Fusionex International — Update 24 October 2016

Fusionex International — Update 24 October 2016

Fusionex International

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Fusionex International

Upgrade on lower costs, pipeline strong

Trading update/upgrade

Software & comp services

24 October 2016

Price

175.0p

Market cap

£83m

MYR/GBP = 0.196

Net cash (MYRm) at end March 2016

105

Shares in issue

47.3m

Free float

53%

Code

FXI

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.5

16.7

(53.3)

Rel (local)

2.2

11.2

(57.4)

52-week high/low

380.00p

115.00p

Business description

Fusionex International’s main product is GIANT, a big data analytics solution. Headquartered in Malaysia, Fusionex also has offices in five other Asian markets, the UK and the US. It sells its product through both direct and indirect channels to an international client base including Intel, DHL, Las Vegas Sands Corp and GroupM.

Next events

Full year results

January 2017

Analysts

Dan Ridsdale

+44 (0)20 3077 5729

Bridie Barrett

+44 (0)20 3077 5700

Fusionex International is a research client of Edison Investment Research Limited

Fusionex’s year-end trading update indicates that revenues will be in line with market expectations (we estimate 16% revenue growth in FY16) and that a strong pipeline for GIANT 2016 should drive further momentum in FY17. The planned increase in sales, marketing and other investment to support adoption of GIANT has been more moderate than we forecast, meaning that EBITDA is expected to be significantly above consensus. We upgrade our FY16 EBITDA by MYR3.2m (83% but from a compressed level) to reflect this, while leaving our estimates for FY17 and FY18 unchanged.

Year
end

Revenue
(MYRm)

Revenue
(£m)

EBITDA
(MYRm)

PBT
(MYRm)

EPS*
(sen)

DPS
(p)

EV/Sales
(x)

Yield
(%)

09/14

57.1

11.2

25.8

21.4

42.1

2.0

5.7

1.1

09/15

77.0

15.1

33.2

26.3

53.3

2.1

4.2

1.2

09/16e

89.5

17.5

7.1

(5.9)

(11.1)

2.2

3.6

1.3

09/17e

133.7

26.2

9.7

(6.8)

(12.6)

2.2

2.4

1.3

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

Sales in line, good pipeline

In a brief trading update, Fusionex has stated that full year revenues are expected to be in line with market expectations. Our full year estimate of MYR89.5m equates to a robust 16% y-o-y revenue growth. While this implies some moderation in growth in H2 (6% on our estimates), GIANT 2016 was only launched at the end of June and we understand that the majority of new GIANT customers are contracting on a subscription basis where revenues are drawn down over the life of the contract, rather than paying a licence up front. Management also states that the pipeline for GIANT 2016 is significant and that momentum is expected to continue into FY17.

More moderate investment drives upside

The company announced a step change in investment in January, sacrificing the group’s historically high margins near term to support a more aggressive growth strategy. The rate of increase in investment in FY16 is now expected to be more moderate than previously thought and we upgrade our FY16 EBITDA by MYR3.2m (83%) to reflect this. It is worth highlighting that our revised estimates still assume a 96% increase in opex year-on-year and that the company remains in an investment phase to support strong growth and margin expansion in future years. Our FY16 EBIT and EPS loss forecasts are reduced by 35%, but our FY17and FY18 estimates remain essentially unchanged.

Valuation: Investment case unchanged

Our reverse DCF suggests that the current share price is discounting our forecasts, followed by revenue growth of around 10% to FY25. While not insignificant, this is fairly benign for a high-quality product so early in its sales cycle (we forecast GIANT sales to double this year), in a rapidly growing global market. Evidence that the current momentum is being maintained could lead to considerable upside.

Estimate changes

On the basis of lower operating expense forecasts for FY16, we have increased our FY16 EBITDA forecast from MYR3.9m to MYR7.1m (+83%). This results in a smaller operating loss (from MRY9.1m to MYR5.9m) and similarly a smaller loss before and after tax. We make no changes to FY17 or FY18 forecasts at this point.

Exhibit 1: Estimate changes

Year end 30 September

2014

2015

2016e

2017e

2018e

MYR000s

IFRS actual

Old

New

Change
(%)

No changes

Revenue

57,106

77,044

89,500

89,500

0%

133,719

190,831

EBITDA

25,816

33,195

3,881

7,085

83%

9,733

30,248

Operating Profit (before amort. and except.)

21,797

26,376

(9,114)

(5,910)

35%

(6,767)

10,248

Profit Before Tax (norm)

21,415

26,334

(9,122)

(5,918)

35%

(6,775)

10,240

Tax

(3,320)

(3,424)

1,095

710

35%

813

(1,229)

Profit After Tax (norm)

18,095

22,910

(8,027)

(5,208)

35%

(5,962)

9,012

EPS - normalised and fully diluted (sen)

42.1

53.3

(17.2)

(11.1)

35%

(12.6)

19.1

Dividend per share (p)

2.0

2.1

2.2

2.2

0%

2.2

2.3

Source: Company Data, Edison Investment Research

Exhibit 2: Financial summary

Year end 30 September

MYR000s

2013

2014

2015

2016e

2017e

2018e

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

44,423

57,106

77,044

89,500

133,719

190,831

Cost of Sales

(10,090)

(12,793)

(18,191)

(23,020)

(33,641)

(46,777)

Gross Profit

34,333

44,312

58,853

66,480

100,077

144,054

EBITDA

 

 

22,478

25,816

33,195

7,085

9,733

30,248

Operating Profit (before amort. and except.)

20,840

21,797

26,376

(5,910)

(6,767)

10,248

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

0

1,365

2,037

0

0

0

Other

0

0

0

0

0

0

Operating Profit

20,840

23,162

28,412

(5,910)

(6,767)

10,248

Net Interest

(340)

(381)

(41)

(8)

(8)

(8)

Profit Before Tax (norm)

 

 

20,500

21,415

26,334

(5,918)

(6,775)

10,240

Profit Before Tax (FRS 3)

 

 

20,500

22,780

28,371

(5,918)

(6,775)

10,240

Tax

(1,488)

(3,320)

(3,424)

710

813

(1,229)

Profit After Tax (norm)

19,012

18,095

22,910

(5,208)

(5,962)

9,012

Profit After Tax (FRS 3)

19,012

19,460

24,947

(5,208)

(5,962)

9,012

Average Number of Shares Outstanding (m)

41.9

43.0

43.0

46.7

47.3

47.3

EPS - normalised (sen)

 

 

45.3

42.1

53.3

(11.1)

(12.6)

19.1

EPS - normalised and fully diluted (sen)

 

45.3

42.1

53.3

(11.1)

(12.6)

19.1

EPS - (IFRS) (sen)

 

 

45.3

45.3

58.0

(11.1)

(12.6)

19.1

Dividend per share (p)

2.0

2.0

2.1

2.2

2.2

2.3

Gross Margin (%)

77.3

77.6

76.4

74.3

74.8

75.5

EBITDA Margin (%)

50.6

45.2

43.1

7.9

7.3

15.9

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

46.9

38.2

34.2

-6.6

-5.1

5.4

BALANCE SHEET

Fixed Assets

 

 

49,077

57,761

73,605

90,110

109,610

130,610

Intangible Assets

13,642

22,125

34,742

45,492

56,992

66,992

Tangible Assets

35,435

35,194

38,031

43,786

51,786

62,786

Investments

0

442

831

831

831

831

Current Assets

 

 

72,678

79,467

94,140

151,705

126,188

113,122

Stocks

0

0

0

0

0

0

Debtors

10,287

12,312

36,412

33,682

42,881

54,666

Cash

62,392

64,021

57,728

118,023

83,307

58,456

Other

0

3,134

0

0

0

0

Current Liabilities

 

 

(7,345)

(12,190)

(13,408)

(13,960)

(20,224)

(25,739)

Creditors

(6,377)

(8,856)

(12,588)

(13,141)

(19,405)

(24,919)

Short term borrowings

(969)

(3,334)

(819)

(819)

(819)

(819)

Long Term Liabilities

 

 

(27,894)

(23,645)

(25,664)

(24,814)

(23,964)

(23,114)

Long term borrowings

(26,776)

(20,224)

(19,446)

(18,596)

(17,746)

(16,896)

Other long term liabilities

(1,117)

(3,421)

(6,218)

(6,218)

(6,218)

(6,218)

Net Assets

 

 

86,516

101,393

128,672

203,041

191,609

194,879

CASH FLOW

Operating Cash Flow

 

 

21,459

25,869

13,071

10,367

6,799

23,978

Net Interest

3

(239)

227

(8)

(8)

(8)

Tax

(1,643)

(1,115)

(1,651)

710

813

(1,229)

Capex

(35,185)

(14,132)

(16,105)

(29,500)

(36,000)

(41,000)

Acquisitions/disposals

0

0

0

0

0

0

Financing

52,789

0

0

84,785

0

0

Dividends

(5,959)

(4,795)

(4,961)

(5,209)

(5,469)

(5,743)

Net Cash Flow

31,464

5,588

(9,419)

61,145

(33,866)

(24,001)

Opening net debt/(cash)

 

 

(4,153)

(34,646)

(40,463)

(37,462)

(98,608)

(64,742)

HP finance leases initiated

0

0

0

0

0

0

Other

(971)

229

6,418

(0)

0

0

Closing net debt/(cash)

 

 

(34,646)

(40,463)

(37,462)

(98,608)

(64,742)

(40,741)

Source: Company accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). 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 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Fusionex International 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 2016. “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.

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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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). 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 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Fusionex International 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 2016. “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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

4SC — Update 24 October 2016

4SC

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