New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

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Equity Bottom-Up

Vista Group International / Equity Bottom-Up

<h2>Vista Group</h2>
1H19 Result — Box Office Disappointment
The stock down -29% was a dramatic reaction to Vista Group’s (VGL) 1H19 slower revenue growth and decline in earnings, and the reduced FY19 revenue growth guidance. The reaction highlights the risk in a stock that (1) is being priced for substantial growth beyond its core business, and (2) has limited external reference points to help frame market expectations. In absolute terms, the performances of VGL’s core businesses Vista Cinema and Movio were still positive and we still expect these businesses to drive strong VGL revenue growth medium-term. Healthy growth, however, is still required to justify the company’s valuation even after the material derating.
What’s changed?
<ul>
<li>Earnings:&nbsp;Lowered FY19/20/21E EBITDA -26%/-25%/-25%</li>
</ul>
Key take-outs
<ul>
<li>Slower revenue growth, earnings decline: Group&nbsp;revenue up +12% disappointed vs. +20% FY19 guidance with growth slowing yoy across all businesses. Operating EBITDA (excl. FX) fell -19% yoy, primarily driven by a step up in corporate costs (principally staff long-term incentives), +NZ$1.7m, and a loss in ticketing business MovieXchange following the closure of a key customer. Operating cash flow was weak, down -40%.</li>
<li>Cinema slowing, but growth still healthy: Revenue growth in Cinema, VGL’s largest segment, slowed to +15% vs. FY18 +22%. Management cited slippage of several large Vista Cinema contracts in Europe and the UK, but also that growth (in % terms) will naturally decline as its revenue base expands. EBITDA margins (excl. FX impacts) expanded c.+160bps highlighting the operating leverage in the business.</li>
<li>Shift to SaaS:&nbsp;VGL announced it intends to migrate Vista Cinema to a pure SaaS model by 2021. We see the strategic rationale — higher annuity revenue, greater scalability, easier on boarding of new customers and sale of additional products to existing customers. We suspect it will mean lower revenue growth medium-term given less upfront fees, with elevated investment.</li>
<li>Movio growth still impressive:&nbsp;Movio revenue up +35% leveraged through to EBITDA +48%. Whilst it is difficult to estimate the market opportunity for Movio, a growing impressive list of clients including Disney, Amazon, Warner Bros, and Viacom, does validate the product’s value.</li>
<li>Growth revised materially lower: VGL downgraded FY19 group revenue growth guidance to +10–12% from c.+20%, which it attributed primarily to lower revenue Vista China and MovieXchange, and delay in Numero consolidation. VGL also provided “Core Business” (Cinema and Movio) revenue guidance of +14–18% (vs. our prior +27%).&nbsp;“Over time” VGL is targeting a very healthy revenue growth of +13–18%. Even after today’s derating healthy growth is still required to justify the company’s share price.&nbsp;</li>
</ul>
<div class="content-highlight">
Investment View
VGL is the global leader in ERP software for the large cinema circuit market, and continues to capture market share with its niche and specifically tailored product. Execution across Movio and VGL’s other earlier stage businesses is required to sustain long-term earnings growth.
</div>
&nbsp;Matt Henry, CFA
matt.henry@forsythbarr.co.nz
+64 9 368 0115

Vista Group
1H19 Result — Box Office Disappointment
The stock down -29% was a dramatic reaction to Vista Group’s (VGL) 1H19 slower revenue growth and decline in earnings, and the reduced FY19 revenue growth guidance. The reaction highlights the risk in a stock that (1) is being priced for substantial growth beyond its core business, and (2) has limited external reference points to help frame market expectations. In absolute terms, the performances of VGL’s core businesses Vista Cinema and Movio were still positive and we still expect these businesses to drive strong VGL revenue growth medium-term. Healthy growth, however, is still required to justify the company’s valuation even after the material derating.
What’s changed?

Earnings:&nbsp;Lowered FY19/20/21E EBITDA -26%/-25%/-25%

Key take-outs

Slower revenue growth, earnings decline: Group&nbsp;revenue up +12% disappointed vs. +20% FY19 guidance with growth slowing yoy across all businesses. Operating EBITDA (excl. FX) fell -19% yoy, primarily driven by a step up in corporate costs (principally staff long-term incentives), +NZ$1.7m, and a loss in ticketing business MovieXchange following the closure of a key customer. Operating cash flow was weak, down -40%.
Cinema slowing, but growth still healthy: Revenue growth in Cinema, VGL’s largest segment, slowed to +15% vs. FY18 +22%. Management cited slippage of several large Vista Cinema contracts in Europe and the UK, but also that growth (in % terms) will naturally decline as its revenue base expands. EBITDA margins (excl. FX impacts) expanded c.+160bps highlighting the operating leverage in the business.
Shift to SaaS:&nbsp;VGL announced it intends to migrate Vista Cinema to a pure SaaS model by 2021. We see the strategic rationale — higher annuity revenue, greater scalability, easier on boarding of new customers and sale of additional products to existing customers. We suspect it will mean lower revenue growth medium-term given less upfront fees, with elevated investment.
Movio growth still impressive:&nbsp;Movio revenue up +35% leveraged through to EBITDA +48%. Whilst it is difficult to estimate the market opportunity for Movio, a growing impressive list of clients including Disney, Amazon, Warner Bros, and Viacom, does validate the product’s value.
Growth revised materially lower: VGL downgraded FY19 group revenue growth guidance to +10–12% from c.+20%, which it attributed primarily to lower revenue Vista China and MovieXchange, and delay in Numero consolidation. VGL also provided “Core Business” (Cinema and Movio) revenue guidance of +14–18% (vs. our prior +27%).&nbsp;“Over time” VGL is targeting a very healthy revenue growth of +13–18%. Even after today’s derating healthy growth is still required to justify the company’s share price.&nbsp;


Investment View
VGL is the global leader in ERP software for the large cinema circuit market, and continues to capture market share with its niche and specifically tailored product. Execution across Movio and VGL’s other earlier stage businesses is required to sustain long-term earnings growth.

&nbsp;Matt Henry, CFA
matt.henry@forsythbarr.co.nz
+64 9 368 0115

Vista Group: 1H19 Result — Box Office Disappointment

New Zealand

Vista Group International Limited provides film industry software. The Company offers cinema, distribution and data analytical software to the global film industry.

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Vista Group International (VGL NZ)

Vista Group: 1H19 Result — Box Office Disappointment

Vista Group 1H19 Result — Box Office Disappointment The stock down -29% was a dramatic reaction to Vista Group’s (VGL) 1H19 slower revenue growth...

Forsyth Barr

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