Original-Research: KPS AG - von GBC AG
Einstufung von GBC AG zu KPS AG
Unternehmen: KPS AG
Anlass der Studie: Research Update
Kursziel: 13.20 EUR
Kursziel auf Sicht von: 31.12.2019
Letzte Ratingänderung: -
Analyst: Matthias Greiffenberger, Cosmin Filker
Internationalisation strategy pays off. Another major customer was acquired
in Scandinavia. Margin improvements in sight.
The first half of the 2018/19 financial year developed very well for KPS AG
and was generally in line with our expectations. Revenue increased by 3.3%
to €91.28 million (previous year: €88.39 million) despite a larger software
deal in the Products and Licences segment which significantly increased
revenue in the previous year. The margin did not increase to a proportional
extent since this mainly involved the resale of software. According to the
management, revenue growth was around 13% when adjusted for this effect.
The acquisition of additional transformation projects from existing and new
customers was one reason behind the revenue growth. Among other things, a
new major customer was acquired in the Scandinavian region. KPS’ presence
in Denmark is likely to have been an important factor in attracting this
customer. In 2016, Danish consulting firm Saphira Consulting (today: KPS
Consulting A/S) was acquired in this way, which, as part of the KPS Group,
should benefit from the company’s size and international direction, making
it more attractive for large orders. According to the management, an
identical phenomenon has also occurred when recruiting personnel. As a
result, it is now easier for acquired companies to recruit qualified
personnel because large international companies are generally perceived as
being more attractive employers.
At the same time, the company is considerably broadening its customer base.
While around 80% of revenue was generated by approx. 15 customers two years
ago, the customer base for 80% of the revenue has now risen to 35. This has
significantly reduced cluster risk. In parallel to this, the distribution
of revenue has also been considerably internationalised. Additionally, the
considerable expertise was gradually transferred from the logistics and
commerce areas to other sectors in order to expand the range of customers.
The EBITDA increased by 41.3% to €13.23 million (previous year: €9.37
million). The disproportionate improvement in earnings led to a rise in the
EBITDA margin to 14.5% (previous year: 10.6%), with the first six months of
2017/18 being adversely affected by the initial costs of numerous
consulting projects in particular. As a result, the company is again
approaching the traditionally high EBITDA margin of over 15%. The result
could have been even better, however provisions were made for earn-out
payments for the acquired subsidiaries. The very good development of the
subsidiaries could lead to higher performance-related earn-out payments to
the former owners.
Furthermore, the cost optimisation strategy is still being implemented
successfully within human resources. As a result, employees will undertake
an increasing amount of tasks and will gradually decrease their reliance on
external services. Material costs therefore fell by 15% to €32.24 million
(previous year: €38.00 million), which also resulted from a €5.6 million
fall in software acquisitions.
At the same time, more employees were hired so that the project’s growing
needs could be met. Personnel expenses increased by 9.4% to €33.76 million
(previous year: €30.85 million). The regional focus is on Spain in
particular, as personnel costs are lower here on average. In addition, the
subsidiaries benefit from the KPS acquisition because companies which are
under the stewardship of KPS, which is established internationally, are
perceived as more attractive and it is therefore easier for them to attract
employees. Overall, 16 more employees were hired in Spain, with a further
seven added in England. Consequently, the strategy currently seems to have
been implemented very successfully and we therefore expect continued margin
improvements in the future.
On the basis of revenue and profit for the first six months of 2018/19, we
confirm our forecast. For the current financial year 2018/19, we expect
revenue of €179.97 million, with revenue of €188.97 million for 2019/20.
Our forecast remains in the limits of the €170.0-€180.0 million revenue
guidance and of the €22.0-€27.0 million EBIDTA guidance.
Due to a major customer experiencing a drop in revenue, the company expects
moderate growth for the current financial year, below that of the
double-digit growth momentum of previous years. In our view, the company
should return to a more dynamic growth path in the medium term. However, we
expect that the major customer’s effect on revenue will still be evident in
We regard the internationalisation strategy and the improvements in how the
acquired companies address customers in particular as growth drivers in the
medium- and long-term. More large-scale projects in Scandinavia or an even
greater number of projects in Great Britain could be acquired in this way
using Envoy Digital. At present, management does not expect the potential
Brexit to negatively impact the company’s development. Even in the case of
a hard Brexit, digital transformation projects should feel little or no
Overall, the company has positioned itself well internationally by means of
the acquisitions and we expect a significantly higher growth momentum to
once again become apparent in the long term.
In line with the increase in revenue, we expect a disproportionate
improvement in earnings. For the current financial year, we expect an
EBITDA of €26.47 million, within the guidance of €22.0 million to €27.0
million. Based on the half-year figures (first half-year 2018/19 EBITDA:
€13.23 million), we confirm our forecasts are at the upper end of the
guidance. For the subsequent year 2019/20, we expect a further
disproportionate increase to €28.76 million. This would equate to a margin
improvement from 14.7% (2018/19) to 15.2% (2019/20).
The diminishing effect of the major customer’s declining revenue is another
reason for the margin improvement. This impacted financial year 2017/18 in
particular, with gradually lessened effects for 2018/19 and 2019/20.
In our view, the company should once again achieve historically high
profitability and reach an EBITDA margin of at least 15% in the medium
term. The reasons for this include the switch from using external services
to using the company’s own employees, plus the increased use of employees
from countries with a low wage level.
Furthermore, we should be able to tap into further margin potential by
increasing internal digitisation. The company also relies in part on the
industrialisation of the consulting approach. In this way, the design
centre in Dortmund could help to develop important standard solutions that
could be distributed in scalable form.
Consequently, we expect a gradual margin improvement on the whole and we
view the company as being very well positioned in an attractive market.
We confirm our forecast and continue to assign it the buy rating with a
stock price target of €13.20 per share.
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Date and time of completion of this research: 04/06/2019 (15:00)
Date and time of first distribution: 05/06/2019 (09:00)
Target price valid until: max. 31/12/2019
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