SCISYS — Update 16 August 2016

SCISYS — Update 16 August 2016

SCISYS

Analyst avatar placeholder

Written by

SCISYS

Encouraging start to FY16 is extended

Trading update

Software & comp services

16 August 2016

Price

84p

Market cap

£24m

Net cash (£m) at end H116

1.4

Shares in issue

29.0m

Free float

63%

Code

SSY

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

20.0

15.1

33.3

Rel (local)

14.7

2.8

26.7

52-week high/low

84.0p

63.5p

Business description

SCISYS provides a range of professional services in support of the planning, development and use of computer systems in the space, media/broadcast and defence sectors, as well as to other public and private sector enterprises.

Next events

Interim results

22 September 2016

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

SCISYS is a research client of Edison Investment Research Limited

SCISYS says it has maintained the encouraging start to the year, as reported at the AGM in June. Strong cash generation has continued, with net cash rising from £0.3m at end-April to £1.4m at end-June. Around half of group revenues are in euros, and if the euro-sterling exchange rate remains around current levels throughout FY16, SCISYS has indicated that current FY16 consensus forecasts will be significantly exceeded even after allowing for hedging impacts. We will review our forecasts following the interims in September, when we will have more information. Given the scope for upgrades, in combination with a strong balance sheet, we believe the stock looks attractive on c 12x our FY17e earnings.

Year
end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14

40.4

3.2

8.2

1.61

10.2

1.9

12/15

36.1

0.6

1.3

1.78

64.6

2.1

12/16e

38.0

2.3

6.2

1.90

13.5

2.3

12/17e

39.9

2.7

7.0

2.10

12.0

2.5

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

Trading update: Strong H1 cash generation

SCISYS says its “order book has remained strong, well ahead of the equivalent position in June 2015, and is underpinned by a sizeable pipeline of prospective new business opportunities”. As in previous years, the group’s full year trading performance is expected to show a bias towards the second half. Strong cash generation has enabled the group to turn its £1.0m net debt position at the start of the year to £1.4m net cash at end-June.

Currency and Brexit impacts

The group’s Germany-based businesses (Space and Media & Broadcast) and the UK Space business generate revenues in euros. UK Space has costs in sterling and hence gains a double impact from a rise in the euro against sterling. However, SCISYS mitigates its exchange rate exposure through a hedging programme. Following Brexit, the pound fell sharply against the euro from c 1.31 to c 1.20 at end-June. This resulted in an adverse revaluation at 30 June and will create a £0.5m charge in H116. The pound has continued to decline to c 1.15 euros.

SCISYS does not expect any adverse consequences as a result of the EU referendum. We note that the UK Space business generates the bulk of its revenue from the European Space Agency, which awards business in proportion to funding from countries and the UK participation is not expected to be affected by Brexit.

Valuation: Attractive given the scope for upgrades

The stock trades on c 0.61x our maintained FY17e revenue forecast and c 6.6x EBITDA – attractive given the forecast improving margins and the group’s strong cash flow discipline. Further, SCISYS retains a strong balance sheet that includes the freehold on the group’s HQ, which was sold in 2007 for £9m and repurchased in 2011 for £5m.

Exhibit 1: Financial summary

£'000s

2013

2014

2015

2016e

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

42,598

40,359

36,106

38,004

39,860

40,970

Cost of Sales

0

0

0

0

0

0

Gross Profit

42,598

40,359

36,106

38,004

39,860

40,970

EBITDA

 

 

4,179

4,156

1,548

3,292

3,695

3,833

Adjusted operating profit

 

 

3,221

3,361

818

2,502

2,871

2,990

Amort'n of acq'd intangibles

(283)

0

0

0

0

0

Exceptionals

(1,191)

(135)

0

0

0

0

Share based payments

(35)

(42)

(11)

(50)

(50)

(50)

Operating Profit

1,712

3,184

807

2,452

2,821

2,940

Net Interest

(217)

(177)

(196)

(210)

(190)

(170)

Associates

0

0

3

0

0

0

Profit Before Tax (norm)

 

 

3,004

3,184

625

2,292

2,681

2,820

Profit Before Tax (FRS 3)

 

 

1,495

3,007

614

2,242

2,631

2,770

Tax

(153)

(766)

(241)

(471)

(579)

(609)

Profit After Tax (norm)

2,701

2,394

381

1,821

2,102

2,210

Profit After Tax (FRS 3)

1,342

2,241

373

1,771

2,052

2,160

Average Number of Shares Outstanding (m)

29.0

29.0

29.0

29.3

29.9

30.5

EPS - normalised (p)

 

 

9.3

8.2

1.3

6.2

7.0

7.2

EPS - FRS 3 (p)

 

 

4.6

7.7

1.3

6.0

6.9

7.1

Dividend per share (p)

1.46

1.61

1.78

1.90

2.10

2.30

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

9.8

10.3

4.3

8.7

9.3

9.4

Operating Margin (%)

7.6

8.3

2.3

6.6

7.2

7.3

BALANCE SHEET

Fixed Assets

 

 

16,164

17,155

16,553

16,523

16,497

16,473

Intangible Assets

7,006

8,233

7,831

7,831

7,831

7,831

Tangible Assets

9,137

8,899

8,635

8,605

8,579

8,555

Deferred tax asset & associates

21

23

87

87

87

87

Current Assets

 

 

19,270

18,886

17,839

19,320

21,052

22,462

Stocks

344

325

211

222

233

239

Debtors

13,829

12,334

12,299

12,957

13,600

13,990

Cash

3,969

5,798

4,352

5,165

6,242

7,256

Current Liabilities

 

 

(12,261)

(10,561)

(12,003)

(12,291)

(12,555)

(12,532)

Creditors

(9,508)

(9,686)

(8,699)

(9,237)

(9,751)

(9,978)

Short term borrowings

(2,753)

(875)

(3,304)

(3,054)

(2,804)

(2,554)

Long Term Liabilities

 

 

(4,090)

(5,023)

(2,333)

(2,122)

(1,911)

(1,700)

Long term borrowings

(3,888)

(4,595)

(2,007)

(1,796)

(1,585)

(1,374)

Other long term liabilities

(202)

(428)

(326)

(326)

(326)

(326)

Net Assets

 

 

19,083

20,457

20,056

21,430

23,083

24,703

CASH FLOW

Operating Cash Flow

 

 

(1,379)

4,774

1,570

3,102

3,496

3,629

Net Interest

(217)

(177)

(196)

(210)

(190)

(170)

Tax

(1,325)

100

(583)

(341)

(413)

(536)

Capex

(666)

(618)

(619)

(760)

(797)

(819)

Acquisitions/disposals

0

(358)

(889)

0

0

0

Financing

(16)

(61)

(14)

0

0

0

Dividends

(381)

(435)

(340)

(517)

(557)

(628)

Net Cash Flow

(3,984)

3,225

(1,071)

1,274

1,539

1,475

Opening net debt/(cash)

 

 

(1,241)

2,672

(328)

959

(315)

(1,853)

HP finance leases initiated

0

0

0

0

0

0

Other

71

(225)

(216)

0

0

(0)

Closing net debt/(cash)

 

 

2,672

(328)

959

(315)

(1,853)

(3,328)

Source: SCISYS 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 SCISYS 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

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 SCISYS 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

GFT — Update 15 August 2016

GFT

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free