2016 to be 'materially below estimates'
​Vislink is a market leading, video capture and playout provider to the broadcast industry. Its cutting edge technology enables the collection of high quality live video, wirelessly, from the "scene to the screen".
Unfortunately it appears our views earlier this year were too optimistic, after news yesterday that Vislink's hardware division (VCS) had traded materially below forecasts in H1'16, due to much tougher conditions across the patch, coupled with delays in launching some new products.
As a result, management are now implementing a "major root and branch" restructuring exercise - including product/brand rationalisation and the consolidation of VCS' engineering and manufacturing operations - with the intention of delivering annualised savings of £1-2m.
Elsewhere, Pebble Beach's long term prospects "remain strong" - however even here a limited number of software orders (say £0.5m worth) have "slipped" from Q2 into H2. Our FY EBITA estimate for the division is unchanged at £3.55m on revenues of £11.5m.
Assuming the 2015 dividend of 1.5p/share (worth £1.8m) is paid as scheduled on 18th July, then we believe overall net debt (sterling denominated) will close December 2016 at circa £8.0m, representing 2.0x trailing EBITDA (post R&D amortisation). Going forward this should settle back to <2x in 2017 - based on a worst case scenario of the 2016 dividend being passed; but then re-instated 12 months later, offering a 5.6% yield with an earnings cover of 3x.
We have therefore cut our 2016 adjusted EPS by 52% from 3.6p to 1.7p, but believe the software division on its own is worth £34m (vs group market cap of <£15m) - equating to 2017 revenue and EBITA multiples of 2.8x and 10x respectively (discounted back at 12%).
Additionally, if we put VCS on a rating of 0.5x sales - adjusting too for net debt, forex and central costs - then we arrive at a revised sum-of-the-parts price target for the entire group of 23p/share, vs 54p previously. At 12p the stock currently trades on a modest forward PER of 6.9 times.
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