CREALOGIX Group — Forecasts updated for acquisition document

TMT

CREALOGIX Group

Forecasts updated for acquisition document

Prospectus

Software & comp services

17 May 2018

Price	CHF163
Market cap	CHF225m
CHF1.192/€
Net cash (CHFm) at 31 December 2017		15.4

Shares in issue	1.38m
Free float	32%
Code	CLXN

Primary exchange	Switzerland
Secondary exchange	N/A

Share price performance

%	1m	3m	12m
Abs	(1.8)	(5.1)	43.7
Rel (local)	(1.3)	2.4	39.6

52-week high/low

CHF178

CHF114.5

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

Final results

18 September 2018

Analyst

Richard Jeans

+44 (0)20 3077 5700

tech@edisongroup.com

Edison profile page

CREALOGIX Group is a research client of Edison Investment Research Limited

In January, CREALOGIX announced the acquisition of Innofis, a Barcelona-based digital banking business, to expand its core digital banking business into the Middle Eastern markets. No financial information on the transaction was provided at the time and, given the size of the deal, the company was required to produce a prospectus, which has revealed all the relevant information. The value of the deal is c CHF39m, which translates to c 3.6x trailing revenues or 9.3x EBITDA. On our updated forecasts, the deal is 11% earnings enhancing (undiluted basis) in FY19.

Year end	Revenue (CHFm)	PBT* (CHFm)	EPS* (CHF)	DPS (CHF)	P/E (x)	Yield (%)
06/16	63.3	2.2	1.65	0.00	99.0	N/A
06/17	74.9	5.0	2.67	0.50	61.1	0.3
06/18e	88.1	10.0	5.72	1.00	28.5	0.6
06/19e	102.4	14.7	7.62	1.50	21.4	0.9

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

Cost of Innofis

The prospectus reveals that CREALOGIX is issuing 170k shares and paying CHF12m in cash for Innofis, which had CHF1.4m in cash on its balance sheet as at 31 December 2017. There is no deferred consideration. Transaction costs are estimated at CHF0.5m. In the year ended December, Innofis generated revenue of CHF10.8m, up 44%, and an operating profit of CHF4.1m for a margin of 37.7%.

Forecasts: Innofis added

We have increased our revenue forecasts by 7% in FY18 and 14% in each of FY19 and FY20 and our EBITDA forecasts increase by 20%, 35% and 34%, respectively. Given the significantly higher operating margins at Innofis, we forecast operating margins to rise by c 250bp. Our adjusted EPS (undiluted basis) increases by 10%, 12% and 14% in the respective years, tempered by the higher share count. Given the rise in the share price, convertible bonds have been actively converting. Hence we now forecast the group to end FY18 with net cash at CHF19.2m (previously CHF18.4m), which rises to CHF28.0m a year later (CHF23.5m). Assuming that the remaining bonds convert will add CHF10.6m of net cash to the balance sheet.

Valuation: 10% growth with 20% operating margins would imply significant upside

The acquisition creates a range of opportunities for management to accelerate revenue growth and boost margins. A discounted cash flow (DCF) scenario incorporating 10% organic revenue CAGR over 2017-27 fading thereafter to 2%, operating margins tapering up to a level of 20% from FY22, along with a 9% WACC, would suggests a valuation of CHF259, 59% above the current share price. Assuming a 25% margin target, all other things being equal, would lift the valuation to CHF317. These valuations are after the dilution impact from the outstanding convertible bonds.

Updated prospectus information on Innofis transaction

CREALOGIX has acquired Innofis from David Moreno, its CEO, founder and 96.5% shareholder, and the minority shareholders. CREALOGIX is issuing 170k shares and paying CHF12m in cash for Innofis, and there is no deferred consideration. Transaction costs are estimated at CHF0.5m. That puts a valuation on the deal at CHF40.7m based on the CHF166 issue price, or CHF39.3m after deducting the CHF1.4m in cash that Innofis had on its balance sheet as at 31 December 2017. There is a lock-in clause whereby the vendors are unable to sell their shares for at least three years. Please refer to our January update note for our initial analysis on the Innofis transaction.

Exhibit 1: Innofis’s selected financial history

€000s	FY15	FY16	FY17
Revenues	5,473	6,786	9,770
Change (%)		24.0	44.0
Operating profit	2,470	2,819	3,684
Operating margin (%)	45.1	41.5	37.7

Source: CREALOGIX Group

CREALOGIX’s capital structure

Following the transaction, CREALOGIX retains a strong financial position, as shown in Exhitibt 2, with a net cash position and no bank debt. Further, CREALOGIX’s convertibles bonds have been actively converting, with CHF10.6m nominal outstanding as at 9 May, down from CHF25m as at launch. Consequently CREALOGIX had 1,377,677 shares outstanding at 9 May, including the 170k issued for Innofis, along with CHF10,612,750 in convertibles corresponding to 101,557 voting rights. There were also 107,000 warrants outstanding, which represent 10,700 voting rights.

Exhibit 2: Balance sheet position

CHF000s	31/12/17	31/12/17	31/12/17	31/12/17
	Book values	Acquisition of Innofis*	Pro forma	Assume all outstanding bonds convert
Cash & ST securities	(30,366)	11,068	(19,298)	(19,298)
Short-term borrowings	0	0	0	0
Long-term borrowings	0	0	0	0
Convertible bonds	14,054	0	14,054	0
Net cash	(16,312)	11,068	(5,244)	(19,298)
Assumed ELAXY FS&S deferred payment	2,387		2,387	2,387
Adjusted net debt (cash)	(13,925)		(2,857)	(16,911)
Net assets	41,464	25,416	66,880	80,934
Debt/equity	(33.6%)		(4.3%)	(20.9%)

Source: CREALOGIX Group. Note: *Cash purchase price less cash acquired, less transaction costs.

Forecasts: Innofis added, otherwise unchanged

The group recorded organic growth of 8% in H1, as we reported last month, but management expects this to accelerate in H2. Consequently, CREALOGIX maintained its mid-term guidance with annual sales growth of more than 20%, EBITDA of more than 15%, product sales of 70%+ of the total and international sales of 70%+. For FY18, CREALOGIX now expects 15% revenue growth, including a six-month contribution from Innofis, and at least a 10% EBITDA margin.

We note that the recent weakness in the Swiss franc against the euro provides a tailwind for revenues.

We have added Innofis and otherwise broadly maintained our forecasts. At the current exchange rate of CHF1.18/€, Innofis generated CHF11.5m of revenue in FY17 (vs reported CHF10.8m). We have conservatively assumed CHF5.8m for six months in FY18, growing at 10%, which translates to CHF12.7m in FY19 and CHF14.0m in FY20. We note that the numbers, particularly in the FY18 period, will be sensitive to new licence sales due to the traditional licence model. We have conservatively assumed operating margins of 32.5% for Innofis, which is below the historical levels, but we note that the margins have been declining.

Exhibit 3: The impact of adding Innofis

CHF000s	FY18	FY19	FY20
CREALOGIX continuing
Revenues	82,345	89,707	97,090
Costs	(73,766)	(78,787)	(84,307)
Operating profit	8,579	10,920	12,783
Operating margin (%)	10.4	12.2	13.2
Innofis
Revenues	5,768	12,691	13,960
Costs	(3,894)	(8,566)	(9,423)
Operating profit	1,875	4,124	4,537
Operating margin (%)	32.5	32.5	32.5
Combined
Revenues	88,113	102,398	111,050
Costs	(77,660)	(87,354)	(93,730)
Operating profit	10,454	15,044	17,320
Operating margin (%)	11.9	14.7	15.6

Source: Edison Investment Research

In all, we have increased our revenue forecasts by 7% in FY18 to CHF88.1m and 14% in each of FY19 and FY20 to CHF102.4m and CHF111.1m respectively. Our EBITDA forecasts increase by 20%, 35% and 34% to CHF11.8m, CHF16.4m and CHF18.7m, respectively. The acquisition boosts operating margins to rise by 140bp in FY18, 250bp in FY19 and 240bp in FY20. We have maintained our interest forecasts since the group maintains a healthy net cash position, and we also maintain our tax charge assumptions. We have ignored intangible amortisation at this stage. Our adjusted EPS (undiluted basis) increases by 10%, 12% and 14% in the respective years, tempered by the higher share count. Given the rise in the share price, convertible bonds have been actively converting. Hence we now forecast the group to end FY18 with net cash slightly higher at CHF19.2m, which rises to CHF27.8m a year later (previously CHF23.5m). Assuming that the remaining bonds convert will add CHF10.6m of net cash to the balance sheet. Consequently, the group has plenty of headroom to make additional bolt-on acquisitions.

Exhibit 4: Forecast changes

	2018e			2019e			2020e
CHF000s	Previous	New	Change (%)	Previous	New	Change (%)	Previous	New	Change (%)
Revenues
Licensing fees	17,920	17,920	0	21,382	21,382	0	23,146	23,146	0
Maintenance	25,200	25,200	0	26,670	26,670	0	28,560	28,560	0
Hosting and SaaS services	7,560	7,560	0	10,800	10,800	0	14,580	14,580	0
Services	28,200	28,200	0	27,737	27,737	0	27,998	27,998	0
Goods	3,465	3,465	0	3,119	3,119	0	2,807	2,807	0
Innofis		5,768	N/A		12,691	N/A		13,960	N/A
Total group revenues	82,345	88,113	7	89,707	102,398	14	97,090	111,050	14
Growth (%)	10.0	17.7	77	8.9	16.2	81	8.2	8.4	3
Gross profit	67,198	72,101	7	74,814	85,601	14	82,428	94,294	14
Gross margin (%)	81.6	81.8		83.4	83.6		84.9	84.9
Opex before depn & amortisation	(57,319)	(60,273)	5	(62,645)	(69,157)	10	(68,445)	(75,624)	10
EBITDA	9,879	11,829	20	12,170	16,444	35	13,983	18,670	34
EBITDA margin (%)	12.0	13.4		13.6	16.1		14.4	16.8
Normal depreciation	(1,300)	(1,375)	6	(1,250)	(1,400)	12	(1,200)	(1,350)	13
Adjusted operating profit	8,579	10,454	22	10,920	15,044	38	12,783	17,320	35
Operating margin (%)	10.4	11.9		12.2	14.7		13.2	15.6
Growth (%)	45.0	76.7		27.3	43.9		17.1	15.1
Associates	250	250	0	263	263	0	276	276	0
Net interest	(750)	(750)	0	(650)	(650)	0	(100)	(100)	0
Profit before tax norm	8,079	9,954	23	10,532	14,657	39	12,959	17,495	35
Amortisation of acquired intangibles	(1,799)	(1,799)	0	(1,799)	(1,799)	0	(1,799)	(1,799)	0
Share-based payments	0	0		0	0		0	0
Exceptional items (net of tax)	0	(500)		0	0		0	0
Profit before tax	6,280	7,655	22	8,733	12,858	47	11,160	15,696	41
Taxation	(2,192)	(2,717)	24	(2,876)	(4,030)	40	(3,551)	(4,822)	36
Minority interest	(198)	(212)	7	(108)	(123)	14	(58)	(67)	14
Net income	3,890	4,726	21	5,750	8,704	51	7,550	10,808	43
Statutory EPS (CHF)	3.58	3.85	7	5.25	6.32	20	6.30	7.57	20
Adjusted EPS (CHF)	5.24	5.72	9	6.89	7.62	11	7.80	8.83	13
P/E - Adjusted EPS		28.5			21.4			18.5

Source: Edison Investment Research

Exhibit 5: 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	88,113	102,398	111,050
Gross Profit		37,017	51,693	59,695	72,101	85,601	94,294
EBITDA		(10,555)	3,696	7,304	11,829	16,444	18,670
Adjusted Operating Profit		(11,815)	2,264	5,916	10,454	15,044	17,320
Amortisation of acquired intangibles		(1,616)	(2,634)	(1,799)	(1,799)	(1,799)	(1,799)
Exceptionals		0	0	0	(500)	0	0
Operating Profit		(13,431)	(370)	4,117	8,155	13,245	15,521
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	9,954	14,657	17,495
Profit Before Tax (Statutory)		(14,173)	(483)	3,160	7,655	12,858	15,696
Tax		3,899	(130)	(1,751)	(2,717)	(4,030)	(4,822)
Profit After Tax (norm)		(8,658)	2,021	3,208	7,237	10,626	12,674
Profit After Tax (Statutory)		(10,274)	(613)	1,409	4,938	8,827	10,875
Minority interest		0	(270)	(360)	(212)	(123)	(67)
Net income (norm)		(8,658)	1,751	2,848	7,025	10,503	12,607
Net income (Statutory)		(10,274)	(883)	1,049	4,726	8,704	10,808

Average Number of Shares Outstanding (m)		1.06	1.06	1.07	1.23	1.38	1.43
EPS - normalised (CHF)		(8.13)	1.65	2.67	5.72	7.62	8.83
EPS - Statutory (CHF)		(9.65)	(0.83)	0.98	3.85	6.32	7.57
Dividend per share (CHF)		2.00	0.00	0.50	1.00	1.50	2.00

Gross Margin (%)		75.1	81.6	79.7	81.8	83.6	84.9
EBITDA Margin (%)		(21.4)	5.8	9.8	13.4	16.1	16.8
Op Margin (before GW and except.) (%)		(24.0)	3.6	7.9	11.9	14.7	15.6

BALANCE SHEET
Fixed Assets		20,371	28,910	26,430	56,401	54,585	52,991
Intangible assets and deferred tax		14,115	21,004	18,119	48,320	46,521	44,722
Tangible Assets		1,869	1,595	1,385	1,155	1,138	1,343
Investments & pensions		4,387	6,311	6,926	6,926	6,926	6,926
Current Assets		28,217	48,275	52,495	63,024	75,218	77,704
Stocks		3,447	3,661	3,419	4,024	4,677	5,072
Debtors		11,633	17,119	15,301	18,010	20,930	22,699
Cash		10,815	27,495	33,775	40,989	49,611	49,934
Current Liabilities		(19,183)	(24,752)	(24,219)	(28,052)	(54,055)	(34,987)
Creditors		(19,183)	(24,752)	(24,219)	(28,052)	(32,218)	(34,987)
Short term borrowings		0	0	0	0	(21,837)	0
Long Term Liabilities		(2,723)	(27,331)	(25,191)	(22,894)	(1,057)	(1,057)
Long term borrowings		0	(24,141)	(23,154)	(21,837)	0	0
Other long term liabilities		(2,723)	(3,190)	(2,037)	(1,057)	(1,057)	(1,057)
Net Assets		26,682	25,102	29,515	68,480	74,691	94,651

CASH FLOW
Operating Cash Flow		(4,503)	1,281	9,735	12,270	16,956	19,225
Net Interest		91	5	(616)	(750)	(650)	(100)
Tax		(269)	(144)	(1,273)	(1,178)	(2,687)	(3,957)
Capex		(1,018)	(486)	(862)	(1,145)	(1,382)	(1,555)
Acquisitions/disposals		(4,158)	(9,350)	(346)	(38,788)	(2,387)	0
Financing		925	1,504	(215)	27,387	0	0
Dividends		(2,126)	0	0	(954)	(1,227)	(2,067)
Net Cash Flow		(11,058)	(7,190)	6,423	(3,159)	8,622	11,547
Opening net debt/(cash)		(21,724)	(10,815)	(3,354)	(9,770)	(19,152)	(27,774)
Other		149	(271)	(7)	12,541	()	10,613
Closing net debt/(cash)		(10,815)	(3,354)	(9,770)	(19,152)	(27,774)	(49,934)

Source: CREALOGIX Group (historics), Edison Investment Research (forecasts). Note: The FY19 outflow represents the final payment for Elaxy FS&S. We have treated the convertible bond conversions in FY18 and FY20 in the Other category.

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 Ltd (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

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

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

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

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Equities

Equities by Sector

Sectors

Thematics

Latest

Healthcare-focused trusts: A sector on the mend

MediaWatch – One step forward, two steps back

ConsumerWatch – Don’t look down

Audiovisual

Latest

Recce Pharmaceuticals – executive interview

VEON – executive interview with CFO Joop Brakenhoff

VEON – executive interview with CEO Kaan Terzioğlu

About Edison

About Edison

Careers

CREALOGIX (SW: CLXN)

CREALOGIX Group — Forecasts updated for acquisition document

TMT

TMT

Latest

Games Workshop Group — A notable acceleration in Q225

Altron — Further margin expansion in H125

Sayona Mining — Catching up with majors

ProCredit Holding — Management expects ROE of c 10% in FY24

Avon Technologies — Record order book driving confident outlook

More on CREALOGIX

Crealogix — Driven by growth in recurring revenue

CREALOGIX Group — An innovator in open banking

CREALOGIX Group — Innovating in open banking

CREALOGIX Group — FY20 results slightly below forecasts, strong H2

Latest from the TMT sector

Altron — Further margin expansion in H125

AUSTRIACARD — Solid Q324 supports FY24 outlook

Nanoco Group — Board states case for voting against resolutions

Dentsu Group — Still fighting market headwinds

Biopharma Credit — Leading lender in life sciences

Subscribe to Edison