613)

1,409

4,088

5,858

7,608

Minority interest

0

(270)

(360)

(198)

(108)

(58)

Net income (norm)

(8,658)

1,751

2,848

5,689

7,549

9,349

Net income (Statutory)

(10,274)

(883)

1,049

3,890

5,750

7,550

Average Number of Shares Outstanding (m)

1.06

1.06

1.07

1.09

1.09

1.20

EPS - normalised (CHF)

 

(8.13)

1.65

2.67

5.24

6.89

7.80

EPS - Statutory (CHF)

 

(9.65)

(0.83)

0.98

3.58

5.25

6.30

Dividend per share (CHF)

2.00

0.00

0.50

1.00

1.50

2.00

Gross Margin (%)

75.1

81.6

79.7

81.6

83.4

84.9

EBITDA Margin (%)

(21.4)

5.8

9.8

12.0

13.6

14.4

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

(24.0)

3.6

7.9

10.4

12.2

13.2

BALANCE SHEET

Fixed Assets

 

20,371

28,910

26,430

24,401

22,564

20,924

Intangible assets and deferred tax

14,115

21,004

18,119

16,320

14,521

12,722

Tangible Assets

1,869

1,595

1,385

1,155

1,117

1,276

Investments & pensions

4,387

6,311

6,926

6,926

6,926

6,926

Current Assets

 

28,217

48,275

52,495

60,847

67,792

78,161

Stocks

3,447

3,661

3,419

3,761

4,097

4,434

Debtors

11,633

17,119

15,301

16,831

18,336

19,845

Cash

10,815

27,495

33,775

40,255

45,358

53,882

Current Liabilities

 

(19,183)

(24,752)

(24,219)

(26,546)

(50,716)

(31,253)

Creditors

(19,183)

(24,752)

(24,219)

(26,546)

(28,879)

(31,253)

Short term borrowings

0

0

0

0

(21,837)

0

Long Term Liabilities

 

(2,723)

(27,331)

(25,191)

(22,043)

(206)

(206)

Long term borrowings

0

(24,141)

(24,005)

(21,837)

0

0

Other long term liabilities

(2,723)

(3,190)

(1,186)

(206)

(206)

(206)

Net Assets

 

26,682

25,102

29,515

36,660

39,434

67,626

CASH FLOW

Operating Cash Flow

 

(4,503)

1,281

9,735

10,291

12,618

14,469

Net Interest

91

5

(616)

(750)

(650)

(100)

Tax

(269)

(144)

(1,273)

(1,178)

(2,181)

(2,844)

Capex

(1,018)

(486)

(862)

(1,070)

(1,211)

(1,359)

Acquisitions/disposals

(4,158)

(9,350)

(346)

0

(2,387)

0

Financing

925

1,504

(215)

1,890

0

21,837

Dividends

(2,126)

0

0

(534)

(1,086)

(1,642)

Net Cash Flow

(11,058)

(7,190)

6,423

8,648

5,103

30,360

Opening net debt/(cash)

 

(21,724)

(10,815)

(3,354)

(9,770)

(18,418)

(23,521)

Other

149

(271)

(7)

0

0

0

Closing net debt/(cash)

 

(10,815)

(3,354)

(9,770)

(18,418)

(23,521)

(53,882)

Source: CREALOGIX (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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by CREALOGIX Group 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 Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by CREALOGIX Group 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 Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

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