Blancco 'knocks the ball out the park' again
​Blancco is the world's leading global developer of 'data erasure' software, used to protect governments & corporates from ID/data theft and cyber-crime, along with being a pioneer in smartphone diagnostics (Xcaliber). The wider Regenersis group is in the process of selling its Depot Solutions (repair and refurbishment of electronic devices), Digital Care (insurance against damage to mobile phone screens) and set-top-box diagnostic operations.
Strong H1 results today delivered Headline Operating Profit (HOP) margins (pre central costs) of 35.4%, compared to our estimates of 33%, and trading was said to be in line with FY expectations. Indeed, we think there is a decent chance that Blancco could exceed our FY16 adjusted PBTA of £5.0m, having delivered £2.4m in H1.
Cyber-crime is so serious that corporates and governments are ploughing billions into protecting their IT networks - a market estimated to be worth $109bn this year and expanding at an 11.3% rate. Blancco has carved out an almost impregnable position in the 'sweet spot' of data erasure. Consequently, for the 6 months ending December, Blancco - assisted by the SafeIT and Tabernus acquisitions - saw turnover, HOP and adjusted EPS soar 46% (£9.9m), 109% (£2.7m), 285% (2.43p) respectively.
Blancco also achieved a world first by launching its 'smartphone erasure-and-diagnostics solution' incorporating Xcaliber technology (49% owned, and co-located in Atlanta). Xcaliber is moving towards EBITDA breakeven in H2'16, and as such we suspect it might become majority controlled by Blancco sometime in FY17. Strategically too, once the disposals of the non-core Repair Services Business (RSB to CTDI for €103.5m, or £78.4m) and Digital Care have been concluded, the group will be a 100% pure play software developer, backed by unique IPR.
Net debt closed December at £8.9m (vs net cash of £7.8m in June 2015), as a result of acquisitions (Tabernus), transaction fees, lower than expected cash conversion at the discontinued activities (50%) and dividends. However, we expect this to bounce back in H2, with net cash seen closing June 2016 at £9.9m, reflecting the receipt of the £78.4m in RSB proceeds, offset by the £50m tender offer.
We predict turnover to jump 43% this year to £21.5m and by another 29% to £27.7m in FY17, along with delivering adjusted EPS growth of >30% pa for the foreseeable future. Our valuation of Blancco nudges higher to £120m on the back of the higher H1'16 margins and stronger FY17 top line growth. This is equivalent to a FY17 EV/sales multiple of 4.6x and generates an updated share price target of 240p per share (vs 227p before).
Regeneus is engaged in the development and commercialization of proprietary adipose-derived stem cell technologies used by physicians and veterinarians to treat musculoskeletal conditions in humans and animals.
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