Profile | Solid H1 results, which underpin our FY estimates

Strong set of H1 results - Amidst a positive operating backdrop as the Global Financial software market is growing rapidly and the Greek business environment is also improving, Profile reported a strong set of first-half results, which underpins our estimates for the full year. Sales grew by 20% to €7.6mn, coming in slightly ahead of our €7.5mn estimate. Solid sales growth and a healthy margin of 27.6% (flattish yoy) translated to strong profitability, with Profile reporting EBITDA growth of 20%, at €2.1mn (vs. Eurobank est. for €2.0mn). Net profit doubled, reaching €1.0mn from €0.5mn in H1 2018 (vs. Eurobank est. for €0.9mn), with the respective margin expanding to 13.4% from 7.7% last year, led by financial income of €200k vs. expenses of €24k in the respective period last year (net financial gain from investments in GGDs & other securities). Cash flow conversion rates remained strong (>75%) and as a result, operating cash flow grew to €1.6mn from €0.9mn during the same period last year. The company maintained its solid balance sheet position, with net cash increasing to €9.5mn from €9.1mn at the end of December 2018 and total R&D spending exceeding 15% over sales.

Solid organic sales growth – Sales growth was driven by high client retention rates (Profile typically enjoys retention rates in the range of 97-99%) and further expansion of its international footprint (2/3 of total revenue generated outside Greece), which led to new contract acquisitions. As per our understanding, Profile has already secured over €8mn worth of new contracts since the beginning of the year, which compares to a total of €8.9mn in FY 2018. Indicatively, Sumitomo Mitsui Trust Bank in Japan selected Profile’s Login Acumennet solution for its treasury operations while First Abu Dhabi Bank in the UAE selected the Axia platform for its custody operations.

Growth prospects remain in place – Profile maintains a solid track record in terms of product delivery and overall healthy fundamentals. Taking into account that it has gained industry recognition through references, the company is well-positioned to continue to leverage on increasing 3rd party spending for software products on the back of a shift towards a more digitized era. To that end, the company has further expanded its workforce (to 150 employees from 140 last year).

Continues to trade at discount to global peers - Global peers currently trade on average at c. 15.7x on 2020e EV/EBITDA multiples. Despite its re-rating (>240% since the beginning of the year), Profile remains at a discount to peers, leaving room for further convergence towards the industry avg, given its positive outlook ahead. YTD trends, as captured in H1 ’19 results which were in-line with expectations, underpin a fair value assessment on the back of a peer multiple and DCF valuation, resulting in a €67-68mn fair value (€5.9 - €6.0 per share, excluding treasury shares).