Novabase — Novabase EKF QV

Novabase — Novabase EKF QV

Novabase is a leading IT services company and the largest technology company listed on the Lisbon Stock Exchange. The company is currently in the midst of a major transformation, to focus on new fast-growing technologies such as AI, analytics, automation and cloud. Novabase has continued to grow in 2020 and is in a strong position to gain from the increased speed of digitisation COVID-19 has forced on organisations.

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Written by

Novabase

Reconfigured for the future

Technology

Deutsches Eigenkapitalforum 2020

2 November 2020

Price

€3.16

Market cap

€99m

Share price graph

Share details

Code

NBA

Shares in issue

31.40m

Net cash at 30 June 2020

€50.7m

Business description

Novabase, through its subsidiaries, is engaged in the provision of IT consulting and services. The group is headquartered in Lisbon and employs over 1,800 staff across its offices in Portugal, Spain, Germany, UK, the Netherlands, UAE, Angola and Mozambique. Novabase was founded in 1989 and listed on the Lisbon Stock Exchange in 2000, where it currently is the largest technology company by market value, and a constituent of the prestigious PSI 20 index.

Bull

Market leader in home market.

International expansion strategy.

Strong balance sheet with net cash c 50% of market cap.

Bear

COVID-19 impact on customers.

Increased competition and pricing pressure.

Acquisitions may not be accretive.

Analyst

Brendan D’Souza

+44 (0)20 3077 5700

Novabase is a leading IT services company and the largest technology company listed on the Lisbon Stock Exchange. The company is currently in the midst of a major transformation, to focus on new fast-growing technologies such as AI, analytics, automation and cloud. Novabase has continued to grow in 2020 and is in a strong position to gain from the increased speed of digitisation COVID-19 has forced on organisations.

Ambitious growth strategy

Since 2017 the group has sold off three non-core subsidiaries (€89.3m cumulative initial consideration) and acquired the remaining 45% in Celfocus from Vodafone (€20m initial consideration). In 2019, on the 30-year anniversary of its founding, Novabase unveiled its five-year growth strategy titled Strategy 2019+, the primary goal being to double revenue by 2023 (versus 2018 revenue: €110m) and boost operating margins to double digits by 2023 (5.9% EBITDA margin in 2018). To achieve this growth, it reorganised its business into two new operating segments: (1) Next-Gen, focused on newer and faster-growing technologies, and (2) Value Portfolio, which are profitable businesses that will fund the Next-Gen portfolio. To achieve the ambitious 2023 growth targets, Novabase plans to continue hiring in Portugal, where there is an abundance of IT talent, focusing on the group’s capabilities to provide newer and in demand technologies to clients in its core markets of Europe and the Middle East. M&A will also be a key plank for growth, with a focus solely on expanding customer base.

Growth and key progress towards 2023 goals

Novabase continued to grow in H120, with COVID-19 having no impact on performance during the period. Revenue increased 14% y-o-y to €63.7m, with Next-Gen accounting for 72% of revenue. 56.3% of H120 revenue came from international operations. EBITDA increased 48.6% y-o-y to €5.5m with margins improving robustly to 8.6% (+200bp y-o-y). Novabase ended H120 with a strengthened balance sheet, with net cash increasing 48.7% to €50.7m (versus €34.1m at the end of 2019).

Valuation: Net cash over half of current market value

Excluding its net cash position of €50.7m (currently 51% of €99.2m market cap), Novabase currently trades at just under 10x 2021 EPS. This sub 10x P/E multiple (ex-net cash) is undemanding for a company of Novabase’s pedigree, with robust growth prospects combined with a solid balance sheet.

Consensus estimates

Year
end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

110.0

2.7

0.05

0.15

63.2

4.7

12/19

120.3

11.2

0.17

0.65

18.6

20.6

12/20e

122.0

6.0

0.13

0.00

24.3

N/A

12/21e

131.0

8.0

0.16

0.28

19.8

8.9

Source: Company data, Refinitiv. Note: €0.50 extraordinary dividend paid in 2019.

EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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This report has been prepared and issued by Edison as part of a road show package for companies attending the Eigenkapital Forum. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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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. 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 (i.e. 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.

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This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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