What’s new:
SimplyBiz has released a trading update, ahead of reporting its full year results on 10 March 2020, which confirms that trading is broadly in line with expectations:
- 24% rise in Group revenues (1H19: £29.1m; 1H18: £24.2m);
- 50% rise in adj EBITDA (1H19: £6.8m; 1H18: £5.2m);
- Strong adjusted EBITDA margin of 27% (2018: 22%);
Group net debt at end 2019 was £27.0m (30 June 2019: £30.1m).
Outlook:
Matt Timmins, joint CEO said: “Trading has continued in line with management’s expectation and the cash generative model has enabled [us] to repay £7m of debt in the post-acquisition period, further deleveraging the Group.”
“The Group’s consistent and recurring income model, and strong forward revenue visibility continues to provide the Board with confidence and optimism.”
Zeus view:
We calculate that SimplyBiz’s 2019 revenues will be c £63.0m (i.e. within 3% of Zeus’ £64.6m forecast) and adj EBITDA c £16.9m (i.e. in line with Zeus’ £16.9m forecast).
We trim our 2019 revenue forecasts by £1.6m to reflect slow growth at Zest and the reduction in Housing Market related revenues, which were features of the interims. Forward indicators of confidence (e.g RICS monthly survey) suggest that the UK Housing Market slowed sharply in 4Q and is now recovering rapidly. As the EBITDA margin on Panel Management is low, the impact of changes in housing market activity on SimplyBiz’s EBITDA is immaterial.
We leave our forecast adj PBT, adj EPS and DPS and shareholders’ equity unchanged (see exhibit 1).
Valuation:
At 234p SBIZ is trading on 18.4x our forecast adj EPS for 2019 and 18.7x consensus expectations (Exhibit 3).
We expect SimplyBiz to provide investors with higher than market earnings growth and have defensive qualities.
With prospects of 14% pa earnings growth over the next 3 years, a valuation of 16x Zeus forecasts 2020 adj EPS of 15.7p (i.e. 251p) is, in our opinion, credible.
