What’s new: SimplyBiz Group PLC (LON:SBIZ) full year results, reveal:
- 12.5% growth in Intermediary Services revenue (ex discontinued) to £24.2m (Zeus forecast £24.0m) and £5.6m to Group adj EBITDA (i.e. 23% margin);
- 2.2% fall in Distribution Channels revenue to £26.8m (Zeus forecast: £26.4m) and contributing £6.5m to Group adj EBITDA (i.e. 24% EBITDA margin);
- Acquisition of Defaqto delivered £11.8m of revenues and contributing £4.9m to Group adj EBITDA (i.e. 41% EBITDA margin);
On 28 January 2020, SimplyBiz’s trading update noted:
- 24% rise in Group revenues (2019: £62.8m; 2018: £50.7m);
- 49% rise in adj EBITDA (2019: £17.0m; 2018: £11.2m inc R&D amortisation);
- 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 “The Board is confident and optimistic about 2020 …[and is] guiding to marginally lower growth in revenues and EBITDA, particularly in employee benefits and valuations, with operational gearing flowing through to earnings … both headline and underlying growth to remain strong.”
Zeus view: SimplyBiz’s Intermediary Services division and Defaqto (9 months since acquisition), which both enjoy very high levels of recurring revenues, have delivered on our expectations. We maintain our revenue and EBITDA forecasts for these two divisions. 2020 will benefit from a full year contribution from Defaqto.
The Distribution Channels division has experienced good growth in Mortgage Origination but experienced a fall in activity in Valuations and lower than forecast growth in Marketing Services. We have trimmed our revenue and EBITDA forecasts and included share based payments in adj EPS forecasts.
We cut our forecast revenue 3%, adj PBT 8% and adj EPS 12% (see exhibit 1). Our DPS forecasts are based on 3x dividend cover.
Valuation: At 175p SBIZ is trading on 12.7x our new forecast adj EPS in share based payments for 2020 of 13.8p.
We expect SimplyBiz Group to provide investors with higher than market earnings growth and have defensive qualities.
With prospects of 12% pa earnings growth over the next 2 years, a valuation of 16x Zeus forecasts 2020 adj EPS of 13.8p (i.e. 220p) is, in our opinion, credible.