DR. KALLIWODA | INTERNATIONAL ∎ Quidgest is today a leading software developer in Portugal. In the past decade, the company has invested heavily in the research and development unit to create unique technology. The company focuses on software generation technology by developing and continuously improving Genio, a framework for automatic code generation enabling multi-platform deployment. ∎ On average during the period 2006 – 2011, the company achieved 13% growth in revenues, 15% growth in net income and impressive 20,9% growth in terms of return on equity. Quidgest also maintained its profitability of the business during the financial crisis in 2008 and 2009, achieving double digit results in terms of return of equity and outperforming many other companies in the software industry. ∎ The company has well diversified business across low-correlated economies around the world. The high profitability ratios are due to reasonable diversification of revenues. The company makes use of global diversification which makes the revenue’s flow smoother. This protects the business from a sharp decline in demand due to a recession in one part of the world. ∎ High standard of financial risk management makes the company less vulnerable to exchange market shocks. Surplus of cash is reasonably invested to gain positive interests. In spite of decline in euro rates in 2011 the company successfully has hedged its foreign investments and gained positive results due to exchange rates movements. This allows Quidgest to achieve positive net income despite of turbulence in the Eurozone. ∎ The company has not realized growth potential in top-tier markets yet. Quidgest is ready to enter into new markets (China, Macao, Norway and Brazil) with its well established technology. We forecast that the company can achieve great increase in profitability by offering its services to the emerging countries due to lower personal costs. Key Figures EUR '000 2008 2009 2010 2011 2012e 2013e Net Sales 3 003 3 253 3 275 2 806 4 250 5 500 EBITDA 622 445 497 -20 578 730 EBIT 570 386 495 -53 554 709 Net Income 590 264 380 214 570 682 RoE 27% 11% 13% 6% 9% 10% EBIT Margin 19% 12% 15% -2% 13% 13% Net Margin 20% 8% 12% 8% 13% 12% Equity / Assets 66% 68% 64% 86% 88% 84% Current Ratio 2,85 3,74 3,24 5,91 7,81 6,21 Highly profitable business with growth potential October 15, 2012 Europe | Portugal | Software Initial Coverage Market Equity Value: € 13 760 000 Quidgest Overview Industry: Software Country: Portugal Website: www.quidgest.com Analyst Coverage: . Dr. Norbert Kalliwoda email: [email protected]. Dr. Piotr Arendarski email: [email protected]DR. KALLIWODA | INTERNATIONAL Rüsterstraße 4a D-60325 Frankfurt am Main Germany Tel.: +49 69. 972 058 53 Fax: +49 69. 138 192 15 E-Mail: [email protected]
15
Embed
Initial Coverage Quidgest - Kalliwoda · Quidgest is very active in the business field. The company developed many solutions tailored to the company’s target. Particularly interesting
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
DR. KALLIWODA | INTERNATIONAL
∎ Quidgest is today a leading software developer in Portugal. In the past decade, the company has invested heavily in the research and development unit to create unique technology. The company focuses on software generation technology by developing and continuously improving Genio, a framework for automatic code generation enabling multi-platform deployment.
∎ On average during the period 2006 – 2011, the company achieved 13% growth in revenues, 15% growth in net income and impressive 20,9% growth in terms of return on equity. Quidgest also maintained its profitability of the business during the financial crisis in 2008 and 2009, achieving double digit results in terms of return of equity and outperforming many other companies in the software industry.
∎ The company has well diversified business across low-correlated economies around the world. The high profitability ratios are due to reasonable diversification of revenues. The company makes use of global diversification which makes the revenue’s flow smoother. This protects the business from a sharp decline in demand due to a recession in one part of the world.
∎ High standard of financial risk management makes the company less vulnerable to exchange market shocks. Surplus of cash is reasonably invested to gain positive interests. In spite of decline in euro rates in 2011 the company successfully has hedged its foreign investments and gained positive results due to exchange rates movements. This allows Quidgest to achieve positive net income despite of turbulence in the Eurozone.
∎ The company has not realized growth potential in top-tier markets yet. Quidgest is ready to enter into new markets (China, Macao, Norway and Brazil) with its well established technology. We forecast that the company can achieve great increase in profitability by offering its services to the emerging countries due to lower personal costs.
Key Figures
EUR '000 2008 2009 2010 2011 2012e 2013e
Net Sales 3 003 3 253 3 275 2 806 4 250 5 500
EBITDA 622 445 497 -20 578 730
EBIT 570 386 495 -53 554 709
Net Income 590 264 380 214 570 682
RoE 27% 11% 13% 6% 9% 10%
EBIT Margin 19% 12% 15% -2% 13% 13%
Net Margin 20% 8% 12% 8% 13% 12%
Equity / Assets 66% 68% 64% 86% 88% 84%
Current Ratio 2,85 3,74 3,24 5,91 7,81 6,21
Highly profitable business with growth potential
October 15, 2012 Europe | Portugal | Software
InitialCoverage
Market Equity Value:
€ 13 760 000
Quidgest
Overview
Industry: Software Country: Portugal Website: www.quidgest.com
7 Summary of financials .................................................................................................... 11
8 Company outlook and summary ................................................................................. 12
3 Quidgest | Initial Coverage | October 2012
Dr. Kalliwoda International | Primary Research
1 Companyprofile
Quidgest is a Portuguese technological company established in 1988. Quidgest is one of the largest producers of business software in Portugal. The company has a variety of the solutions produced by its R & D department with more than 200 different information systems in production.
Quidgest has established companies in East Timor, Macau and Mozambique, as well as partnerships in Angola, UK and Lithuania. Quidgest has invested heavily and successfully in the internationalization of its business activities. In Portugal, Quidgest pioneered the computerization of public administration and management system, which is today used by over half of the public bodies of the Central Administration in Portugal. The company focus on software development, a code generation platform, a disruptive offering on the software industry, smart sourcing of key IT players, untapped growth potential in top tier developed markets and even in a takeover activity.
Quidgest is very active in the business field. The company developed many solutions tailored to the company’s target. Particularly interesting parts of the offer is outlined below.
Genio - an innovative technology created for the automatic generation of software. The platform is created to boost developers’ productivity by enabling the production of one million characters of source code per second. The platform can be used to build, change, and operate with enterprise application that are integrated with existing system
UPTO (Updating Technologically Obsolete Platforms) - a controlled automatic development process allowing rapid technological advances. This methodology overcomes the limitations and constraints usual met in waterfall development that are responsible for millions of euros loss, regarding delays, data loss and system inadequacy.
Balanced Scorecard - strategic management system that provides real time measurement of goal achievements and provides different levels of user access for different organizational levels.
QuidHealth - a platform for healthcare management that combines administrative and clinical solutions.
The R&D activity of Quidgest can be split into the following departments:
• Software Engineering • Integrated Systems Management, Accounting and Financial Management • Systems for Human Resource Management • Systems for Supply, Logistics, Production and Asset Management • Document Management Systems and Process Management • Special Projects, Project Management, Commercial Management and CRM • Strategic Management Systems • Health Management Systems
4 Quidgest | Initial Coverage | October 2012
Dr. Kalliwoda International | Primary Research
2 Valuation
In order to value the equity of Quidgest, we used our DCF model and comparable peer’s valuation model. The tables below present our assumptions.
DCF Model
Relevered beta calculation
Comparable Companies Unlevered Beta
Company
Levered
Beta
Market Value
of Debt
Market Value
of Equity
Debt/
Equity
Equity/
Total Assets
Marginal
Tax Rate
Unlevered
Beta
SAP AG 0,78 4 256 000 69 806 539 6,1% 94,3% 30% 0,75 Software AG 0,6 276 918 2 540 764 10,9% 90,2% 30% 0,56 Nemetschek AG 1,32 8 072 322 101 2,5% 97,6% 30% 1,30 P&I Personal & Informatik AG 0,49 0 241 195 0,0% 100,0% 30% 0,49 Realtime Technology AG 0,46 265 98 136 0,3% 99,7% 30% 0,46
Median 0,60 2,5% 97,6% 0,56
Mean 0,73 4,0% 96,3% 0,71
Relevered Beta
Mean
Unlevered
Beta
Mean Target
Debt/ Equity
Target
Marginal
Tax Rate
Relevered
Beta
Target Company 0,71 4,0% 30% 0,73
WACC Calculation
Target Capital Structure Debt to Total Capitalization 3,7% Equity to Total Capitalization 96,3% Debt to Equity Ratio 4,0% Cost of Equity Risk-free rate 4,0% Market risk Premium 6,0% Levered Beta 0,73 Size Premium 1,6% Cost of Equity 10,0%
Cost of Debt
Cost of Debt 6,0% Taxes 13,7% After Tax Cost of Debt 5,2%
We selected the top 4 companies based on market capitalization across the software industry. The equities are traded on the Stock Exchange in Frankfurt. As fundamental input we used 5 years average figures from financial statements to reflect the long term performance and avoid one-time shocks. The following figures show the methodology we used as well as the results of the valuation.
Comparable Companies
Company / unit EURm Revenues 3 yrs
Avg
Net income 3yr
Avg
EBITDA 3yr
Avg
Book Value
3yr Avg Market Cap
SAP AG 12 456 2 332 3 934 10 328 67 330 Software AG 1 022 164 296 782 2 440 Nemetschek AG 153 17 33 91 322 P&I Personal & Informatik AG 68 13 19 35 238
Quidgest 2,73 0,39 0,41 2,30 N/A
Comparable Companies Multiples
Company P/S P/E P/EBITDA P/BV SAP AG 5,41 28,87 17,12 6,52 Software AG 2,39 14,84 8,25 3,12 Nemetschek AG 2,11 18,61 9,69 3,54 P&I Personal & Informatik AG 3,52 18,94 12,86 6,90
Average 3,35 20,31 11,98 5,02
Quidgest - Implied Market Value of Equity / unit EURm
Based on: P/S P/E P/EBITDA P/BV Average
Implied Market Value of Equity 9,15 8,02 4,96 11,56 8,42
The following figures present the mixed valuation model. In order to capture the company specific forecasts and growth potential we set weight for DCF model as 60%. The remaining – 40% is attributed to the multiples valuation model.
Mixed Valuation
Summary of Valuation / unit EURm DCF (1) Peers Comparable (2)
On average during the period 2006 – 2011, the company achieved 13% growth in revenues, 15% growth in net income and impressive 20,9% growth in terms of return on equity. Anti-cyclical financial results
Quidgest maintained its profitability of the business during the financial crisis in 2008 and 2009, achieving double digit results in terms of return of equity and outperforming many other companies in the software industry. Diversification of business across low-correlated economies
The above mentioned features of the company financials are due to reasonable diversification of revenues. The company makes use of global diversification which makes its revenues’ flow smoother. This protects its business form a sharp decline in demand due to recession in one part of the world. Debt free company with positive cash position
The above mentioned profitability and positive cash flow allow Quidgest to finance its business using self-generated funds. This makes the company less risky and independent form changes in the debt market. Secure solvency and liquidity ratios
The company maintains high levels of current and equity/assets ratios. High standard of financial risk management
Surplus of cash is reasonably invested to gain positive interests. In spite of decline in euro rates in 2011 the company has successfully hedged its foreign investments and gained positive results due to exchange rates movements. This allows Quidgest to achieve positive net income in spite of the turbulence in the Eurozone. Lower revenues in 2011 due to lower demand
The general elections that took place in Portugal in mid of 2011, within the framework of the IMF intervention, resulted in nearly three quarters of public sector decision gap that was connected to IT investments. The company top line suffered from this effect. New deals in the international markets namely Angola, Mozambique and East Timor also did not materialize in the anticipated way not being enough to offset the fall in the domestic market.
12 Quidgest | Initial Coverage | October 2012
Dr. Kalliwoda International | Primary Research
8 CompanyOutlookandSummary
Although the Euro debt crisis is having a profound negative impact on the demand in the IT sector and thus on investment activity, Quidgest is optimistic when it comes to its development in the coming years. There are the following reasons which should contribute to positive outlook for the Quidgest.
The company has not realized growth potential in top-tier markets
Quidgest is ready to enter into new markets (China, Macao, Norway and Brazil) with its well established technology. We forecast that the company can achieve great increase in profitability by offering its services to the emerging countries due to lower personal costs. Important Takeover play even in the domestic market
Free - debt company with high and stable cash flow is a potential takeover target. Especially during crisis in the Eurozone and decrease in Euro exchange rates, the company can attract foreign capital. International presence with active projects in several markets
While the Eurozone is under pressure, the management is focusing on gaining shares in new markets which are low correlated with the Eurozone. This makes the revenues flow more secure and less volatile. Software generation platform not valued in the books
Technological advancement of the software generation platform is not at all reflected in actual assets and income statement of the company. There are great hidden intangible assets to uncover in the future. Well positioned in emerging economies
Quidgest is going to invest more in the fast growing markets: Africa, China, Norway and Brazil. These economies are forecasted to outperform developed economies in the next decade. We forecast that there will be a great demand for new technology across the target markets. Low capital expenditures and notably lower personal expenses should have a positive impact on profitability and cash flow of the company. The company should also gain from the predictions regarding the sector of software development. The GARTNER research unit predicts that:
• By 2012, agile development methods will be utilized in 80% of all software development projects
• By 2015, the use of cloud-delivered development tools will be involved in 25% of new projects
• By 2015, 25% of all Fortune 500 companies will have integrated discrete design teams into their application development processes
• Through 2015, the shift toward cloud architecture will create demand for new skills, practices and objectives for software quality
We used two valuation methods to estimate the Quidgest’s market value of equity. The DCF model incorporates the company outlook and our forecasts regarding future development of the company. The multiple approach is the more aggregated way to view the market value. This reflects the whole industry outlook. Both methods are useful to estimate the final market value of equity. Ourfinalestimateofmarketvaluebasedonmixedvaluationequals€ 13760000.
13 Quidgest | Initial Coverage | October 2012
Dr. Kalliwoda International | Primary Research
Primary Research │Fair Value Analysis │International Roadshows
Analyst of this research: Dr. Norbert Kalliwoda, CEFA
14 Quidgest | Initial Coverage | October 2012
Dr. Kalliwoda International | Primary Research
KAUFEN: Die Aktie wird auf Basis unserer Prognosen auf Sicht von 12 Monaten eine Kursentwicklung von mindestens 10 % aufweisen
BUY
AKKUMULIEREN: Die Aktie wird auf Basis unserer Prognosen auf Sicht von 12 Monaten eine Kursentwicklung zwischen 5% und 10% aufweisen
ACCUMULATE
HALTEN: Die Aktie wird auf Basis unserer Prognosen auf Sicht von 12 Monaten eine Kursentwicklung zwischen 5% und - 5% aufweisen
HOLD
REDUZIEREN: Die Aktie wird auf Basis unserer Prognosen auf Sicht von 12 Monaten eine Kursentwicklung zwischen - 5% und - 10% aufweisen
REDUCE
VERKAUFEN: Die Aktie wird auf Basis unserer Prognosen auf Sicht von 12 Monaten eine Kursentwicklung von mindestens - 10 % aufweisen
SELL
Additional Disclosure/Erklärung DR. KALLIWODA RESEARCH GmbH bzw. DR. KALLIWODA INTERNATIONAL hat diese Analyse auf der Grundlage von allgemein zugänglichen Quellen, die als zuverlässig gelten, gefertigt. Wir arbeiten so exakt wie möglich. Wir können aber für die Ausgewogenheit, Genauigkeit, Richtigkeit und Vollständigkeit der Informationen und Meinungen keine Gewährleistung übernehmen. Diese Studie ersetzt nicht die persönliche Beratung. Diese Studie gilt nicht als Aufforderung zum Kauf oder Verkauf der in dieser Studie angesprochenen Anlageinstrumente. Daher rät DR.KALLIWODA RESEARCH GmbH bzw. DR. KALLIWODA INTERNATIONAL, sich vor einer Wertpapierdisposition an Ihren Bankberater oder Vermögensverwalter zu wenden. Diese Studie ist in Großbritannien nur zur Verteilung an Personen bestimmt, die in Art. 11 (3) des Financial Services Act 1986 (Investments Advertisements) (Exemptions) Order 1996 ( in der jeweils geltenden Fassung) beschrieben sind. Diese Studie darf weder direkt noch indirekt an einen anderen Kreis von Personen weitergeleitet werden. Die Verteilung dieser Studie in andere internationale Gerichtsbarkeiten kann durch Gesetz beschränkt sein und Personen, in deren Besitz diese Studie gelangt, sollten sich über gegebenenfalls vorhandene Beschränkungen informieren und diese einhalten. DR.KALLIWODA RESEARCH GmbH bzw. DR. KALLIWODA INTERNATIONAL sowie Mitarbeiter können Positionen in irgendwelchen in dieser Studie erwähnten Wertpapieren oder in damit zusammenhängenden Investments halten und können diese Wertpapiere oder damit zusammenhängende Investments jeweils aufstocken oder veräußern. Mögliche Interessenskonflikte Weder DR.KALLIWODA RESEARCH GmbH bzw. DR. KALLIWODA INTERNATIONAL noch ein mit ihr verbundenes Unternehmen a) hält in Wertpapieren, die Gegenstand dieser Studie sind, 1% oder mehr des Grundkapitals; b) war an einer Emission von Wertpapieren, die Gegenstand dieser Studie sind, beteiligt; c) hält an den Aktien des analysierten Unternehmens eine Netto-Verkaufsposition in Höhe von
mindestens 1% des Grundkapitals; d) hat die analysierten Wertpapiere auf Grund eines mit dem Emittenten abgeschlossenen
Vertrages an der Börse oder am Markt betreut. Nur mit dem Unternehmen Quidgest bestehen vertragliche Beziehungen zu DR.KALLIWODA RESEARCH GmbH bzw. DR. KALLIWODA INTERNATIONAL für die Erstellung von Research-Studien. Durch die Annahme dieses Dokumentes akzeptiert der Leser/Empfänger die Verbindlichkeit dieses Disclaimers.
15 Quidgest | Initial Coverage | October 2012
Dr. Kalliwoda International | Primary Research
DISCLAIMER The information and opinions in this analysis were prepared by DR. KALLIWODA | RESEARCH GmbH resp. DR. KALLIWODA INTERNATIONAL. The information herein is believed by DR. KALLIWODA | RESEARCH GmbH resp.. DR. KALLIWODA INTERNATIONAL to be reliable and has been obtained from public sources believed to be reliable. With the exception of information about DR. KALLIWODA | RESEARCH GmbH, DR resp. DR. KALLIWODA INTERNATIONAL. KALLIWODA | RESEARCH GmbH resp. DR. KALLIWODA INTERNATIONAL makes no representation as to the accuracy or completeness of such information. Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this analysis. They do not necessarily reflect the opinions, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, except if research on the subject company is withdrawn. Prices and availability of financial instruments also are subject to change without notice. This report is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decision using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. If a financial instrument is denominated in a currency other than an investor´s currency, a change in exchange rates may adversely affect the price or value of, or the income derived from, the financial instrument, and such investor effectively assumes currency risk. In addition, income from an investment may fluctuate and the price or value of financial instruments described in this report, either directly or indirectly, may rise or fall. Furthermore, past performance is not necessarily indicative of future results. This report may not be reproduced, distributed or published by any person for any purpose without DR. KALLIWODA | RESEARCH GmbH´s resp. DR. KALLIWODA INTERNATIONAL prior written consent. Please cite source when quoting.