New Zealand Professional Investment Services Firm

Forsyth Barr

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.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Gentrack</h2>
FY19 Result Initial Thoughts
Gentrack’s (GTK)&nbsp;<a href="https://en.wikipedia.org/wiki/Annus_horribilis" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://en.wikipedia.org/wiki/Annus_horribilis&amp;source=gmail&amp;ust=1574982412876000&amp;usg=AFQjCNEwfz-FZg4lkgXgDrR7ggVzAk23AQ" rel="noopener">annus horribilis, which included multiple downgrades and an outlook substantially down on previous market expectations, has reset the base for forward earnings but also resulted in management providing enhanced disclosure of its business and market opportunity.</a>
<ul>
<li>At a divisional level, utilities experienced a -23% decline in EBITDA in a challenging environment particularly in the UK. &nbsp;Airports experienced margin slippage with a -4% decline in EBITDA despite a +21% revenue lift.&nbsp;</li>
<li>Bad and doubtful debts totalled NZ$2.4m, up from NZ$0.2m in the prior year reflective of a number of UK based customer failures.</li>
<li>GTK capitalised NZ$5.1m of R&amp;D in the period, up from NZ$3.7m in FY18.</li>
<li>GTK’s SaaS incursion continues to improve business quality. Annual recurring revenue has increased to NZ$67.9m, representing ~61% of total revenue from ~52% in FY18.</li>
<li>The company fully wrote-down the value (NZ$14.6m) of its investment in CA Plus in 1H19 (Concessionaire Analyser; an airport retail concession product) due to poor performance of the business since it was acquired in 2017.</li>
</ul>
Outlook
Management provided FY20 guidance last week: “Expect FY20 results broadly flat” as “UK market conditions remain unpredictable”.
Our view
GTK’s result presentation provides a welcome improvement in disclosure on its market opportunity though we are conscious that it hasn’t reiterated its +15% organic EBITDA growth objective over the longer term. While we continue to acknowledge the market opportunity exists and GTK’s business quality continues to improve, until we have more confidence in the medium term earnings trajectory, the share price appears stretched at 35x-40x one year forward PE.&nbsp;
Result summary (NZ$m)
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 96.9pt;">
&nbsp;
</td>
<td style="width: 47.8pt;">
FY18
</td>
<td style="width: 47.8pt;">
FY19
</td>
<td style="width: 47.8pt;">
Change
</td>
<td style="width: 47.8pt;">
Forsyth Barr
</td>
<td style="width: 47.8pt;">
Guidance
</td>
</tr>
<tr>
<td style="width: 96.9pt;">
Sales revenue
</td>
<td style="width: 47.8pt;">
104.5
</td>
<td style="width: 47.8pt;">
111.7
</td>
<td style="width: 47.8pt;">
7%
</td>
<td style="width: 47.8pt;">
110.0
</td>
<td style="width: 47.8pt;">
~112
</td>
</tr>
<tr>
<td style="width: 96.9pt;">
EBITDA
</td>
<td style="width: 47.8pt;">
31.0
</td>
<td style="width: 47.8pt;">
24.8
</td>
<td style="width: 47.8pt;">
-20%
</td>
<td style="width: 47.8pt;">
25.7
</td>
<td style="width: 47.8pt;">
&lt;NZ$25m
</td>
</tr>
<tr>
<td style="width: 96.9pt;">
R&amp;D amortisation
</td>
<td style="width: 47.8pt;">
n/a
</td>
<td style="width: 47.8pt;">
(0.9)
</td>
<td style="width: 47.8pt;">
n/a
</td>
<td style="width: 47.8pt;">
(1.2)
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 96.9pt;">
Acquisition related amortisation
</td>
<td style="width: 47.8pt;">
n/a
</td>
<td style="width: 47.8pt;">
(2.6)
</td>
<td style="width: 47.8pt;">
n/a
</td>
<td style="width: 47.8pt;">
(2.6)
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 96.9pt;">
EBIT
</td>
<td style="width: 47.8pt;">
24.0
</td>
<td style="width: 47.8pt;">
15.4
</td>
<td style="width: 47.8pt;">
-36%
</td>
<td style="width: 47.8pt;">
15.6
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 96.9pt;">
Reported NPAT
</td>
<td style="width: 47.8pt;">
13.9
</td>
<td style="width: 47.8pt;">
(3.3)
</td>
<td style="width: 47.8pt;">
-124%
</td>
<td style="width: 47.8pt;">
(4.3)
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 96.9pt;">
Underlying NPAT
</td>
<td style="width: 47.8pt;">
14.0
</td>
<td style="width: 47.8pt;">
10.9
</td>
<td style="width: 47.8pt;">
-23%
</td>
<td style="width: 47.8pt;">
10.3
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 96.9pt;">
Underlying EPS (cents)
</td>
<td style="width: 47.8pt;">
16.2
</td>
<td style="width: 47.8pt;">
11.0
</td>
<td style="width: 47.8pt;">
-32%
</td>
<td style="width: 47.8pt;">
10.5
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 96.9pt;">
Final DPS (cents)
</td>
<td style="width: 47.8pt;">
8.7
</td>
<td style="width: 47.8pt;">
3.0
</td>
<td style="width: 47.8pt;">
-66%
</td>
<td style="width: 47.8pt;">
4.0
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 96.9pt;">
Capitalised R&amp;D
</td>
<td style="width: 47.8pt;">
3.7
</td>
<td style="width: 47.8pt;">
5.1
</td>
<td style="width: 47.8pt;">
37%
</td>
<td style="width: 47.8pt;">
5.3
</td>
<td style="width: 47.8pt;"></td>
</tr>
</tbody>
</table>
Source: GTK, Forsyth Barr analysis
Andy Bowley Head of Research Forsyth Barr Limited
T:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 4 495 8246 M:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;+64 21 338 941 TF:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 0800 367 227 F:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 4 495 8193 P:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; PO Box: 5266, Wellington 6145 W: &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; <a href="https://foundry.smartkarma.com/www.forsythbarr.co.nz" target="_blank" rel="noopener">www.forsythbarr.co.nz</a> Twitter:&nbsp; @forsythbarr

Gentrack
FY19 Result Initial Thoughts
Gentrack’s (GTK)&nbsp;annus horribilis, which included multiple downgrades and an outlook substantially down on previous market expectations, has reset the base for forward earnings but also resulted in management providing enhanced disclosure of its business and market opportunity.

At a divisional level, utilities experienced a -23% decline in EBITDA in a challenging environment particularly in the UK. &nbsp;Airports experienced margin slippage with a -4% decline in EBITDA despite a +21% revenue lift.&nbsp;
Bad and doubtful debts totalled NZ$2.4m, up from NZ$0.2m in the prior year reflective of a number of UK based customer failures.
GTK capitalised NZ$5.1m of R&amp;D in the period, up from NZ$3.7m in FY18.
GTK’s SaaS incursion continues to improve business quality. Annual recurring revenue has increased to NZ$67.9m, representing ~61% of total revenue from ~52% in FY18.
The company fully wrote-down the value (NZ$14.6m) of its investment in CA Plus in 1H19 (Concessionaire Analyser; an airport retail concession product) due to poor performance of the business since it was acquired in 2017.

Outlook
Management provided FY20 guidance last week: “Expect FY20 results broadly flat” as “UK market conditions remain unpredictable”.
Our view
GTK’s result presentation provides a welcome improvement in disclosure on its market opportunity though we are conscious that it hasn’t reiterated its +15% organic EBITDA growth objective over the longer term. While we continue to acknowledge the market opportunity exists and GTK’s business quality continues to improve, until we have more confidence in the medium term earnings trajectory, the share price appears stretched at 35x-40x one year forward PE.&nbsp;
Result summary (NZ$m)




&nbsp;


FY18


FY19


Change


Forsyth Barr


Guidance




Sales revenue


104.5


111.7


7%


110.0


~112




EBITDA


31.0


24.8


-20%


25.7


&lt;NZ$25m




R&amp;D amortisation


n/a


(0.9)


n/a


(1.2)





Acquisition related amortisation


n/a


(2.6)


n/a


(2.6)





EBIT


24.0


15.4


-36%


15.6





Reported NPAT


13.9


(3.3)


-124%


(4.3)





Underlying NPAT


14.0


10.9


-23%


10.3





Underlying EPS (cents)


16.2


11.0


-32%


10.5





Final DPS (cents)


8.7


3.0


-66%


4.0





Capitalised R&amp;D


3.7


5.1


37%


5.3





Source: GTK, Forsyth Barr analysis
Andy Bowley Head of Research Forsyth Barr Limited
T:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 4 495 8246 M:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;+64 21 338 941 TF:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 0800 367 227 F:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 4 495 8193 P:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; PO Box: 5266, Wellington 6145 W: &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; www.forsythbarr.co.nz Twitter:&nbsp; @forsythbarr

Gentrack

Gentrack: FY19 Result Initial Thoughts