WH Ireland Analyst Brendan D’Souza said this morning; “AdEPT’s 2016 results (period ending 31 March 2016) published yesterday, showed that Centrix has been fully integrated, leading to an impressive 31% revenue growth YoY with adj. basic EPS increasing 24%. Although on the surface FY16 results may look unremarkable, with revenue in-line and EBITDA marginally ahead of our forecast, there were some key developments which we were highly encouraged to see, notably success with management’s strategy of diversifying from traditional fixed line services, progressing ahead of our forecast, with managed services contributing 44% of FY16 revenue (versus 27% in FY15A). This combined with the fact that the managed services business is higher margin than the traditional fixed line business and that ADT’s net debt position (£6m) was strongly ahead of our forecasts (£8m) has led us to update our forecast for ADT for 2017E and beyond.
Key changes to our forecasts post FY 16 results include managed services revenue increasing as a percentage of the group sales mix in FY17E to 47% (44% prior) and thereon to 50% in FY18E (48% prior). The resultant increase in higher margin managed service revenue, together with the new sales mix, leads to our gross margin forecasts increasing by 46 bps in FY17E versus prior forecasts to 39.9%, and 52 bps in FY18E to 40%. Additionally we have trimmed our amortisation forecast by 18% in FY17E to £3m and FY18E to £2.9m to bring them in line with FY16 trends. The lower amortisation expenses combined with higher gross margins lead to basic EPS increasing 34% to 9.46p in FY17E and 26% higher to 9.54p in FY18E.
Our headline adj. EPS forecast for FY17E stands 2% lower at 23.18p and 1% lower in FY18E at 22.8p. We note that this “lower” adjusted headline EPS number arises due to (lower) amortisation being added back to basic EPS for the calculation of the adjusted number. Our net debt forecast for FY17E now stands at £9.1m (£9.2m prior), equating to 1.3x EBITDA (1.3x prior) and thereon to £7.9m in FY18E (£8m prior), equivalent to 1.1x EBTIDA (1.2x prior)”
