FY19 set up for much better year
Blancco is the world’s leading developer of ‘data erasure’ software, used to protect governments and corporates from ID/data theft, ransomware and cyber-crime, along with being a pioneer in mobile device diagnostics.Long term Blancco shareholders are undoubtedly a hardy bunch. An essential trait given the difficulties (some self-inflicted) the company has endured over the past 2 years. The good news is that the bleeding now seems to have stopped, with real progress being made under the new leadership team.
Firstly, stabilising the ship in H1’18, and then delivering 7% LFL top line growth in H2’18 (constant currency), alongside better than expected FY18 adjusted operating margins of 11% (estimated split 7% H1 vs 15% H2: 12% LY) thanks to tight cost control. Importantly too, underlying cashflow improved, with net debt closing June 2018 at £2.8m, or >£0.5m lower than Dec’17 after good debt collection.
Additionally, we believe the headline results would have actually been much higher had it not been for an estimated -4% forex headwind in H2, and more significantly “a number of [prior period] non-repeat volume deals, where revenue was recognised up front on the sale of software covering multiple future years.â€
Therefore, looking forward we still expect double-digit revenue growth of 12.6% in FY19, albeit have rebased our numbers using the slightly lower than anticipated out-turn for FY18 sales of £27.15m (+1% on £26.9m LY). Likewise FY19 adjusted EBIT is set to come in at £3.4m (11.2% margin) on turnover of £30.6m, with net debt closing June 2019 at £2.6m (assuming no further deferred payments relating to past acquisitions).
While our valuation declines from 114p to 106p/share, we are cautiously optimistic and see scope for future upgrades as CEO Matt Jones completes his root & branch review, with findings scheduled for 25th September at the prelims. Matt Jones commenting “I have been really encouraged by what I have found across the business since I joined in March 2018.''
Blancco Technology Group provides data erasure software. Co.'s segments are: Erasure, which enables customers to erase and repurpose IT devices with certified software; and Diagnostics, which provides diagnostics of smartphones and tablets, as well as new diagnostics tools. The erasure division focuses on development and delivery of solutions, includes: Blancco, a provider of data erasure software; SafeIT, which involved in cloud and networked data erasure; and Tabernus, which provides software erasure products. The diagnostics division consists of the Mobile Diagnostics business, comprising Xcaliber Technologies, a smartphone diagnostics software business and its SmartChk solution.
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