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Enables IT Group LSE:EIT London Ordinary Share GB00B8T2XV42 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  +0.00p +0.00% 7.125p 0.00p 0.00p - - - 0 05:00:10
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Technology Hardware & Equipment 7.0 -2.2 -8.4 - 1.80

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Enables IT Daily Update: Enables IT Group is listed in the Technology Hardware & Equipment sector of the London Stock Exchange with ticker EIT. The last closing price for Enables IT was 7.13p.
Enables IT Group has a 4 week average price of - and a 12 week average price of -.
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There are currently 25,327,101 shares in issue and the average daily traded volume is 0 shares. The market capitalisation of Enables IT Group is £1,804,555.95.
sweepie2: SCOOP should be investigated by the authorities, seen it used for this sort of thing too many times for it to be accidental or they should take action against people misusing their web site imo Enables IT Group plc Statement re Share Price Movement Share On Facebook Print Alert TIDMEIT Enables IT Group plc ("Enables IT" or the "Company") Statement re: Share price movement The Directors of Enables IT (the "Board"), a leading provider of cloud computing, managed and professional services, notes the recent movement in the Company's share price. The Company notes the recent press speculation regarding a potential new material contract win with the UK based supermarket Asda. The Company confirms that there is no truth in the article. Enquiries:
gombie: Martin Bradburn resigns. What is going on? Is that behind the slide in share price? Anyone got a comment?Two directors gone in a few months!!
bishopawn: 210 HCA hospitals in America. That lucrative market and more besides should excite the share price once Co starts announcing new contracts/
gombie: Full Buy Note: rr0005ss-0313 Diederick During (1917 – 1991), detail from 'Basotho Rider', circa 1964, oil on board, Sanlam Art Collection  Cloud service provider: The next step in managed services is towards cloud service provision, and Enables IT is one of only two UK IT stocks offering exposure to this trend - the other being recent IPO Outsourcery. The group has a private / public infrastructure-as-a-service (IaaS) cloud offering (HAVEN) backed by proprietary datacentre infrastructure. Economics of this business model are backed by the trend of virtualisation reducing hardware cost. We estimate Enables IT generates c25% of revenue from virtualisation products and services.  Financial metrics: The reason these types of businesses are attractive are their financial metrics - Enables IT should be able to deliver organic revenue growth per annum of c20% or more, with c35%+ gross margins, which are far better metrics than traditional IT services. Recurring revenue is c57% of total revenue.  Support Force: Enables IT is to acquire The Support Force Group, which offers email managed services and white label offshore desktop support. The deal is strongly earnings enhancing, with the Addax offshore support able to accelerate cost synergies already underway from the Enables IT / Nexus merger in Nov 2012. Several other cost synergies exist (exiting Support Force third party datacentre contracts for example) and revenue synergies are also likely. Valuation on the deal is attractive (c5x PE and 1.1x recurring revenue).  Valuation: Inclusive of the Support Force deal (and the announced £0.9m fundraising), Enables IT is valued at FY14E 1.0x EV/Sales and 11.7x EBITDA. By comparison, Outsourcery is heavily lossmaking and has £3.6m of revenue, while currently being valued at c£37m (having raised c£13m in a recent IPO). In the long run, an assumption of 15% EBITDA margins for the core business, and our FY15E forecast for the Support Force acquisition, suggests £1.25m of EBITDA is a credible group target, representing a lowly EV/EBITDA of c5.7x. Recommendation BUY Initiation of coverage Data Closing price 42.5p Target price 65.0p Upside / (downside) 53% Free float 25% Market cap £6.7m Shares outstanding 15.8m Daily volume 0.0050m FY13E Enterprise value £5.8m 52 week high / low 43.5p/10.0p Share price as at close 26 Jun 2013 Description Cloud services provider Performance Source: Capital IQ Performance 1m 3m 12m Absolute (%) +41.7 +41.7 +93.2 Relative (%) +36.5 +35.9 +89.2 Contact Equity Analyst Roger Phillips +44 (0)20 7375 9069 STX 77333 Institutional Sales +44 (0) 20 7382 0941 Trading Desk +44 (0) 20 7382 0942 Corporate Broking +44 (0) 20 7382 0940 Y/E Sep Revenue (£m) EBITDA (£m) PBT Adj (£m) Tax (%) EPS FD Adj (p) PER (x) DPS (p) Yield (%) Net Cash/ (Debt) (£m) EV/ EBITDA (x) 2012A 4.274 (0.109) (0.265) 0.0 (6.750) n/a 0.0 0.0 0.432 n/a 2013E 6.300 0.190 0.000 0.0 (0.003) n/a 0.0 0.0 0.411 30.4 2014E 7.200 0.608 0.398 0.0 2.121 20.0 0.0 0.0 0.856 11.7 2015E 8.580 0.823 0.593 25.0 2.279 18.7 0.0 0.0 1.327 8.5 Source: Company (actual), Sanlam Securities UK (forecasts) Enables IT* (EIT.L) Enabling outperformance Enables IT is one of the new wave of cloud services providers that have emerged as a result of the twin trends of SaaS (software as a service) and virtualisation. The group is lowly rated in comparison to the nearest peer and the acquisition of Support Force is strongly earnings enhancing. 27 June 2013 *- Sanlam Securities UK acts as nominated adviser and broker Enables IT* Sanlam Securities UK 27 June 2013 2 Investment case overview Enables IT* (EIT.L) 1 Investment case overview ............................................................................................. 3 What makes Enables IT special? 3 Introduction to Enables IT ............................................................................................. 4 History of Enables IT ..................................................................................................... 6 Nexus Management 6 Acquisition overview 7 Financial overview ........................................................................................................ 9 Points to note: 10 Valuation ..................................................................................................................... 12 Enterprise valuation comparatives 12 Financial summary ...................................................................................................... 15 Contents Enables IT* Sanlam Securities UK 27 June 2013 3 Investment case overview What makes Enables IT special? Enables IT is an attractive investment case in a number of respects:  Cloud computing exposure: Enables IT is one of the new breed of "cloud service providers" that have started to appear due to the twin trends of SaaS (software as a service) and virtualisation technology. There is only one similar "pure play" cloud service provider available on the UK market, the other being recent IPO Outsourcery. Both offer a private / public cloud (Outsourcery offers the "O-Cloud", Enables IT offers "HAVEN") backed by proprietary infrastructure.  Virtualisation & datacentre exposure: Approximately c25% of Enables IT revenue is from virtualisation products and consulting. Virtualisation is one of the hottest trends in enterprise computing globally, driving massive rationalisation of server farms for corporates, and the economics of cloud service providers such as Enables IT. The group also has a proprietary US datacentre in Portland, Maine (c70 rack capacity) which is primarily used as the infrastructure backing the group's services model (but also offered on a colocation basis i.e. space and power). Demand for the design, build and management of datacentre and networking infrastructure is strong, and is a key speciality of the group.  Financial metrics: Cloud service providers are attractive relative to other areas of IT services because their growth rates are much faster and margins much better. Traditional IT services has a bad reputation because offshore competition leads to endemic pricing pressure, reducing revenue growth and operating margins to single digits. By contrast, cloud service providers (particularly with material exposure to datacentre / network design, build and management) should be capable of c20-30% revenue growth and c35%+ gross margins.  Acquisition: The deal to buy Support Force is strongly earnings enhancing (for FY14E, 2.1p of EPS versus 0.8p) for several reasons. The Addax South African first line support business allows cost synergies between the November 2012 Enables IT and Nexus merger to be accelerated. Several other cost synergies between Support Force and Enables IT exist, while the acquisition looks cheap in being priced at 5x EBIT and 1.1x recurring revenue. Finally, we see potential revenue synergies from the cloud provision of email and other applications for the combined entity.  Valuation: With the acquisition and a fundraising of £0.9m (£0.8m net) at 36p, Enables IT is valued at 1.0x EV/Sales and 11.7x EBITDA. By contrast, the nearest peer (Outsourcery) is significantly lossmaking and recently IPOed, raising £13m, at a valuation of £35m (currently higher than this at c£37m), with £3.6m of revenue. As a result, Enables IT looks sharply undervalued.  Long term prospects: On a five year view, a 15% EBITDA margin on the core business (considering >50% is support revenue) is a reasonable expectation i.e. £900k. Adding FY15E EBITDA of the proposed acquisition to this suggests £1.25m of total EBITDA is a reasonable long range estimate for the combined group, suggesting the business is attractively valued at only c5.7x EV/EBITDA. Investment case overview Pure-play cloud service provider c25% of revenue from virtualisation products and consulting Growing much faster than traditional IT services SupportForce deal is strongly earnings enhancing Sharply undervalued versus peer Long term potential to deliver significant EBITDA Enables IT* Sanlam Securities UK 27 June 2013 4 Introduction to Enables IT What is a "cloud service provider"? Enables IT is a cloud services provider. At its simplest, this means the business is an IT services provider with three main interdependent revenue lines: support, project services and third party product resale. Cloud service providers are effectively the next step in managed services, a recurring revenue business model that has been viable in the IT services world for over a decade. Initially, managed IT services revolved mainly around physical infrastructure i.e. PC desktop support. Many large IT services companies have managed desktop services as part of their revenue mix. Now, the advent of SaaS (software-as-a-service) means that managed services around generic high volume software applications is increasingly in vogue. Many customers still procure software direct from the software vendor, but increasingly will turn to using a cloud managed services partner such as Enables IT to do it for them, and act as a form of "cloud platform" for many applications instead of having multiple relationships with multiple software vendors. The software applications that are supported by "cloud service providers" tend to be generic and high volume as opposed to being highly bespoke, making them suitable to be outsourced. As a result, the main product offering is around email at present, with unified communications products also increasingly popular (i.e. Microsoft Lync, the enterprise-grade successor to Messenger) and also Sharepoint. Importantly, unlike legacy "applications management" vendors, cloud service provider infrastructure is not wedded to one particular application. Enables IT has particular key vertical market strengths (i.e. private healthcare) which mean it could offer applications specific to these markets. As a result, Enables is best described as involved in the design, build and management of "environments" for clients, which encompasses a mixture of PC, network, cabling, datacentre infrastructure, but increasingly also software applications. This means the group is an "infrastructure as a service" (IaaS) provider. Datacentre infrastructure & HAVEN Datacentre infrastructure varies depending on the IT services provider. Enables IT has its own 70 rack datacentre (located in Portland, Maine in the US) which is c50% utilised, and also rents space from Telecity (in the Docklands). It is important for cloud services providers to own their own datacentre if they are to offer "private clouds" to customers due to concerns over data security. Enables IT has its own "cloud platform" called HAVEN (standing for High Availability Virtual Enterprise Network) which has been running for three years, and can be delivered to customers of any size. This platform incorporates server, networking, storage and public-switched telephone network voice capabilities (PSTN). As part of managing a client's applications, HAVEN also performs backup, disaster recovery and business continuity. Introduction to Enables IT This is an area of IT services Next step in managed services SaaS is driving the growth of cloud service providers Software tends to be generic and high volume. Microsoft is popular Enables designs, builds and operates "environments" in various facets of IT Own proprietary datacentre infrastructure in US Used to offer the HAVEN cloud Enables IT* Sanlam Securities UK 27 June 2013 5 Introduction to Enables IT The technology of virtualisation is an important enabler of the economics of cloud services providers, and the uptake of virtualisation in the last five years is the reason these providers are emerging now. Simplistically, virtualisation allows servers to be "partitioned" and so used much more effectively, meaning far higher ROI on hardware cost. This means cloud service providers incur relatively low hardware cost in setting up "platforms". As a result, this new breed of provider has emerged. Enables IT has four main partnerships with software and hardware providers:  VMWare: Enterprise Partner, for virtualisation.  EMC: Velocity Partner, for storage area networks (the VNXE / VSpec products).  Cisco: Premier Partner, for internet connectivity (i.e. VBlock). The group receives a Cisco marketing rebate but this is financially immaterial.  Microsoft: Gold partner, mainly for email but in future for Sharepoint and Lync. We think c25% of revenue for Enables comes from virtualisation work, being a combination of project consulting and VMWare product resale. Virtualisation is an excellent "Trojan horse" as customers often have large, inefficient server farms that can be rationalised down, and can then be offered HAVEN as an outsourced solution. Additional business lines As part of being a cloud services provider, Enables IT provides a range of networking IT services, from basic cabling, to providing datacentre design, build and operation, to IT services around wireless network connectivity to multiple devices. Enables IT does not simply sell cabling project services and management, but rather designs, builds and then manages "environments" as an overall solution sell. As mentioned above, these are a mixture of PC, network, cabling, datacentre infrastructure and now, increasingly, applications. For example, the group may win a project to design and build a datacentre infrastructure for a customer, which could initially be worth £0.5-£1.0m in project fees and then result in a multi-year managed services contract in due course. Wireless & networking infrastructure are key areas of specialism, meaning Enables IT is also a consulting play on the Bring-Your-Own-Device trend (BYOD), where employees increasingly use personal smartphones and mobile devices for work. Enables IT installs and then manages networks that are BYOD-suitable using partnerships with software vendors such as Good Technology (soon to IPO in the US) and Airwatch. Conclusion – growth opportunities Enables IT therefore has several number of organic growth opportunities in particularly hot subsectors:  The HAVEN cloud services platform  Datacentre design, build and operation incorporating virtualisation work  Wireless infrastructure design, build and management, playing to the BYOD trend. Virtualisation an important demand driver and business model enabler c25% of revenue from virtualisation work Has a speciality in networking and cabling This is done as part of an overall solution sell Cabling work is driven by wireless infrastructure and BYOD Enables IT* Sanlam Securities UK 27 June 2013 6 History of Enables IT Nexus Management Nexus Management was an AIM-quoted stock specialising in managed support around networking primarily in the US and also UK. It was previously named PC Medics Group and was originally floated in 2001. Nexus undertook a number of acquisitions and disposals, the most recent of which was the disposal of Resilience Technology Corporation to a MBO in July 2012. In November 2012, a private company named Enables IT enacted a merger with Nexus. The combination of the two businesses being was renamed Enables IT and the Enables IT CEO (Mike Walliss) took charge of the enlarged business, with several Nexus management members departing. Enables IT is a US and UK IT services business (primarily the latter) and brought the HAVEN cloud infrastructure, US datacentre and virtualisation specialisation, amongst other offerings. Business overview On a proforma basis to September 2012, revenue for the combined business by business line and by geography is given below. The majority of revenue is recurring as it is from support. Figure 1: Revenue split, proforma to Sep 2012 Source: Company , Sanlam Securities UK Enables IT currently has c250 active customers, split between the US and the UK. The group is particularly strong in the education, health, finance, insurance and services sectors. Support contracts are typically for multiple years, with four months or shorter notice. The group has certain large customers. Firstly, the original Nexus business had a large customer (Hill & Knowlton, part of WPP) that accounted for £2.1m of revenue in FY12A, or c27% of revenue on a FY12 proforma basis. In March, the group announced that H&K would be terminating their managed services agreement, effective July 2013. Importantly, the incoming Enables IT management team were fully aware this was likely to happen prior to the Enables / Nexus transaction. More detail is given on the effect of this in the financial section below. Additionally, the original Enables business has a large customer (Health Care America) which has been a customer for fourteen years and is expected to account History of Enables IT Nexus Management was a long term AIM quoted business Enables IT reversed into Nexus and renamed the whole Enables IT Majority of revenue is recurring Strong in various sectors H+K was a key client for Nexus Enables IT management knew this deal would likely be lost before the merger Health Care America is a big client Enables IT* Sanlam Securities UK 27 June 2013 7 History of Enables IT for c25% of group revenue in FY13E (i.e. £1.25m). This customer is US-based but Enables has designed and manages the customer's network in the UK. There are approximately 19 months remaining on the current contract, and Health Care America are expanding rapidly in private healthcare in the UK. This relationship is very strong and we would expect the current contract to be extended. Additionally, we see potential for additional contract work to be awarded (for example, a UK core router refresh planned for 2014). We see a major opportunity for Enables IT to expand in the US, particularly in the private healthcare market, using Health Care America as a key reference client (as Health Care America has 210 private hospitals in the US). However, the establishment of project services capability in the US is relatively recent (i.e. with the Enables IT / Nexus merger in Nov 2012) and needs to be built further for this to happen. This could be the strategic focus of a future acquisition by the group. At the end of December, the combined group had staff numbers of 98. Currently this stands at 86. We estimate that H+K accounts for 31 people in total, of which 16 are in the UK. We expect these heads to be removed once the contract ceases. Acquisition overview TheSupportForce – details Enables IT has announced the acquisition of Support Force Group, a UK-based private cloud service provider which has two main specialities:  Application managed services provision (mainly email), incorporating file storage and data backup.  White-labelled offshore first-line desktop support (Addax) from South Africa. In the year to June 2013, Support Force is broadly expected to deliver £1.2m of revenue and c£200k-£250k of EBITDA. Of this revenue, the majority is email managed services and other managed services, suggesting recurring revenue is c£1.1m. Third party hardware product resale is an additional c£100k. Currently, Addax acts as first line support and monitoring for all Support Force activities, and Support Force is currently the sole customer for Addax under a seven year agreement. Support Force does not currently own Addax, but has an option to purchase Addax for £1. It is expected that this option will be exercised on 1 October 2012 following further due diligence by Enables IT. Support Force is >95% UK-focused with a broad range of SMB customers (c5000 users in total), but also including the likes CPL Productions, London Quadrant and certain hedge funds, as well as larger customers such as Vodafone / Telefonica. The rationale for the acquisition is threefold: The outlook for further work with Health Care America is very strong Health Care America is a key reference to expand in the US Enables IT is buying Support Force Group c90% of Support Force revenue is recurring Has a first-line desktop support function based in South Africa Broad spread of SMB customers Enables IT* Sanlam Securities UK 27 June 2013 8 History of Enables IT  Use of the Addax offshore support (currently eight people with another four planned in FY14E) to be able to progressively replace UK and US heads involved in Enables IT helpdesk and support activities, thus generating cost synergies and improving margins. This is particularly attractive as "first line support" is typically relatively low gross margin (c15%) but necessary as part of an overall solution offering. The labour cost differential with South Africa (roughly a 25% saving) is significant. We expect initial cost synergies to be up to six heads over the first three months.  Consolidation of the existing Support Force managed services customer base into the HAVEN infrastructure (c£60k saving), and de-duplication of several indirect costs (i.e. agent monitoring software, back office costs).  Greater recurring revenue critical mass in terms of UK cloud service provision and involvement of Support Force management (principally James Hunter-Paterson) in building out the Enables IT cloud service proposition. Potential revenue synergies from the combined entity's email cloud platform. Also, Addax can be used as "white label" desktop support for competitive IT services vendors in South-East England - Enables IT has already identified four "probables". In the year to June FY14E, forecasts for Support Force are for static revenues (based purely on existing customer revenue). Consideration & rationale for sale Initial consideration is £350k in cash and £50k in shares, and then £187.5k in cash and £362.5k in shares in a year's time. Additionally, assumed balance sheet liabilities are £250k. This means that total consideration is effectively £1.2m. The balance sheet liabilities produce a c£20k a month cash outflow which is one reason for management selling now. This has constrained marketing and sales into the business, suppressing growth. Clawbacks exist on the deferred consideration based on revenue and EBIT targets for FY14E. Addax can be used to reduce core business support heads Consolidation of managed services customer base into HAVEN Total consideration is effectively £1.2m Enables IT* Sanlam Securities UK 27 June 2013 9 Financial overview Historic performance Summary financial results and forecasts are given in the table below. Our 2011 and 2012 financial years (end Sep) are for Nexus Management only, as this was the quoted entity during the time. A quirk related to this is that, as a reverse takeover transaction, the combined Enables IT / Nexus business will report results that use Enables IT private company results for historic comparison. As a result of this quirk, the FY13E financial year to end-September contains only a ten month contribution from Nexus Management (as the reverse takeover was effective in late November 2012) and a full twelve month contribution from Enables IT. Table 1: Enables IT key financials FY11A-FY15E Sep-11 Sep-12 Sep 13E Sep 14E Sep 15E Nexus, continuing ops Revenue by type: Support 3.554 3.668 3.400 3.400 4.080 Services 0.239 0.243 1.100 1.100 1.320 Product resale / other 0.332 0.362 1.500 1.500 1.800 Core business revenue 4.125 4.274 6.000 6.000 7.200 Acquisition 0.000 0.000 0.300 1.200 1.380 Total revenue 4.125 4.274 6.300 7.200 8.580 Core business 0.265 (0.203) (0.020) 0.168 0.288 Acquisition 0.000 0.000 0.060 0.240 0.315 EBIT 0.265 (0.203) 0.040 0.408 0.603 Core EBIT margin 6.8% 8.2% (0.3)% 2.8% 4.0% Overall EBIT margin 6.4% (4.8)% 0.7% 6.8% 8.4% Acquisition margin 0.0% 0.0% 20.0% 20.0% 22.8% Depreciation 0.111 0.094 0.150 0.200 0.220 Adj EBITDA 0.376 (0.109) 0.190 0.608 0.823 EBITDA margin 9.1% (2.6)% 3.2% 10.1% 11.4% Total finance costs (0.096) (0.062) (0.040) (0.010) (0.010) Adj PBT 0.169 (0.265) 0.000 0.398 0.593 Income tax expense 0.000 0.000 0.000 0.000 0.148 Profit for the period 0.169 (0.265) 0.000 0.398 0.445 EPS - basic 4.289 (6.750) (0.003) 2.121 2.279 No. of shares 3.933 3.933 14.524 18.760 19.516 Net cash (0.327) 0.432 0.411 0.856 1.327 Source: Company (actuals), Sanlam Securities UK (forecasts) The forecasts include Support Force for a three month contribution in FY13E (an end-June close) and a full twelve month contribution in FY14E. The net proceeds of the announced £0.9m fundraising (£0.82m net) have been factored in with the placing price of 36p being a 15% discount to the current price (42.5p). Financial overview Complex financials due to effective reverse takeover FY13E ended Sep has ten months of Nexus and 12 months of Enables IT Forecasts assume Support Force contributes from Q4/13 onwards Enables IT* Sanlam Securities UK 27 June 2013 10 Financial overview Points to note:  The H&K contract runs out in July and is expected to deliver c£1.2m of revenue in FY13E. The basic expectation for FY14E revenue is therefore i) a loss of £1.2m from H&K, ii) an additional £0.2m of "stub" revenue from Nexus (as it was only in for ten months in FY13E), iii) an underlying c20% growth rate in core business revenues, and iv) an additional £900k in Support Force revenues making a full year contribution.  A combination of the Enables IT / Nexus merger and H+K loss will lead to a goodwill impairment of £350k-£400k in FY13E. Our forecasts are shown before this non-cash exceptional cost, and also before amortisation of intangibles.  The core business should generate between a breakeven position and £100k of operating profit in FY13E as cost synergies from the Nexus / Enables IT merger have yet to kick in (as the H&K contract has yet to end). These synergies drive an improvement in FY14E EBIT to c£168k, accelerated by the addition of Addax, which allows greater removal of helpdesk staff.  Around 23 people in total are deployed on helpdesk and support within the existing Enables IT business. Given that South African labour cost is c75% of UK cost, the potential for cost synergies is significant. Achieving at least part of this could be a bonus for core business EBIT in FY14E. However, the current intention is to use Addax for first line support only, which will lead to up to six heads being removed in the first three months following the deal.  Support Force is expected to generate £20k per month of operating profit in the three months from July to September 2013 (i.e. Enables IT's Q4). Hence, we assume £60k EBIT contribution in FY13E. In the year to September 2014, we expect a £240k contribution, which is the basis of management's earnout targets.  Enables IT has a c£300k convertible loan note outstanding, which matures in 2015, with an interest rate of 10%. This is a legacy of the old Nexus Management and is owed to Webb Capital. We expect this to be repaid early as a result of the fundraising and assume interest cost drops by 75% (i.e. by £30k) from FY14E onwards as a result. We also assume the £250k assumed loan from Support Force is repaid during FY14E.  The group pays no tax in FY13E-FY14E due to tax losses, before an assumed 25% tax charge from FY15E onwards.  The £0.9m fundraising (at 36p) together with shares issued to the vendors (again assumed to be at 36p) leads to a total of c3.7m shares being issued. On the basis of a model that assumes no fundraising had occurred and therefore no acquisition, the forecast would have been different as follows. This shows that the deal is considerably earnings enhancing for FY13E and FY14E. H+K contract runs out in FY13E Goodwill impairment to statutory numbers Core business should start delivering synergies in FY14E Addax should drive core business synergies Support Force valued as per management earnout targets Convertible loan note will be repaid Tax starts in FY15E A sharply earnings enhancing deal Enables IT* Sanlam Securities UK 27 June 2013 11 Financial overview Table 2: Effect of deal on key financials FY13E FY13E FY14E FY14E Happens Doesn't happen Happens Doesn't happen Revenue 6.300 6.000 7.200 6.000 EBIT: Core (0.020) (0.020) 0.168 0.168 Acquisition 0.060 0.000 0.240 0.000 Total 0.040 (0.020) 0.408 0.168 EPS (0.003) (0.436) 2.121 0.808 No. of shares 14.524 13.857 18.760 15.842 Source: Company (actuals), Sanlam Securities UK (forecasts) In practice, the same level of cost synergies between Nexus and Enables IT (that underpins the £168k EBIT core business expectation in FY14E) may not be achievable without the Addax South African desktop support. Considering the value of the acquisition is £1.2m, the £240k FY14E EBIT contribution suggests an EV/EBIT of c5x. As the enlarged group will pay no tax in FY13E-FY14E, this means that the NOPAT is also £240k, suggesting deal valuation to be 5x. Addax is key to driving cost synergies Deal looks sensibly priced Enables IT* Sanlam Securities UK 27 June 2013 12 Valuation Enterprise valuation comparatives The enterprise valuation of Enables IT is shown below. Post-deal, the combined business is valued at an EV/Sales of 1.0x for FY14E and an EV/EBITDA of 11.7x. Table 3: Enables IT enterprise valuation £m Sep-11 Sep-12 Sep-13E Sep-14E Sep-15E Market cap (rolling) 1.67 1.67 6.17 7.97 8.29 Net cash (0.33) 0.43 0.41 0.86 1.33 Enterprise value 2.00 1.24 5.76 7.11 6.96 EV/Sales 0.48 0.29 1.12 0.99 0.81 EV/recurring revenue 0.56 0.34 1.56 1.58 1.31 EV/EBITDA 5.31 n/a 30.39 11.71 8.47 EV/NOPAT 7.54 n/a n/a 17.44 15.00 PE 9.91 n/a n/a 20.03 18.65 Source: Company (actuals), Sanlam Securities UK We make several observations:  Recurring revenue: The group's EV/recurring revenue is extremely low at c1.6x for FY14E. Typically, IT stocks (either software or services) sit on floor ratings of 2x at minimum. To pay under this in recurring revenue terms for a profitable, growing IT franchise is deep value.  Outsourcery the nearest comp: The most analogous business is Outsourcery, which recently IPOed at a £35m valuation with £3.6m of Dec FY12 revenues (raising £13m) and a substantial loss. We believe forecasts are for c£5m of revenue in FY13 (source: Megabuyte) and current valuation is c£37m. This suggests a best case FY13E EV/Sales of c5x (which assumes the business does not burn any cash, which is quite unlikely given its large loss). In practice the EV/Sales is likely to be anywhere from 5x-10x depending on cash burn assumption.  The businesses are very comparable: Both Enables IT and Outsourcery are cloud services providers with proprietary datacentres, providing Microsoft products on a cloud platform basis including Lync, Sharepoint and Outlook, on a converged network infrastructure. Outsourcery's cloud is called "O-Cloud" while Enables IT has HAVEN. Arguably, Outsourcery is further along in offering the Microsoft Lync unified comms product, but otherwise the similarities are striking.  Financial metrics: Cloud services providers should be able to command significant valuations as their financial metrics are strong. Contrary to traditional IT services, where growth rates and margins are single digit due to price pressure, cloud services vendors should be able to grow revenues by 20-30% with c35%+ gross margins for the foreseeable future, driven by the uptake of SaaS and strong interest in datacentre / networking as a means of rationalising cost. Valuation Stock valued on 1.0x EV/Sales and 12x EBITDA Looks undervalued on a recurring revenue metric Most analogous business is valued much more highly Financial metrics suggest a premium rating is warranted Enables IT* Sanlam Securities UK 27 June 2013 13 Valuation  Penalised for profitability: Paradoxically, profitable smallcap IT stocks are often underrated in comparison to lossmaking peers. While we think the group should not be valued on near-term profitability metrics, credit should be given for the group being a profitable cloud services provider – a rare beast.  Medium term possibilities: Ultimately, a well-run IT services business in a hot subsector, with a sizeable recurring revenue base, should be able to generate 15%+ EBITDA margins. The merger between Enables and Nexus only recently occurred, and so timing is uncertain, but this suggests that within three to five years Enables should be able to generate at least c£900k of EBITDA from the core business (c£6m proforma revenue FY14E). Adding acquisition EBITDA of c£350k (in FY15E) suggests a business with c£1.25m of potential total EBITDA within five years. This suggests the combined entity is being valued on a lowly c5.7x EBITDA, based on FY14E enterprise value (£7.1m). Enables IT should be penalised for making a profit On a reasonable mid-term set of assumptions the stock is on 5x EBITDA Enables IT* Sanlam Securities UK 27 June 2013 14 Valuation Table 4: Enables IT P&L forecast, FY11A-FY15E Y/E Sep, £m FY11A FY12A FY13E FY14E FY15E Nexus, continuing ops Revenue by type: Support 3.554 3.668 3.400 3.400 4.080 Services 0.239 0.243 1.100 1.100 1.320 Product resale / other 0.332 0.362 1.500 1.500 1.800 Core business revenue 4.125 4.274 6.000 6.000 7.200 Acquisition 0.000 0.000 0.300 1.200 1.380 Total revenue 4.125 4.274 6.300 7.200 8.580 Major customer loss (estimate) 2.174 2.112 1.176 0.000 0.000 Underlying revenue 1.951 2.162 5.124 7.200 8.580 CoS (core business) (2.261) (2.381) (3.480) (3.480) (4.176) Adjusted gross profit (core business) 1.864 1.892 2.520 2.520 3.024 Gross margin (core business) 45.2% 44.3% 42.0% 42.0% 42.0% Costs: Total 1.583 1.540 2.540 2.352 2.736 Admin cost as a % of revenue 38.4% 36.0% 42.3% 39.2% 38.0% EBIT: Core business adjusted EBIT 0.265 (0.203) (0.020) 0.168 0.288 SupportForce adjusted EBIT 0.000 0.000 0.060 0.240 0.315 Adjusted EBIT 0.265 (0.203) 0.040 0.408 0.603 Core business EBIT margin 6.8% 8.2% -0.3% 2.8% 4.0% Support Force margin 0.0% 0.0% 20.0% 20.0% 22.8% Adjusted EBIT margin 6.4% -4.8% 0.7% 6.8% 8.4% Depreciation 0.111 0.094 0.150 0.200 0.220 Adj EBITDA 0.376 -0.109 0.190 0.608 0.823 EBITDA margin 9.1% -2.6% 3.2% 10.1% 11.4% Total finance costs (0.096) (0.062) (0.040) (0.010) (0.010) Adjusted PBT 0.169 (0.265) 0.000 0.398 0.593 Income tax expense 0.000 0.000 0.000 0.000 0.148 PAT 0.169 (0.265) 0.000 0.398 0.445 Sanlam EPS 4.289 (6.750) (0.003) 2.121 2.279 Tax rate 0.0% 0.0% 0.0% 0.0% 25.0% No of shares (m) 3.933 3.933 14.524 18.760 19.516 Dividend 0.000 0.000 0.000 0.000 0.000 Net cash (0.327) 0.432 0.411 0.856 1.327 Source: Company (actuals), Sanlam Securities UK Enables IT* Sanlam Securities UK 27 June 2013 15 Financial summary Key metrics Financials Year end Sep (£m) 2012A 2013E 2014E Revenue 4.274 6.300 7.200 Gross profit 1.892 2.520 2.520 Adj. EBITDA (0.109) 0.190 0.608 Adj. operating profit (0.203) 0.040 0.408 Adj. PBT (0.265) 0.000 0.398 Adj. EPS (FD) (p) (6.750) (0.003) 2.121 DPS (p) 0.000 0.000 0.000 Net cash / (debt) 0.432 0.411 0.856 Net asset value (p) 0.056 0.108 0.117 Interest cover(x) n/a 1.0 40.8 Dividend cover (x) n/a n/a n/a Valuation P/E (adjusted) (x) n/a n/a 20.0 EV/EBITDA (x) n/a 30.3 11.7 Free cash flow yield (%) 12.4% n/a 7.9% EV / sales (x) 0.3 1.1 1.0 Yield (%) n/a n/a n/a Net debt / EBITDA (x) n/a n/a n/a Growth and margin data (%) Net sales growth 3.6 47.4 14.3 Adj. operating profit growth n/a n/a 930.3 Adj. PBT growth n/a n/a n/a Gross margin 44.3% 42.0% 42.0% Operating margin n/a 0.6% 5.7% Source: Company (actuals), Sanlam Securities UK (forecasts) Financial summary Key data Description Cloud services provider Website Management CEO Michael Walliss CFO Peter Weller CIO Martin Bradburn Key shareholders Michael Walliss 47.9% Martin Bradburn 25.9% Free float 25% Upcoming news FY results Nov 13 Interim results May 14 FY results Nov 14 Market data Share price 42.5p Target price 65.0p Market cap £6.7m Enterprise value £5.8m Enables IT* Sanlam Securities UK 27 June 2013 16 Disclosures and disclaimers This document is issued by Sanlam Securities UK Limited ('SSUK') Disclosure Checklist Company Relevant disclosure Enables IT (EIT.L) 1, 2, 3 & 5 1. SSUK acts as a broker to the company. 2. SSUK acts as a nominated or financial adviser to the company. 3. SSUK has in the last twelve months acted as adviser to the company or provided investment banking services for which it has received compensation. 4. SSUK has a shareholding (including any positions held as warrants or options (if exercised) of between 5-10% of the share capital of the company. 5. SSUK is party to an agreement whereby the production of research on the company is one of the services SSUK has agreed to provide to the company. 6. The author of this report owns shares in the company. Recommendation definitions BUY Share price appreciation of 10% or more in absolute terms over 12 months HOLD Share price appreciation or depreciation of less than 10% in absolute terms over 12 months SELL Share price depreciation of 10% or more in absolute terms over 12 months Enables IT* Sanlam Securities UK 27 June 2013 17 General risks This document makes a number of assumptions regarding the outlook for trading and market conditions affecting the company(s) discussed herein, relating to many factors including but not limited to demand for their products and services, specific drivers for future growth and assumptions regarding the economic climate in the UK and overseas. In the event of an adverse change in some or all of these factors, there is a risk that trading and market conditions deteriorate adversely affecting their prospects and share prices. Investing involves risk and the value of investments and the income from them may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested. Past performance is not a reliable indicator of future results. Nothing in this document constitutes a representation that any investment strategy or recommendation is suitable or appropriate to an investor's individual circumstances or otherwise constitutes a personal recommendation. Investors should exercise prudence and their own judgement in making their investment decisions. You must therefore consider the investment risks carefully. You should consider whether or not investment in shares is suitable for you based upon your attitude to risk, your financial resources and your investment objectives. Investments in general and, derivatives, in particular, involve numerous risks, including, among others, market risk, counterparty default risk and liquidity risk. No security, financial instrument or derivative is suitable for all investors. In some cases, securities and other financial instruments may be difficult to value or sell and reliable information about the value or risks related to the security or financial instrument may be difficult to obtain. Levels and basis for taxation may change. Important disclosures The information contained herein is subject to updating, completion, revision, further verification and amendment and in any way, without liability or notice to any person. In addition, no duty of care or otherwise is owed to recipients of this report or any other person in relation thereto. Recipients of this report should conduct their own investigation, evaluation and analysis of the business, data and property described in this report. SSUK may undertake business and seek to do business with companies covered in its research reports. As a result, investors should be aware that SSUK may have a conflict of interest that could affect the objectivity of this report. SSUK and its officers and employees may have positions in the securities mentioned herein. SSUK may have received compensation for corporate finance services from the company(s) mentioned in this report in the past 12 months. Analyst remuneration is not tied to corporate finance services performed by SSUK. This report has been published and distributed in accordance with our Research and Conflicts Management Policy which sets out the organisational and administrative arrangements for managing research conflicts of interest within SSUK. Additional disclosures regarding previous and current research recommendations made by SSUK and a copy of the Research and Conflicts Management Policy are available on our website: Enables IT* Sanlam Securities UK 27 June 2013 rr0005ss-0313 Disclaimers When distributing this document, SSUK is not acting for any recipient of this document and will not be responsible for providing advice to any recipient in relation to this document. This article is for information purposes and should not be treated as advice to buy or sell any security or to adopt any trading strategy. Any views expressed above are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by SSUK. Any expressions of opinion are subject to change without notice. This document may include references to certain publicly available reports and industry sources. We may not have verified all of this information with third parties and cannot guarantee the accuracy, reasonableness or completeness of the information received from sources consulted for this publication and SSUK accepts no liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document (except in respect of wilful default and to the extent that any such liability cannot be excluded by the applicable law). This document is not to be relied upon and should not be used in substitution for the exercise of independent judgment. This document may include certain statements, estimates and projections with respect to anticipated future performance. Such statements, estimates and projections are based on information considered reliable and may reflect various assumptions made concerning anticipated results, which may or may not prove correct. No representation or warranty is made as to the accuracy of such statements, estimates and projections or as to their fitness for the purpose intended and should not be relied upon as such. Opinions expressed are current opinions as of the date appearing on this material only. SSUK or other third parties may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the person(s) who prepared them. The information contained in this document is confidential and is solely for use of those persons to whom it is addressed and may not be reproduced, further distributed to any other person or published, in whole or in part, for any purpose. Other persons who receive this document should not rely on it Copyright 2013 Sanlam Securities UK Limited.
bishopawn: up 3.5 pence on low volume suggests the market knows positive news is imminent...or a buy note is imminent on the back of the half-yearly report which is also due this month. A great morale booster to have such a firm share price that is holding.
solarno lopez: Anybody noticed the rise in the share price this morning !!!!!!!!!!!!!!!!!
brando69: i was just saying what i saw i am not out to shaft this company's share price au contraire it is this company that has shafted me and many other long-term holders over the years. trust levels are somewhere between zero and -1000
sweepie2: You would hope so but we have now be on AIM as the new company for over two months and there has been no update hardly a reason to buy shares BUT somebody probably the same person is quietly accumlating stock in small volumes of 20,000. Its like he waits for all these small quantities of loose stock and then picks them up without altering the share price. Who knows why he is adding, might mean nothing BUT................. I wouldn't buy any more on the strength of this buying
pachnes: Just picked this up from Growth Company Investor. Apparently, the publication also selected EIT as one of it's 2009 tips: Eagle-i soars Companies: EIT 15/12/2008 Reinvigorated telematics minnow Eagle-i rose 22 per cent to 3.5p this morning on an upbeat trading update for the year to November. In a market missive causing the shares to take flight, AIM-traded Eagle-i, a supplier of vehicle positioning and fleet management technology, flagged up a year of 'considerable progress' in the roll-out of new services and solutions. Restructured under new CEO Ian Walmsley, Eagle-i is seeing strong interest from fleet operators in the fuel cost and vehicle insurance premium savings that its technology delivers. As well as helping businesses to drive down costs, the company's technology brings productivity gains and helps clients meet environmental and legislative compliance. Since unveiling pared back losses of £527,000, on sales up 40 per cent at £740,000, for the half to May, the company has inked a number of significant tie-ups. These include a £4.5 million deal with home emergency services group HomeServe, a deal with part of Hitachi worth more than £1 million a year and a contract with insurance giant AXA. Designing and making its own systems, the company is also benefiting from the 'upselling' of additional services to end-users in a trend that is swelling its gross margins. When the annual results are unveiled next March, investors can expect continued strong sales growth and gross margin expansion, the company said. As high as 4.5p and as low as 0.88p over the past year, today's share price values Eagle-i at £11.4 million.
roofer2: Typical, why is it the Cybit gang of rampers carnt be happy for anyone to make money from any tracking company? (spiteful) That idiot L/P, supposed to be on holiday (yehyeh) an he still manages to ramp Cybit, an how much has CYH share price moved mmm down again to a new year low, thats 3year on the trot now. Im not a holder of EIT but Good luck to everyone that is, hope make a few ££.
Enables IT share price data is direct from the London Stock Exchange
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