SinnerSchrader — Update 19 October 2016

SinnerSchrader — Update 19 October 2016

SinnerSchrader

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SinnerSchrader

A solid finish to a strong year

Preliminary results

Software & comp services

19 October 2016

Price

€5.39

Market cap

€62m

Net cash (€m) at end August 2016

6

Shares in issue

11.6m

Free float

51%

Code

SZZ

Primary exchange

FRA

Secondary exchange

NA

Share price performance

%

1m

3m

12m

Abs

14.3

4.7

37.6

Rel (local)

10.4

(0.9)

30.8

52-week high/low

€5.4

€3.7

Business description

SinnerSchrader is a leading European independent digital agency that specialises in helping companies use the internet to sell and market goods and services. The majority of sales originate in Germany, servicing accounts such as Allianz, BMW, Deutsche Bank, Telefonica and Unity Media.

Next events

Full year results

21 November 2016

Q1 results

13 January 2016

Analysts

Bridie Barrett

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

SinnerSchrader is a research client of Edison Investment Research Limited

SinnerSchrader (SZZ) has reported a solid finish to an excellent financial year, which saw double-digit growth in underlying revenues and EBIT margin expansion. With some significant client wins announced, most recently Haspa and Audi in July, we believe FY17 will be another strong year and see scope for continued share price appreciation. We leave forecasts unchanged.

Year
end

Revenue (€m)

EBITA*
(€m)

EPS
(c)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

08/14

48.6

4.6

16.5

27.8

12.0

19.4

2.2

08/15

47.7

4.2

13.4

25.1

12.0

21.5

2.2

08/16e

51.0

5.0

26.4

29.2

13.0

18.4

2.4

08/17e

58.7

5.9

34.1

34.0

13.7

15.8

2.5

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

Q4 trading in line with forecasts

Q4 results were broadly as we had expected. After three quarters of strong growth, revenues in Q4 were down slightly y-o-y (-4%). However, without the investment in Next Audience (NA), EBIT margins of 14% were well above Q415 (8.8%). For the year as a whole, this takes preliminary revenues to just over €51m, up 7% y-o-y or 13% on an adjusted basis excluding the discontinued NA venture. Full year EBIT (including NA losses) is approximately €4.5m, putting full year EBIT margins at c 9% compared to c 4% last year (c 10% excluding NA). This translates to a net profit of €3m, €0.26 per share – slightly above July’s guidance.

New clients underpin forecasts

SZZ is in a strong position as it enters its new financial year. Post the €1.2m share buyback and €1.2m dividend payments, it reported net cash of €6m at the end of the year. In July it announced that it has been selected by Audi as its worldwide digital lead agency, which could translate into SZZ’s largest win to date. Work started in mid-July and it should make a material contribution to revenues in the coming year. In its prelims yesterday, SZZ also announced that Hamburger Sparkasse (Haspa), Germany’s largest savings bank, has appointed it to develop a new digital service for the group. Resourcing larger projects like these may put pressure on margins; however, SZZ has maintained its staff numbers at the end of the year, despite the closure of NA, which we consider to be a positive sign that resourcing is in hand.

Valuation: More potential

SZZ’s shares are at an all-time high and on an FY17e P/E of 15.8x (calendarised FY17e P/E of 15.0x), it now trades broadly in line with European digital agency peers and the larger global agencies. However, we continue to see opportunity for both ratings and earnings expansion. Underpinned by the recent client wins, we forecast one of the faster revenue growth profiles among its peer set for FY17 (+15%) and, given the rarity value of German digital agencies in a consolidating market (eg closest peer Syzygy trades on 27x FY17e P/E), a premium rather than a discount is arguably justified.

Exhibit 1: Financial summary

€'000s

2014

2015

2016e

2017e

2018e

Aug

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

48,601

47,690

51,000

58,650

64,515

Cost of Sales

(37,168)

(35,659)

(37,368)

(41,055)

(45,161)

Gross Profit

11,433

12,032

13,632

17,595

19,355

Continuing EBITDA

 

 

5,384

5,251

5,823

6,770

7,765

Continuing EBITA

 

 

4,600

4,200

5,000

5,865

6,774

Intangible Amortisation

(82)

0

0

0

0

Exceptionals

0

(614)

0

0

0

Discontinued operations

(1,536)

(1,503)

(500)

0

0

Operating Profit

2,982

2,083

4,500

5,865

6,774

Net Interest

8

(2)

4

0

1

Profit Before Tax (norm)

 

 

4,608

4,198

5,004

5,865

6,775

Profit Before Tax (FRS 3)

 

 

2,990

2,081

4,504

5,865

6,775

Tax

(1,147)

(563)

(1,455)

(1,889)

(2,182)

Profit After Tax (norm)

3,124

2,847

3,388

3,976

4,594

Profit After Tax (FRS 3)

1,843

1,518

3,049

3,976

4,594

Average Number of Shares Outstanding (m)

11.1

11.3

11.6

11.7

11.8

EPS - normalised (c)

 

 

28.0

25.2

29.3

34.1

39.0

EPS - normalised fully diluted (c)

 

 

27.8

25.1

29.2

34.0

38.9

EPS - (IFRS) (c)

 

 

16.5

13.4

26.4

34.1

39.0

Dividend per share (c)

12.0

12.0

13.0

13.7

14.3

Gross Margin (%)

23.5

25.2

26.7

30.0

30.0

EBITDA Margin (%)

11.1

11.0

11.4

11.5

12.0

Operating Margin (before GW and except.) (%)

9.5

8.8

9.8

10.0

10.5

BALANCE SHEET

Fixed Assets

 

 

7,039

6,601

6,354

6,275

6,136

Intangible Assets

5,136

4,999

4,481

4,481

4,481

Tangible Assets

1,902

1,603

1,873

1,794

1,655

Investments

0

0

0

0

0

Current Assets

 

 

21,512

21,130

22,612

26,337

30,755

Stocks

0

0

0

0

0

Debtors

15,590

14,830

15,859

18,238

20,062

Cash

5,833

5,559

6,011

7,358

9,952

Other

90

741

741

741

741

Current Liabilities

 

 

(13,777)

(12,475)

(13,193)

(14,439)

(15,794)

Creditors

(13,777)

(12,475)

(13,193)

(14,439)

(15,794)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(699)

(296)

(296)

(296)

(296)

Long term borrowings

0

0

0

0

0

Other long term liabilities

(699)

(296)

(296)

(296)

(296)

Net Assets

 

 

14,075

14,960

15,477

17,878

20,801

CASH FLOW

Operating Cash Flow

 

 

2,656

2,244

5,230

5,645

7,305

Net Interest

8

(2)

4

0

1

Tax

(1,147)

(563)

(1,455)

(1,889)

(2,182)

Capex

(1,504)

(458)

(788)

(827)

(852)

Acquisitions/disposals

(306)

(300)

(1,200)

0

0

Financing

177

153

0

0

0

Dividends

0

(1,348)

(1,339)

(1,583)

(1,679)

Net Cash Flow

(117)

(274)

453

1,346

2,594

Opening net debt/(cash)

 

 

(5,949)

(5,833)

(5,559)

(6,011)

(7,358)

HP finance leases initiated

0

0

0

0

0

Other

0

0

(0)

(0)

(0)

Closing net debt/(cash)

 

 

(5,833)

(5,559)

(6,011)

(7,358)

(9,952)

Source: Company accounts (historic), Edison Investment Research (forecasts)

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 SinnerSchrader 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 SinnerSchrader 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

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