Brady — In-line trading, focused on investing in technology

Brady — In-line trading, focused on investing in technology

In a brief AGM update, Brady said that trading has been in line. Following a period of significant change, with new people hired and the business having been streamlined, the primary focus has shifted to re-engineering the software. The initial outcome of this was shown with the launch of the group’s first FAST START implementation offering in May. We will review our forecasts following tomorrow’s capital markets day. If Brady can successfully transition to the cloud, there is a lot to go for as E/CTRM is an attractive growth industry and Brady has a high-quality customer base.

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Written by

Brady

In-line trading, focused on investing in technology

AGM trading statement

Software & comp services

4 June 2018

Price

63.75p

Market cap

£53m

Net cash (£m) at 31 December 2017

4.4

Shares in issue

83.4m

Free float

68%

Code

BRY

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.5

10.9

(17.2)

Rel (local)

2.0

3.4

(19.4)

52-week high/low

77.0p

55.8p

Business description

Brady is the largest Europe-based E/CTRM player. It provides a range of transaction and risk management software applications, which help producers, consumers, financial institutions and trading companies manage their commodity transactions in a single, integrated solution.

Next events

Capital markets day

5 June 2018

Interim results

September 2018

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Brady is a research client of Edison Investment Research Limited

In a brief AGM update, Brady said that trading has been in line. Following a period of significant change, with new people hired and the business having been streamlined, the primary focus has shifted to re-engineering the software. The initial outcome of this was shown with the launch of the group’s first FAST START implementation offering in May. We will review our forecasts following tomorrow’s capital markets day. If Brady can successfully transition to the cloud, there is a lot to go for as E/CTRM is an attractive growth industry and Brady has a high-quality customer base.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/16**

25.4

1.3

2.4

0.0

26.7

N/A

12/17**

22.9

(2.4)

(5.0)

0.0

N/A

N/A

12/18e

23.7

0.9

0.9

0.0

74.9

N/A

12/19e

24.9

1.5

1.4

0.0

44.6

N/A

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

Trading update: In line, substantial internal changes

According to Brady, it has made substantial progress in the first four months of the year and trading was in line with management's expectations. The company has continued to invest in the core technology that it believes will drive the business forward in the longer term and is starting to see the benefits of this investment. A Q1 highlight was a contact win with Ustekveikja Energi, a municipal-owned Norwegian utility, which has selected Brady EDM to support its physical power market operations in the Nordics.

New FAST START implementation offerings

In May, Brady launched a new cloud-deployed version of its physical trading and risk management solution for metals (Fintrade), which employs out-of-the-box, preconfigured settings that make it usable from day one. Brady plans to roll out further quick-start solutions for other commodities over the course of 2018.

Sector consolidation

ION announced it was acquiring Openlink earlier this year, following the acquisitions of Triple Point in 2013 and Aspect Enterprise Solutions in October 2017. Openlink and Triple Point are the two largest players in the E/CTRM space, followed by Allegro, which acquired Financial Engineering Associates from MSCI in April, and SunGard, which was acquired by FIS in 2015.

Valuation: Well positioned in a consolidating sector

We have maintained our forecasts for modest profitability in FY18, with the shares on c 75x our earnings estimates. However, the shift to microservices and cloud delivery will enable much improved scalability of the business model. Meanwhile, the shares are underpinned by the c 70% recurring revenues and the very high-quality customer base.

Exhibit 1: Financial summary

£'000s

2015

2016

2017

2018e

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

27,374

25,373

22,926

23,732

24,940

26,410

EBITDA

 

 

1,506

1,910

(2,096)

1,194

1,838

2,625

Adjusted Operating Profit

 

 

924

1,290

(2,394)

869

1,488

2,232

Amortisation of acquired intangibles

(1,640)

(1,618)

(1,559)

(1,559)

(1,559)

(1,559)

Exceptionals items

(469)

(1,250)

(4,363)

0

0

0

Share based payments

(243)

(90)

(11)

(500)

(600)

(650)

Operating Profit

(1,428)

(1,668)

(8,327)

(1,190)

(671)

23

Net Interest

31

3

(22)

20

50

80

Profit Before Tax (norm)

 

 

955

1,293

(2,416)

889

1,538

2,312

Profit Before Tax (FRS 3)

 

 

(1,397)

(1,665)

(8,349)

(1,170)

(621)

103

Tax

(329)

(188)

102

(178)

(338)

(555)

Profit After Tax (norm)

813

1,992

(4,176)

711

1,199

1,757

Profit After Tax (FRS 3)

(1,726)

(1,853)

(8,247)

(1,348)

(960)

(452)

Average Number of Shares Outstanding (m)

82.7

83.0

83.3

83.6

84.0

84.4

EPS – normalised (p)

 

 

1.0

2.4

(5.0)

0.9

1.4

2.1

EPS – FRS 3 (p)

 

 

(2.1)

(2.2)

(9.9)

(1.6)

(1.1)

(0.5)

Dividend per share (p)

0.00

0.00

0.00

0.00

0.00

1.00

EBITDA Margin (%)

5.5

7.5

(9.1)

5.0

7.4

9.9

Adjusted Operating Margin (%)

3.4

5.1

(10.4)

3.7

6.0

8.5

BALANCE SHEET

Fixed Assets

 

 

31,461

37,035

26,578

21,521

20,160

18,486

Intangible Assets

29,831

35,999

26,091

20,956

19,483

17,674

Tangible Assets

1,147

978

487

565

677

812

Deferred tax

483

58

0

0

0

0

Current Assets

 

 

13,633

14,640

13,174

10,615

11,700

14,782

Stocks

0

0

0

0

0

0

Debtors

7,039

7,297

4,621

4,783

5,027

5,323

Cash

6,594

7,343

4,089

5,831

6,673

9,459

Current Liabilities

 

 

(10,804)

(12,669)

(10,734)

(10,777)

(10,924)

(11,133)

Creditors

(10,804)

(12,669)

(10,734)

(10,777)

(10,924)

(11,133)

Short-term borrowings

0

0

0

0

0

0

Long-Term Liabilities

 

 

(4,814)

(5,670)

(4,593)

(4,593)

(4,593)

(4,593)

Long-term borrowings

0

0

0

0

0

0

Other long-term liabilities

(4,814)

(5,670)

(4,593)

(4,593)

(4,593)

(4,593)

Net Assets

 

 

29,476

33,336

24,425

16,766

16,343

17,542

CASH FLOW

Operating Cash Flow

 

 

2,363

2,737

(316)

2,727

3,871

4,740

Net Interest

31

3

(22)

20

50

80

Tax

(416)

(428)

247

(860)

(308)

(509)

Capex

(2,591)

(2,167)

(2,806)

(3,379)

(2,706)

(2,525)

Acquisitions/disposals

(1,186)

(326)

0

3,234

(66)

1,000

Financing

469

47

190

0

0

0

Dividends

(1,524)

0

0

0

0

0

Net Cash Flow

(2,854)

(134)

(2,707)

1,742

842

2,786

Opening net debt/(cash)

 

 

(9,580)

(6,594)

(7,343)

(4,089)

(5,831)

(6,673)

Disposal

0

0

(265)

0

0

0

Other

(132)

883

(282)

0

0

0

Closing net debt/(cash)

 

 

(6,594)

(7,343)

(4,089)

(5,831)

(6,673)

(9,459)

Source: Brady (historicals), Edison Investment Research (forecasts). Note: FY16 and FY17 P&L reflect the continuing business, excluding the Recycling business that has been sold.

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 Brady 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

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 Brady 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

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

Research: Healthcare

Pacific Edge — Fast growth negatively impacted by NZ IFRS 15

Pacific Edge recently announced that it has adopted the new revenue recognition accounting standard, NZ IFRS 15, for FY18. This means that revenue from US customers will only be recognised once cash payment is received (previously it also included tests that had been billed but not yet paid). As a result, the company restated FY17 operating revenue from NZ$8.1m to NZ$3.2m and reported NZ$3.4m for FY18. Total revenue would have been up 26.3% without the accounting change but under NZ IFRS 15 this is reduced to 6.9% as the US is the main growth driver for tests. Pacific Edge is negotiating agreements with the Centers for Medicare and Medicaid (CMS) as well as private payers to provide for more timely reimbursement. Management will provide updated guidance later this year.

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