NetDimensions — Update 11 November 2016

NetDimensions — Update 11 November 2016

NetDimensions

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NetDimensions (Holdings)

Group returns to revenue growth in Q3

Q3 trading update

Software & comp services

11 November 2016

Price

60p/$3.80*

Market cap

£31m/$39m

$1.263/£

*ADR price

Net cash ($m) at 30 June 2016

11.2

Shares in issue

51.2m

Free float

78%

Code

NETD/NETDY

Primary exchange

AIM

Secondary exchange

OTCQX (ADR 5:1)

Share price performance

%

1m

3m

12m

Abs

15.4

60.0

(4.0)

Rel (local)

19.5

60.8

(11.0)

52-week high/low

62.50p

33.50p

Business description

NetDimensions provides talent and learning management systems to global enterprises. The company’s solutions allow organisations to deliver personalised learning, share knowledge, enhance performance, foster collaboration and manage compliance for employees, customers, partners and suppliers.

Next events

Q4 trading update

January 2017

Final results

April 2017

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

NetDimensions (Holdings) is a research client of Edison Investment Research Limited

In a brief trading update, NetDimensions has said that both revenue and invoiced sales for Q316 were slightly ahead of Q315. This is after the group reported a 1% decline in revenue in H1. We are maintaining our forecasts, which imply a 9% revenue growth in H2 and hence a strong performance in the traditionally busy Q4. In early October, NetDimensions said it has had an unsolicited approach that “may or may not lead to an offer being made for the entire issued share capital of the company”. We note the group has a healthy net cash positon ($11.2m as at 30 June or c 16.5p per share), attractive growth profile, a cash-generative business model and, despite the recent gains, the shares trade on an FY17e EV/sales rating at just 0.9x.

Year
end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

22.7

(3.5)

(9.4)

0.9

N/A

1.2

12/15

25.4

(0.7)

(2.2)

0.9

N/A

1.2

12/16e

26.6

(0.4)

(0.6)

1.0

N/A

1.3

12/17e

31.5

1.2

1.7

1.1

45.2

1.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. P/E and yield calculated in pence.

Q3 trading

The company says that revenue and invoiced sales for Q3 were both slightly ahead of the comparable period for the previous year. The revenue from the group’s global hosted secure SaaS offering increased by 5% and the revenue from licences (onsite rental) increased by 13% in the quarter. Management says the full year outlook will depend on Q4 sales and it says it will continue to focus on generating new business and controlling operating expenses. We note that in H1, group revenue slipped by 1% to $10.5m but costs fell, enabling the group to reduce its EBITDA loss by 58% to $0.8m. While our maintained forecasts imply 9% revenue growth in H2, our cost forecasts are conservative at 13% growth.

Unsolicited approach

On 5 October, the company said it “has had an unsolicited approach regarding a potential transaction, which may or may not lead to an offer being made for the entire issued share capital of the company”. It states it “continues to engage with interested parties and a further announcement will be made in due course.” We view the approach as opportunistic, as the shares were trading on just 0.4x FY17 revenues at the time of the approach, despite the business having returned to positive free cash flow generation in H116.

Valuation: High-growth sector with punchy valuations

If NetDimesions can manage the growth effectively, we continue to see significant upside as, even after the recent jump, the shares trade on an EV/sales rating of 0.9x our FY17e revenues, compared to the group’s larger US peers (its key competitors), which typically trade at 2.5-5.9x revenues.

Exhibit 1: Financial summary

US$'000s

2013

2014

2015

2016e

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

16,208

22,701

25,396

26,638

31,509

34,509

Cost of Sales

(1,586)

(4,002)

(4,193)

(4,388)

(4,871)

(5,336)

Gross Profit

14,622

18,699

21,203

22,250

26,638

29,173

EBITDA

 

 

(4,105)

(3,335)

(501)

(203)

1,455

2,913

Adjusted Operating Profit

 

 

(4,272)

(3,531)

(710)

(434)

1,194

2,584

Amortisation of acquired intangibles

(477)

(472)

(488)

(304)

(304)

(304)

Exceptional items and exchange movements

4

(364)

(319)

0

0

0

Associates and joint ventures

0

0

0

0

0

0

Share based payments

(266)

(674)

(377)

(375)

(400)

(425)

Operating Profit

(5,011)

(5,041)

(1,894)

(1,113)

489

1,855

Net Interest

65

25

(15)

25

25

25

Profit Before Tax (norm)

 

 

(4,207)

(3,507)

(725)

(409)

1,219

2,609

Profit Before Tax (FRS 3)

 

 

(4,946)

(5,016)

(1,909)

(1,088)

514

1,880

Tax

()

(124)

(193)

115

(341)

(731)

Profit After Tax (norm)

(4,207)

(3,631)

(918)

(294)

878

1,878

Profit After Tax (FRS 3)

(4,946)

(5,141)

(2,102)

(974)

173

1,149

Average Number of Shares Outstanding (m)

33.8

38.5

40.8

51.6

52.3

53.2

EPS - normalised (c)

 

 

(12.4)

(9.4)

(2.2)

(0.6)

1.7

3.5

EPS - FRS 3 (c)

 

 

(14.6)

(13.3)

(5.2)

(1.9)

0.3

2.2

Dividend per share (c)

0.99

0.90

0.90

1.00

1.10

1.20

Gross Margin (%)

90.2

82.4

83.5

83.5

84.5

84.5

EBITDA Margin (%)

(25.3)

(14.7)

(2.0)

(0.8)

4.6

8.4

Operating Margin (%)

(26.4)

(15.6)

(2.8)

(1.6)

3.8

7.5

BALANCE SHEET

Fixed Assets

 

 

3,980

3,359

3,019

2,803

2,615

2,395

Intangible Assets

3,522

3,059

2,591

2,286

1,982

1,677

Tangible Assets

316

270

260

349

465

550

Other

142

30

168

168

168

168

Current Assets

 

 

15,031

13,104

21,011

20,166

22,904

25,973

Stocks

0

0

0

0

0

0

Debtors

7,303

8,197

9,030

9,472

11,204

12,271

Cash

7,728

4,907

11,981

10,694

11,700

13,702

Current Liabilities

 

 

(10,673)

(12,476)

(11,830)

(12,050)

(14,144)

(15,610)

Creditors

(10,671)

(12,473)

(11,826)

(12,045)

(14,140)

(15,606)

Short term borrowings

(2)

(2)

(4)

(4)

(4)

(4)

Long Term Liabilities

 

 

(113)

(182)

(80)

(80)

(80)

(80)

Long term borrowings

(6)

(3)

(14)

(14)

(14)

(14)

Other long term liabilities

(106)

(179)

(65)

(65)

(65)

(65)

Net Assets

 

 

8,225

3,805

12,120

10,840

11,295

12,679

CASH FLOW

Operating Cash Flow

 

 

(2,514)

(2,085)

(2,349)

(432)

1,793

3,296

Net Interest

65

25

(15)

25

25

25

Tax

(31)

(57)

(148)

(193)

82

(329)

Capex

(256)

(144)

(205)

(320)

(378)

(414)

Acquisitions/disposals

(2,242)

(258)

0

0

0

0

Equity financing

6,133

250

10,553

0

0

0

Dividends

(287)

(389)

(374)

(367)

(516)

(576)

Net Cash Flow

868

(2,658)

7,464

(1,287)

1,006

2,002

Opening net debt/(cash)

 

 

(6,814)

(7,719)

(4,902)

(11,963)

(10,676)

(11,681)

HP finance leases initiated

0

0

0

0

0

0

Other

37

(160)

(403)

0

0

0

Closing net debt/(cash)

 

 

(7,719)

(4,902)

(11,963)

(10,676)

(11,681)

(13,684)

Source: NetDimensions 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. 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 NetDimensions (Holdings) 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.
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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. 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 NetDimensions (Holdings) 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

Research: TMT

TXT e-solutions — Update 11 November 2016

TXT e-solutions

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