Econocom Valuescan
This report contains a Description, Business Model and Valuation section. The full Excel financial model is available via Weblink in the report.
Econocom is a European provider of business-to-business digital services. It was founded in 1974 by Jean-Louis Bouchard as Europe Computer Systèmes (ECS). Econocom currently employs 10,700 people, has 40 years’ experience and 7.0 million digital assets managed. The group’s three areas of business are: Technology management & financing, IT & Telecom Services and Products and Solutions.
The growth suffers from possible disruption in the financing division as some large contracts are terminated in the dsiruption towards cloud computing. This trend optimises the processing power in the cloud and can reduce the hardware IT footprint.The products and Srvices divisions should still experience growth as new IT trends like IoT gain omportance in the economy.
The EBIT margin is expected to decline over 2018 as the company is struggling in its financing division. The company also announced a 10m EUR writedown on dubious receivables. This impacted the EBIT margin by 34 bps. The heavy M&A activities of the past has saved up some negative events that might have been cleared as the new CEO took office in April 2018. The new CEO is the son of founder Mr Bouchard. He still controls 36% of the company. His son owns around 4% of the company.
The group net debt position has risen gradually over the last couple of years. The Debt/EBITDA is still below 2 over the difficult 2018 period. The working capital increased by 200m EUR as some acquisitions became fully consolidated over FY17. This has led to expectations of further receivables write-offs. The dividend yield is relatively high after the share price correction. The dividend looks safe over the next couple of years.
Econocom Group specializes in the management of IT and telecom infrastructures for businesses throughout Europe, U.S. and China. Co. designs and implements products and services for SMEs, corporations or public authorities. It operates through four complementary businesses: IT products and solutions, distributed infrastructures (outsourcing, maintenance and consulting), telecom services and administrative and financial management of ICT assets. Co.'s business segments are as follows: IT Financial Services; Managed Services; Products and Solutions; and Telecom Services.
ValueScan operates as a team of independent analysts with strong industry track records. Valuation is based on a standardised method for all companies, independent of their size or sector . Each report delivers a long term analysis of the business plan and cash flows per segment. The model identifies 3 main drivers that are examined separately : Growth, Profitability and Capital needs. Most equity research overemphasises Growth and ignores Capital needs. An EVA analysis is presented to back test the results. Valuation theory is simplified to a level that strikes the right balance between complexity and flexibility. Valuescan operates fully independent from financial institutions, companies or other conflicts of interest. ValueScan analysts avoid mass investor happenings and herd behaviour. The ValueScan method assumes that eventually a company will reflect its true fair value when hype or over pessimism normalises.
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