SimplyBiz Group Analyst Q&A “should be trading on high-teens multiple” (LON:SBIZ)

SimplyBiz Group plc (LON:SBIZ) is the topic of conversation when Zeus Capital’s Research Director Robin Savage caught up with DirectorsTalk for an exclusive interview.

Q1: Robin, SimplyBiz Group have released interim results which have resulted in SBIZ shares rising 6.7% today. What would the key features that you found in the results?

A1: Overall, the headlines are precisely in line with the July update, guidance for current year’s adjusted EPS continues to be not less than 11p per share. Of the mix of revenue contribution from different segments, it is slightly different from our expectations, in brief, the revenues from subscriptions and licenses provided to IFA’s continues to grow at high single digits, but the services provided to UK financial institutions in person, such as marketing and surveys, contracted around 30%. Overall, we make no changes to our profit forecast for this year.

The COVID lockdown prompted management to accelerate its digital delivery strategy and more importantly, it prompted clients to take up new ways of communicating. The company is playing its part in digitising the UK financial services industry.

Q2: Now, you referred to the company’s current year guidance, what guidance was given and what relevance does this have in terms of current consensus expectations?

A2: Management have sensibly said not less than 11p a share, when management provide a range, most analysts go to the bottom of the range and I am no exception. I do see potential for higher revenue gross profit and higher adjusted EPS, however, after the tough period during the COVID lockdown, I think it’s wise to set investor expectations at a reasonable level, which should be achieved.

For 2021, we expect the company’s business to continue to grow its revenue lines, which are being digitally delivered to grow it’s subscriptions, it’s licenses, it’s SaaS contracts, it’s remote conferences, its mortgage club, and other remotely service lines of business. Where clients services provided in person, revenue growth is less certain so that’s things such as conferences and the surveying and valuation. Our forecast for 2021 is a 12.2p, which is just over 10% growth from the 11p per share in 2021.

Over the next 12 months, we will see how the UK financial institutions respond to the economic environment, how they respond to the digital delivery of the services that the company provides and we think that the company provides these institutions with the way to engage with IFA’s digitally, which could lead to very strong recovery in their revenues.

Q3: SimplyBiz Group shares at 157p a share are trading on a 14.3 times your expectation of current year yearnings, what are your thoughts about the valuation?

A3: The company has many aspects of a very attractive share so four of them might well be:

  • Number one, it is the leads service provider in an important and valuable market, which is the UK wealth management and other financial services market.
  • Number two, the majority of its revenues are recurring, such as subscriptions, SaaS or licenses.
  • Number three, it is a capital light and cash generative business with minimal working capital required.
  • Number four, it has scope to extend its services deeper into its IFA and UK financial institutions businesses so it’s got scope for substantial growth.

In the absence of a shutdown of the economy, the company is well placed to grow its revenue by high single digits and earnings by leveraging economies of scale so there is a need for the economy to continue.

If we do assume that the economy is able to continue in a sensible way, what we should be able to see here is revenues growing sustainably at high single digits or maybe slightly higher if there is a strong growth from demand from the financial institutions and the company being able to leverage its economies of scale, which means that the earnings growth should be higher than the revenue growth.

So, where you have a business such as that, with the opportunity to expand into adjacent areas, you should be looking at a share which is trading at a premium, a healthy premium, to the stock market.

So, as I’ve said, in other instances in a world where growth is difficult, profitable growth is very difficult, a business which is able to deliver a profitable growth should have a healthy premium multiple to the equity market. At the moment it’s trading on 14 times which is maybe just a slight premium to the equity market, actually it really ought to be trading on the high teens multiple.

So, I think you probably should be looking at something which is much more like over £2 a share for the share price rather than £1.57.

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