STONECAP Securities Report Synchronica plc (SYN-TSXV,
.10)
Outperform; Target:
.60
SYN: TSX-V
.10
Rating Outperform
Risk Above Average
Target Price
.60
Projected Total Return 500.0%
What's Changed?
EPS 2011E (Basic) (
.07) (
.13)
EPS 2012E (FD)
.02 NC
Market Data
52-Week Trading Range
.50-
.09
Shares Outstanding, Basic (mm) 157.0
Shares Outstanding, FD (mm) 204.9
Market Capitalization (mm) $15.7
Net debt / (Net cash) (mm) $3.0
Enterprise value (mm) $18.7
Forecasts
FYE: December 2010A 2011E 2012E
Financial Aggregates (mm)
Revenue $10.9 $23.0 $40.3
EBITDA ($2.9) ($13.0) $6.7
Net income ($6.3) ($16.2) $3.7
Net debt / (Net Cash) ($1.2) $3.0 $1.8
Per Share ($)
EPS (
.10) (
.13)
.02
CFPS (
.03) (
.08)
.03
Net Book Value
.34
.19
.15
Profitability
ROA -19.5% -29.8% 6.6%
ROE -25.7% -58.2% 11.7%
Current Valuation
P/E n/a n/a 5.7x
P/CFPS n/a n/a 3.1x
P/Net Book 0.3x 0.5x 0.7x
EV/EBITDA n/a n/a 2.8x
Target Valuation
Based on our DCF valuation of
.58/share.
Source: Capital IQ, company reports, Stonecap Securities Inc.
Prior New
3Q11 Results: Focus Remains
On FY12
• Synchronica announced 3Q11 results that were slightly ahead
of our revenue expectations, although the net loss in the
quarter was larger than expected due to acquisition-related
charges and a higher than forecast staffing expense in the
quarter.
• 3Q11 revenue of $7.0M (+834.2% Y/Y) beat our $6.6M
estimate as revenue in Synchronica’s core business (i.e., not
including the OBM acquisition or Nokia messaging services
contract) was $1.9M, up 164% Y/Y and ahead of our $1.6M
estimate.
• Gross profit of $5.3M (+684.6% Y/Y) came in ahead of our
$4.7M estimate. 3Q11 gross margin of 76% vs. 90% a year
ago reflects the impact of the lower margin Nokia messaging
services contract, which carries lower margin than the OBM
business and Synchronica’s core operations. However, 3Q
gross margin was 462 basis points above our forecast of 71%.
• 3Q11 cash was $1.3M, a bit below our forecast of $1.9M. With
a $2.0M restructuring charge expected in 4Q11, liquidity
remains an issue as the company works to right-size the
business.
• Management remains committed to implementing a 22%
reduction in headcount by year-end 2011, which is expected to
deliver $12M in annualized cost savings beginning in FY12.
Valuation
Our DCF valuation falls modestly to
.58, from
.62, previously,
however we maintain our
.60 price target. We have not
adjusted our major DCF assumptions including a WACC of 20%,
a 5.0% terminal growth rate and a 50% EBIT margin.
Conclusion
Given the early success in the newly acquired businesses and
continued growth in the core operations we have left our FY12
financial outlook virtually unchanged. While management appears
on track at this point, it must still execute on many fronts including
completing the comprehensive restructuring program, streamlining
its business operations, revitalizing the OBM user base and
gaining a bigger revenue share within its core customer base.