SimplyBiz Group PLC (LON:SBIZ) is the topic of conversation when Zeus Capital’s Research Analyst Robin Savage caught up with DirectorsTalk for an exclusive interview
Q1: SimplyBiz has released a detailed pre-close statement today, could you summarise that statement for us?
A1: First of all, this is a pre-close statement for the first half of their financial year, their financial year end on the 31st December so they’ve made a statement about the trading up to the period of 30th June.
This statement reveals that they are growing their membership faster than we had expected, group membership, that’s the number of firms using SimplyBiz, rose 5.7% to 3,628, this is 23 firms more than we had expected the Group to have in December 2018. So, clearly that is encouraging for the long-term development of the company that its membership in terms of IFA firms using them is growing fast than we’d expected.
The second thing they revealed is that they’d Vitality Invest as a new strategic partner. Vitality Invest is about to launch in the UK and the Group will be an important part of their distribution strategy and I expect that they’ll be an important part of the second half revenues.
The third they mentioned is that their revenues rose 13.7% to £24.2 million, the underlying revenue growth is in line with the membership growth and the acquisition added £1.8 million to interim revenues. There was an acquisition in January and it’s good to see that the acquisition is actually delivering now rather than delivering later.
The fourth thing is they talked about the net cash position and it’s obviously improved since IPO from the £23 million net debt in December 2017 to a net cash position of £1.2 million. You should bear in mind that the IPO did raise £30 million gross after a whole lot of exceptional costs, refinancing costs, the net cash raised was £24 million so the net cash is broadly what you’d expect given that SimplyBiz continues to invest int its business.
Q2: So, full interim results are due on the 11th September, what do you expect them to show?
A2: What we’ve had now is just an excerpt from the interim results, so we’ll get the full interim results in September.
They will show all the details of the profitability, they will show the benefits of scale which should enable profits to grow faster than the revenues and we are confident that the full interim results will provide clear visibility to investors of the Group being able to achieve our full year forecasts, remember, this company was brought to the market just after Easter this year.
Management presentation will provide further insight into revenue growth, in particular looking at the different components of revenue growth, that’s the revenue from its members but also revenue from its key strategic partners which are more financial services groups and it’ll be talking about the prospects for the full year, last year, revenue was split 48% in the first half and 52% second. We would always expect revenue to be second-half weighted because a large proportion of the revenues are agreed in first half but actually expensed by the strategic partners in the second-half of the financial year and secondly, businesses with growing membership typically are second-half weighted because you have to have the growth in the membership before the membership actually make a contribution to revenue and therefore to profits.
So, results on the 11th September should provide a lot more detail than this interim update.
Q3: At 185p, the SimplyBiz shares are up 8.8% since IPO in April, how do you see SBIZ shares trading over the next few months and years?
A3: As we speak, the shares are trading at about 179p/180p, bear in mind that the IPO was priced at 170p, so I think these shares should be valued as an agency business because they’re providing services to IFA’s and the services they provide are low risk, they provide services rather than dealing with underlying customers. So, I would expect the valuation to be very much linked to the level of growth.
The management has good visibility over its own revenue and profit growth, after the 11th September, shareholders should have improved its visibility over this revenue and profit growth. We expect SimplyBiz’s shares to trade on a Price Earnings Ratio which is similar to the underlying growth which we think is going to be around about 20% per annum, something like a PE of 20 is a sensible number. At 185p, the Group is trading on 17.7 times, our forecast of 20 times, it would be trading at £2.10.
