TXT e-solutions — Making progress in North America and Asia

TXT e-solutions (Euronext STAR Milan: TXT)

Last close As at 04/11/2024

9.88

−0.06 (−0.60%)

Market capitalisation

129m

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Research: TMT

TXT e-solutions — Making progress in North America and Asia

TXT reported strong organic revenue growth in Q117, with 14% growth for TXT Retail and 8% growth for TXT Next. Our forecasts are substantially unchanged. TXT continues to internationalise both businesses and we believe it could make further bolt-on acquisitions in the TXT Next business. In Italy, the recently introduced individual savings account scheme (PIR) is driving up demand for TXT’s shares, and in our view this is the main driver of the share price outperformance year-to-date.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

TXT e-solutions

Making progress in North America and Asia

Q117 results

Software & comp services

11 May 2017

Price

€12.99

Market cap

€152m

Net cash (€m) at end Q117

8.8

Shares in issue

11.7m

Free float

45.5%

Code

TXT

Primary exchange

Borsa Italiana (STAR)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

26.1

54.1

70.5

Rel (local)

18.4

33.7

40.5

52-week high/low

€13.0

€7.0

Business description

TXT e-solutions has two divisions: TXT Retail, which provides software solutions for supply chain management in the international retail and consumer-driven industrial sectors; and TXT Next, which provides IT, consulting and R&D services to Italian aerospace, high-tech manufacturing, banking and finance customers.

Next events

H117 results

3 August

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

TXT e-solutions is a research client of Edison Investment Research Limited

TXT reported strong organic revenue growth in Q117, with 14% growth for TXT Retail and 8% growth for TXT Next. Our forecasts are substantially unchanged. TXT continues to internationalise both businesses and we believe it could make further bolt-on acquisitions in the TXT Next business. In Italy, the recently introduced individual savings account scheme (PIR) is driving up demand for TXT’s shares, and in our view this is the main driver of the share price outperformance year-to-date.

Year
end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

61.5

5.7

0.40

0.25

32.5

1.9

12/16

69.2

8.1

0.55

0.30

23.6

2.3

12/17e

75.2

8.0

0.53

0.32

24.5

2.5

12/18e

78.5

8.8

0.59

0.33

22.0

2.5

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

Q1 results show good organic growth

TXT reported Q1 revenue growth of 25% y-o-y, of which 11% was organic. TXT Retail grew 14% y-o-y, with software revenues +20% and services revenues +11%. TXT Next grew 38% or 8% excluding the €1.9m contributed by PACE. International revenues made up 59.0% of the total, up from 51.5% a year ago and flat versus Q416. Adjusted EBITDA of €1.6m was 11.5% higher than a year ago, with a margin of 8.8%. The company ended Q117 with net cash of €8.8m (end FY16 €5.4m). TXT Retail continues to make good progress in North America and Asia, with a significant licence sale in the US to The Finish Line (a sports retailer) and a contract with a Hong Kong retailer.

Positive outlook; forecasts substantially unchanged

For Q217, the company expects a positive development in revenues and profits. We have revised our revenue forecasts up marginally in FY17 and FY18 to reflect the Q1 performance. With a slight mix shift toward services, this results in substantially unchanged gross profits and EPS.

Valuation: Technical issues drive share price

The stock has performed exceptionally well in recent months, up 72% year-to-date and 28% in the last month. The recent introduction of the PIR individual savings scheme in Italy, which allows mutual funds held for five years to earn returns tax free, has boosted investment in Italian small and mid-cap stocks. We believe that the combination of growth, profitability, dividend payout and strong cash position has made TXT an attractive proposition, boosting liquidity in the stock and driving up the share price. The stock is now trading more in line with its software peers, despite the significant services business in both divisions. To bring the stock price more in line with fundamentals, we would need to see strong growth in licensing in North America and Asia for TXT Retail and good cross-selling to PACE’s customer base within in TXT Next.

Exhibit 1: Financial summary

€'000s

2012

2013

2014

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

46,499

52,560

54,410

61,540

69,152

75,206

78,462

Cost of sales

(22,351)

(24,854)

(26,455)

(29,189)

(32,039)

(34,637)

(36,162)

Gross profit

24,148

27,706

27,955

32,351

37,113

40,569

42,300

EBITDA

 

 

5,322

6,263

5,324

6,659

8,715

8,601

9,460

Operating Profit (before amort and except)

 

 

4,283

5,241

4,284

5,820

7,955

7,862

8,721

Amortisation of acquired intangibles

0

(285)

(285)

(285)

(549)

(637)

(637)

Exceptionals and other income

939

0

1,468

0

(500)

0

0

Other income

0

0

0

(740)

0

(500)

(500)

Operating Profit

5,222

4,956

5,467

4,795

6,906

6,725

7,584

Net Interest

(37)

(435)

(249)

(151)

105

100

100

Profit Before Tax (norm)

 

 

4,246

4,806

4,035

5,669

8,060

7,962

8,821

Profit Before Tax (FRS 3)

 

 

5,185

4,521

5,218

4,644

7,011

6,825

7,684

Tax

(188)

121

(1,046)

(762)

(1,456)

(1,501)

(1,690)

Profit After Tax (norm)

4,092

4,927

3,226

4,739

6,386

6,210

6,880

Profit After Tax (FRS 3)

4,997

4,642

4,172

3,882

5,555

5,323

5,993

Average Number of Shares Outstanding (m)

11.0

11.5

11.5

11.7

11.7

11.7

11.7

EPS - normalised (c)

 

 

37

43

28

41

55

53

59

EPS - normalised fully diluted (c)

 

 

34

41

28

40

55

53

59

EPS - (IFRS) (c)

 

 

45

40

36

33

48

46

51

Dividend per share (c)

18.2

22.7

22.7

25.0

30.0

32.0

33.0

Gross margin (%)

51.9

52.7

51.4

52.6

53.7

53.9

53.9

EBITDA Margin (%)

11.4

11.9

9.8

10.8

12.6

11.4

12.1

Operating Margin (before GW and except) (%)

9.2

10.0

7.9

9.5

11.5

10.5

11.1

BALANCE SHEET

Fixed Assets

 

 

18,570

17,850

18,019

18,132

25,428

24,672

23,916

Intangible Assets

16,621

15,370

15,078

14,692

21,296

20,590

19,884

Tangible Assets

1,154

1,118

1,249

1,361

1,598

1,548

1,498

Other

795

1,362

1,692

2,079

2,534

2,534

2,534

Current Assets

 

 

36,769

34,914

34,892

38,946

37,085

41,464

47,070

Stocks

1,388

1,451

1,820

2,075

3,146

3,246

3,346

Debtors

19,562

18,642

20,768

27,791

26,369

28,846

30,095

Cash

15,819

14,821

12,304

9,080

7,570

9,372

13,628

Other

0

0

0

0

0

0

0

Current Liabilities

 

 

(20,651)

(17,864)

(17,451)

(18,349)

(21,051)

(22,347)

(24,432)

Creditors

(15,155)

(14,512)

(15,297)

(17,528)

(20,243)

(21,539)

(23,624)

Short term borrowings

(5,496)

(3,352)

(2,154)

(821)

(808)

(808)

(808)

Long Term Liabilities

 

 

(8,666)

(6,965)

(6,491)

(5,105)

(7,180)

(7,180)

(7,180)

Long term borrowings

(4,301)

(2,896)

(1,685)

0

(1,391)

(1,391)

(1,391)

Other long term liabilities

(4,365)

(4,069)

(4,806)

(5,105)

(5,789)

(5,789)

(5,789)

Net Assets

 

 

26,022

27,935

28,969

33,624

34,282

36,609

39,374

CASH FLOW

Operating Cash Flow

 

 

2,760

7,630

5,404

2,412

10,676

7,919

10,196

Net Interest

(37)

(435)

(249)

(151)

105

100

100

Tax

64

(1,615)

(1,344)

(1,461)

(2,022)

(1,501)

(1,690)

Capex

(405)

(483)

(615)

(763)

(738)

(620)

(620)

Acquisitions/disposals

(8,450)

19

0

0

(5,403)

(600)

0

Financing

1,690

(755)

(597)

2,215

(828)

0

0

Dividends

0

(2,107)

(2,615)

(2,678)

(2,931)

(3,496)

(3,729)

Net Cash Flow

(4,378)

2,254

(16)

(426)

(1,141)

1,802

4,257

Opening net debt/(cash)

 

 

(10,266)

(6,023)

(8,575)

(8,465)

(8,259)

(5,371)

(7,173)

HP finance leases initiated

0

0

0

0

0

0

0

Other

135

298

(94)

220

(1,747)

0

0

Closing net debt/(cash)

 

 

(6,023)

(8,575)

(8,465)

(8,259)

(5,371)

(7,173)

(11,429)

Source: TXT e-solutions, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by TXT e-solutions and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by TXT e-solutions and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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