reports
- Katherine Thompson
TXT e-solutions - On the acquisition trail
TXT reported year-on-year revenue and EBITDA growth in Q118, with a particular boost to software licence sales. The change in the largest shareholder has prompted changes to the board, and is likely to mark the start of a series of acquisitions to accelerate the growth of the TXT Next business.
Update: Profits maintained despite licensing weakness
TXT reported a small year-on-year revenue decline for Q116. While TXT Next showed continued growth, TXT Perform saw delays in the signing of new licences, resulting in a decline in revenues. This was offset by reduced operating expenses. Management sees a more positive outlook in Q2 and maintains expectations for FY16. We leave our forecasts substantially unchanged.
Update: TXT Next is next for international expansion
TXT reported strong FY15 revenue growth of 13%, with double-digit growth from both divisions, and normalised EPS ahead of our forecast. The planned acquisition of PACE adds higher-margin aerospace software capability and accelerates TXT Next’s quest to expand its addressable market outside of Italy. We have incorporated PACE into our estimates, forecasting normalised EPS growth of 16% in FY16 and 9% in FY17.
Flash note: Aerospace software acquisition
TXT is expanding the scope of TXT Next’s aerospace business with the acquisition of a majority stake in aerospace software specialist PACE, for an initial cash consideration of €5.6m. The deal will enable TXT Next to offer specialist software in addition to its aerospace IT, consulting and R&D services and gives the division access to a wider international customer base. We will review our forecasts when TXT reports FY15 results on 8 March.
Update: Steady performance
TXT reported another strong quarter, with Q3 revenue growth of 12% y-o-y and both businesses contributing to growth. Profitability was higher than we forecast, leading to an upgrade to FY15 EPS; we leave our FY16 forecasts unchanged. The company continues to invest in expansion into Asia Pacific; this combined with progress in the North American business should drive growth in the medium term.
Outlook: International wins drive growth
TXT experienced strong growth in H115, with both divisions reporting y-o-y growth of 13%. The international expansion strategy is paying off – both TXT Perform and TXT Next won new customers in target overseas markets during H1. To reflect the stronger first half, we have raised our revenue and earnings estimates in FY15 and FY16. The company continues to seek acquisitions to accelerate growth in both divisions and has a strong balance sheet to support its growth strategy.
Flash note: Strong Q2 trading
Since incorporation in Q2, TXT Perform’s Asia Pacific subsidiary has won its first major contract, worth more than €1m. Combined with strong underlying performance in both divisions, this should result in group revenue growth of c 20% for Q215, ahead of our 8.5% forecast. This should also drive stronger than forecast EBITDA. We leave our estimates unchanged pending full H115 results on 4 August, but highlight that there is likely to be upward pressure on forecasts.
Update: Positive start to the year
TXT saw a good performance from both divisions in Q115, with a strong licensing quarter for TXT Perform and continued good demand for TXT Next’s services. The outlook for both divisions is positive, and despite increased investment in R&D and setting up a Hong Kong office, we forecast margin expansion in FY15 and FY16. TXT’s cash position has been strengthened by the sale of treasury shares to an investor, providing funding for the company’s international expansion plans.
Update: Expanding into Asia Pacific
TXT’s FY14 results reflect the impact of the tough economic environment on TXT Perform earlier in the year. Efforts to strengthen the team in North America are starting to pay off and the recently announced investment in Asia Pacific should support growth in the medium term. We expect increased investment in international expansion and product development to weigh on profitability in FY15, but this should position the company for stronger international growth in the medium to long term.
Update: Moderating our growth estimates
TXT reported a 4.8% year-on-year revenue decline in Q314, as TXT Perform experienced a weak quarter for licence wins. However, on a nine-month basis, both divisions achieved revenue growth. We have revised our revenue forecasts to reflect a more uncertain economic environment, resulting in cuts to FY14 EPS of 10% and FY15 EPS of 9%. With a strong balance sheet, TXT has funds available to support its acquisition strategy.
Update: Growing international presence
TXT saw 4.7% revenue growth in H114, with international revenues growing to 58% of the total from 54% in 2013. TXT Perform felt the impact of a slowdown in the luxury and fashion market in Q2. We have revised our forecasts to reflect lower licence revenues in FY14; this drives EPS cuts of 13.0% in FY14 and 4.8% in FY15. The company continues to invest in product development and recent initiatives in North America should support further growth in international revenues.
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