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SimplyBiz Group “to provide investors with higher than market earnings growth” says Zeus Capital

SimplyBiz Group plc (LON:SBIZ) 1H results show digital acceleration as Defaqto and Intermediary Services have limited the impact of lockdown on revenue and EBITDA. Full year guidance remains at 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: 27.5%).
  • Cash conversion improved to 65% (1H19: 43%).
  • Net debt at 30 June 2020 of £25.8m; was well within banking covenants.
  • Guidance remains 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 was significantly impacted by the lockdown restrictions in the second quarter, with the volume of valuations and surveys moderately increasing in June with slow recovery expected.

Outlook: Matt Timmins, Joint CEO, said the “We have accelerated our digital strategy. This data led, digital delivery, will further improve our quality of earnings, margins and cash generation going forward, whilst also improving customer service”.

Zeus 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 8% from 1H19: £8.0m).

We maintain our forecasts, consistent with management guidance, on pages 2 and 3, along with our assessment of the revenue streams and divisional EBITDA margins. There are minor differences between our forecast and reported segmental 1H revenue and EBITDA.

We expect Intermediary Services and Defaqto will together contribute 73% of both 2020 and 2021 EBITDA. Group earnings quality has improved. With no interim dividend the net debt should fall in 2H reducing the interest cost.

Valuation: At 152p SBIZ is trading on 13.8x our 2020 forecast adj EPS of 11.0p.

We expect SimplyBiz Group 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

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