What’s new: SimplyBiz Group plc (LON:SBIZ) 1H trading update confirms that recurring revenues from Defaqto and Intermediary Services have limited the impact of lockdown on revenue and EBITDA. Full year guidance: adj EPS of no less than 11p. Key points:
- 1H20 revenues of £28.9m (0.7% lower than 1H19: £29.1m), with Defaqto acquisition in March 2019 offsetting a significant reduction in valuation revenue caused by lockdown restrictions.
- 25.5% EBITDA margin benefited from cost management (1H19: 27.2%).
- Cash flow conversion expected to exceed 65% (1H19: 40%).
- Net debt at 30 June 2020 of £25.8m; Group well within banking covenants.
- Board expects 2020 adjusted EPS shall be no less than 11p (FY19: 13p).
- Intermediary Services division continues to deliver all its services to customers without disruption … and continues to recruit new member firms.
- Distribution Channels division has been significantly impacted by the lockdown restrictions in the second quarter, with the volume of valuations and surveys moderately increasing in June.
- Interims are scheduled for publication on 15 September.
Outlook: Matt Timmins, Joint CEO, said the “lockdown period has allowed us to accelerate our clear digital strategy which will further improve our quality of earnings, margin and cash generation going forward.”
Zeus Capital view: SimplyBiz’s resilient business model and its acquisition of Defaqto in March 2019 have enabled the group to report interim revenues down only 1% YoY and a respectable EBITDA of £7.4m (down 6% from 1H19: £7.9m).
We set out new forecasts, consistent with management guidance, on pages 2 and 3, along with our assessment of the revenue streams and divisional EBITDA margins. We expect Intermediary Services and Defaqto will together contribute 73% of both 2020 and 2021 EBITDA. Group earnings quality has improved.
Valuation: At 150p SBIZ is trading on 13.6x our new 2020 forecast adj EPS of 11.0p, which including share based payments.
We expect SimplyBiz to provide investors with higher than market earnings growth and have defensive qualities. With prospects of double digit earnings growth over the next few years (driven by Defaqto and Intermediary Services), a valuation of 16x Zeus forecasts 2021 adj EPS of 12.2p (i.e. 195p) is, in our opinion, credible.
