Tie Kinetix (Hold): Solid quarter in terms of earnings and gross cash
The facts: Tie Kinetix has just released 4Q14 results.
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Our analysis: Revenue in the 4th quarter increased by 4.8% versus the 3rd quarter, which was mainly organic although the stronger USD also had a material effect. This is a solid performance given the political and economic turmoil in the quarter and modestly better than we had pencilled in. Adjusted EBITDA (which excludes other income and non-recurring expenses) came in at EUR 0.39m, roughly in line with our estimate. The reported number is also a substantial improvement over the EBITDA in the 2nd quarter.
Business Integration continues do very well, which is reflected in the YoY SaaS development but also versus our estimate. According to Tie, Demand Generation did not do well because of an undeveloped market and hesitant customers. We believe in the latter but are a little surprised by the former as investments were planned to take advantage of this market. Tie now also states that it will be scaling back these planned investments. The acquisition TFT contributed well, visible in the Consultancy revenue line, showing solid demand from the market for search services.
Tie has not recognized a provision for the EU development repayment issue (as no exact amount can be determined), which we had already incorporated in our FY14 numbers. This will now be accounted for in the FY15 accounts. But as we have stated in a report we issued yesterday, based on the current assumptions (repayments spread over at least 5 years and a repayment of EUR 1.5m), no funding issue exists. Especially now that Tie has found an investor willing to guarantee the EU claim if and when the final amount is determined.
Operating cash flow in FY14 amounted to EUR 1.7m, resulting in a gross cash position of EUR 0.6m. As consultancy is usually strong in the 4th calendar quarter and maintenance invoices will be sent in the fiscal 1Q15 and following months, the financial position of Tie Kinetix seems fine. No major issues in the balance sheet either although DSO did increase from 54 to 65.
Conclusion & Action: A solid quarter with very good growth in Business Integration and good contributions from acquisition TFT, visible in Consultancy revenue, offset by a weaker than expected Demand generation revenue. EBITDA increased substantially YoY (and in line with our estimate) although the margin was a tad light versus our estimate. Gross cash position sound at EUR 0.6m with solid OCF. No major issues in Balance sheet. Now that the EU repayments are no longer an issue (with or without the guarantee), normal valuations apply. DCF based pt of EUR 10. Valuation very low versus peers at FY15 EV/EBITDA at <3x