SimplyBiz Group (LON:SBIZ) pre-close update reveals:
Good revenue growth has delivered strong adjusted EBITDA growth, which was above management expectations with 2018 EBITDA margins expanding;
Strong balance sheet, with net cash of £6.4m (30 June 2018: net cash of £1.2m reflects strong operating performance); Zeus forecast £3.6m net cash.
Group membership numbers rose 8.5% to 3,726 (31 December 2017: 3,433);
The acquisition of Landmark Surveyors is now complete: it is fully integrated.
The Directors are confident in the Group’s overall performance and intend to propose to shareholders a final dividend in line with the policy of paying one third of adjusted profit after tax as a dividend, as set out in the Company’s Admission Document.
Matt Timmins, Joint CEO, provided a positive outlook commentary observing: “One of the many positive factors of our business model is our recurring income and forward revenue visibility. This provides us with a great deal of confidence and we enter 2019 full of optimism and in great shape for the year ahead.”
Zeus view
SimplyBiz’s performance in 2018 is ahead of our forecasts:
(1) We now expect the FY18E EBITDA margin to be above our forecast, which assumes only a small uptick to 21.3% (FY17: 21.1%);
(2) Net cash of £6.4m is £2.8m above our previous forecast of £3.6m;
(3) Group membership is 26 firms ahead of our forecast of 3,700 firms.
At this stage the only change we make to our forecasts is to the above-mentioned net cash for December 2018, which we increase by £2.8m to £6.4m. We will reforecast 2019 and 2020, when we have the complete accounts for 2018.
Valuation
At 151p SBIZ is trading on a 2018 PER of 14.4x and PEG of 0.63x. In our opinion this rating is undemanding for a stock where a large proportion of group revenues are recurring in nature, and management has good visibility over revenues and strong control over costs.
When SimplyBiz reports its 2018 results, we expect investors will appreciate the higher than market earnings growth and defensive qualities.
