16 October 2019 CREALOGIX is a leading, global, digital banking engagement platform provider. Despite 17% revenue growth, FY19 EBITDA was slightly below our expectations at CHF1.9m as the company moves to a SaaS model faster than expected. The SaaS transition is expected to drag on results until FY21, before delivering a full year of benefit in FY22. We have lowered our forecasts and now anticipate 4% and 5% revenue growth in FY20 and FY21, with EBITDA of CHF2.6m and CHF4.7m respectively. Management also announced a transformation programme to position CREALOGIX for future growth, funded by a convertible bond refinancing (details on page 8) to secure additional headroom for working capital and M&A. Year end Revenue (CHFm) PBT* (CHFm) EPS* (CHF) DPS (CHF) P/E (x) Yield (%) 06/18 87.1 5.0 2.39 0.25 40.3 0.3 06/19 101.9 (1.7) (0.94) 0.00 N/A 0.0 06/20e 105.5 (0.7) (0.34) 0.00 N/A 0.0 06/21e 111.1 1.4 0.74 0.25 130.3 0.3 Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. FY19 results: Strong growth, profitability affected FY19 revenues increased 17% to CHF101.9m, while EBITDA fell to CHF1.9m, markedly down on FY18 (CHF7.0m) due to the revenue and profit deferral implicit in the transition to a SaaS model. FY19 net losses amounted to CHF6.3m (FY18: CHF0.7m net profit). Looking at H1 vs H2, H219 revenues were broadly flat at CHF50.9m, while H219 EBITDA fell to a CHF1.4m loss from a CHF3.3m profit in H119. As well as the SaaS transition, CREALOGIX noted that market uncertainty around Brexit had a pronounced negative impact on its UK business. Transformation programme In parallel with its results, CREALOGIX announced a transformation programme with three key elements: acceleration of its change to a SaaS model; investment in modularising and scaling its Digital Banking Hub; and broadening its implementation partnerships to support international growth. Management has indicated that the drag from the transition to SaaS is likely to affect FY20 and FY21. However, despite the short-term pain this entails, we believe it is a necessary and beneficial step for the business to take and that the higher level of recurring revenues, increased visibility, higher margins and better client retention will improve the quality of business and earnings in the medium term. Valuation: Upside potential post-transition Looking at CREALOGIX’s trading peers suggests that a valuation of c 2.5–3.0x revenues and c 15–20x EBITDA is achievable following a successful SaaS transition in line with management targets. Based on our FY22 estimates, this would suggest that an EV of CHF250m+ is achievable (a 100% premium to today’s share price). For investors willing to take a medium-term view, CREALOGIX’s valuation of 1.3x FY20e sales is attractive, particularly when compared to its closest peers. However, we would note that restricted share trading liquidity continues to limit exit opportunities. CREALOGIX Group FY19 results Seeing through the SaaS transition Price CHF96.4 Market cap CHF135m Net debt (CHFm) at 30 June 2019 2.1 Shares in issue 1.4m Free float 37% Code CLXN Primary exchange Switzerland Secondary exchange N/A Share price performance % 1m 3m 12m Abs 2.6 (2.6) (34.0) Rel (local) 2.5 (5.0) (43.1) 52-week high/low CHF146 CHF90 Business description The CREALOGIX Group is a Swiss Fintech 100 company and is among the global market leaders in digital banking, providing front-end digital banking technology solutions to banks, wealth managers and other financial services companies. Next events AGM 28 October 2019 Half-year results 17 March 2020 Analysts Richard Williamson +44 (0)20 3077 5700 Katherine Thompson +44 (0)20 3077 5730 [email protected]Edison profile page Software & comp services CREALOGIX Group is a research client of Edison Investment Research Limited
20
Embed
CREALOGIX Group · Financials: SaaS transition to bear fruit in FY21/22 CREALOGIX is now deep in the middle of the SaaS transition. FY19 revenues increased 17% to CHF101.9m, while
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
16 October 2019 CREALOGIX is a leading, global, digital banking engagement platform
provider. Despite 17% revenue growth, FY19 EBITDA was slightly below
our expectations at CHF1.9m as the company moves to a SaaS model
faster than expected. The SaaS transition is expected to drag on results
until FY21, before delivering a full year of benefit in FY22. We have lowered
our forecasts and now anticipate 4% and 5% revenue growth in FY20 and
FY21, with EBITDA of CHF2.6m and CHF4.7m respectively. Management
also announced a transformation programme to position CREALOGIX for
future growth, funded by a convertible bond refinancing (details on page 8)
to secure additional headroom for working capital and M&A.
Year end Revenue
(CHFm) PBT*
(CHFm) EPS*
(CHF) DPS
(CHF) P/E (x)
Yield (%)
06/18 87.1 5.0 2.39 0.25 40.3 0.3
06/19 101.9 (1.7) (0.94) 0.00 N/A 0.0
06/20e 105.5 (0.7) (0.34) 0.00 N/A 0.0
06/21e 111.1 1.4 0.74 0.25 130.3 0.3
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Source: CREALOGIX accounts, Edison Investment Research assumptions. Note: *30 June 2020 is provisional estimate based on the assumption that the full amount of the convertible bond is issued.
Final terms for the issue will be confirmed on 30 October 2019 (size of issue, coupon and
conversion price), with the convertible bonds due to be listed from 6 November 2019. We have not
yet incorporated the announced convertible bond in our model.
Market environment
CREALOGIX is recognised in IDC’s top 100 global fintech list and a leader in the digital banking
space, in particular for mobile banking software solutions.
An Economist Intelligence Unit (EIU) survey highlighted some of the major factors affecting digital
banking today as well as the major trends expected over the next few years; with new technologies,
32%45% 50% 57%
64% 70%
68%55% 50% 43%
36% 30%
0%
20%
40%
60%
80%
100%
FY15 FY16 FY17 FY18 FY19 Mid-term
Per
cent
age
split
International Switzerland
CREALOGIX Group | 16 October 2019 9
changing consumer expectations, increasing competition, regulatory considerations and the macro-
economic cycle all driving change in the market.
Digital banking: A global growth story
The total addressable global market for digital banking software is estimated to be worth $23bn
(source: Temenos, August 2019), of which the US represents c $9bn.
Digital banking continues its major growth, with increasing use of smartphone and mobile devices
around the world. Investment in digital banking has overtaken compliance as the priority area for
banking sector IT budgets as customer expectations and increasing competition, as well as
regulatory change (eg PSD2) put pressure on banks to upgrade their front-end systems. The
transformation process to digital banking remains in its early stages, with traditional banks still
dominating despite the proliferation of specialist digital banks now emerging.
In a white paper published by CREALOGIX, the company cites a Visa Digital Payment study, which
shows that the number of Europeans who regularly use a mobile device (eg a smartphone, tablet or
wearable device) to make payments tripled in 2017 to 54% of respondents compared with 18% in
2016. Smartphones are expected to take 80% of the online banking market by 2020 (source: AT
Kearney).
According to Deloitte, the EMEA retail banking market shows a range of digital maturity, highly
correlated with internet penetration in each territory. However, feedback from its EMEA Digital
Banking Maturity Study revealed that the real driver of digital banking maturity in different
jurisdictions was from market pressure – both from customers (ie expectations regarding service
levels) and from competitors (ie a banking digital ‘arms race’).
The changing backdrop is driving increasing spend by banks and financial providers on front-end
systems and Gartner forecasts that front-end system spend will rise to c 50% of banks’ total IT
spend by 2020, from c 10% in 2010. The front-end solutions in this space need to be more agile
than the back-end core banking systems and must offer a seamless experience. Innovation is
clearly much more prevalent in the front end than at the back end.
Competitive environment
In our research, we have identified five primary areas of competition for front-end solutions provided
to the financial services industry, with many of CREALOGIX’s closest competitors either privately
owned, or part of larger software groups.
In-house IT departments of banks, a declining proportion of the market, as they suffer cost
and flexibility disadvantages against SaaS software vendors.
CEO: Thomas Avedik Chief Strategy Officer: Richard Dratva
Mr Avedik joined the group as CEO of CREALOGIX E-Banking in mid-2007 and took on the role of CEO at the beginning of 2016. He began his professional career at UBS, where he managed the digital transformation for 16 years, broadly involving the development and expansion of e-banking. Other projects included the launch of the UBS market data system, the design and implementation of an e-banking security solution as well as the development of the global e-banking strategy for UBS.
Mr Dratva is a founding member of CREALOGIX. Prior to CREALOGIX, he worked as a consultant with Teleinform. From 1992 to 1994, he was engaged as a research associate at the Institute of Information Management at the University of St Gallen. From 1987 to 1991 Mr Dratva was employed as an internal consultant with the Swiss Bank Corporation (now UBS).
CFO: Daniel Bader Chairman: Bruno Richle
Mr Bader joined CREALOGIX as CFO in August 2019, with a career spanning more than 20 years in finance and business processes. Daniel worked for the audit teams at Ernst & Young and PricewaterhouseCoopers for eight years, before joining the logistics business, Swisslog Group. He held a number of senior finance roles at Swisslog from 2007, before becoming CFO in 2015. As an experienced financial specialist, he helped integrate companies after complex mergers and acquisitions (M&A), successfully transformed business models and streamlined processes to improve business performance. He was also responsible for the implementation of financial controlling tools.
Mr Richle was a founding member of CREALOGIX in 1996 and led the group though its IPO on the Swiss Exchange SWX in 2000. He retired as CEO at the end of 2015. From 1990 to 1996, he was a member of the executive management and technical director with Teleinform, which at that time was the leading Swiss telematics company. From 1985 to 1989, he worked for Buhrle Group, and from 1986 was head of the department of electronic engineering at
Oerlikon Aerospace (then part of Buhrle Group) in Montreal, Canada. He is also a director of Yachtwerft Portier and Elektrizitätswerk Jona-Rapperswil. He holds board mandates at Foundation FUTUR and Innovation Foundation of the Bank of
Canton Schwyz, and is a member of the Hochschulrat der Hochschule fu r Technik in Rapperswil (HSR).
This report has been commissioned by CREALOGIX Group and prepared and issued by Edison, in consideration of a fee payable by CREALOGIX Group. Edison Investment Research standard fees are £49,500 pa for the
production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of
roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.
Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of
this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information
or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.
Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in
connection with the access to, use of or reliance on any information contained on this note.
No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised adv ice. Also, the information provided by us should not be construed by any subscriber or
prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of
investors.
Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any
positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to
Edison's policies on personal dealing and conflicts of interest.
Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial
Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice
given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having
regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like
instrument.
New Zealand
The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the
purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the
topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in
relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financia l advice, is
intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the par ticular financial situation or goals of any person). As such, it should not be relied upon in making
an investment decision.
United Kingdom
This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or sol icitation for investment in any securities mentioned or in the topic of this document. A
marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any
prohibition on dealing ahead of the dissemination of investment research.
This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article
19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49
of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be
distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.
This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.
United States
The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange
Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a
bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison
does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security,
or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Frankfurt +49 (0)69 78 8076 960