Bond International Share Discussion Threads

[glasshalfull] 01/1/2015 13:24

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Bond International Software (AIM: BDI) are a leading global provider of Recruitment software and HR and Payroll software and services. Their solutions are designed to streamline processes and improve business performance.

Bond supports more than 100,000 staffing professionals in 42 countries and has over 400 employees worldwide, with offices in the United Kingdom, the USA, Australia, South Africa, Hong Kong, China, Peru, Singapore and Japan.



Background

The excellent AIM PROSPECTOR publication carries a good background article on Bond's development in the May 2014 issue, providing the investment rationale.



Bond has transformed itself since the dark days of 2009 when recruitment software spending fell off a cliff following the downturn in the UK & US which were Bond's major markets. This highlighted the cyclical nature of earnings and essentially Bond required to diversify into other Human Resource areas to mitigate this downturn in the core recruitment software side, acquiring businesses that offered high levels of recurring revenues.

Bond is now an entirely different concern having moved its recruitment software business to a Software as a Service model (SaaS) over recent years and built up an Outsourced HR & Payroll Division in addition to a smaller HR & Payroll software business.

At 30.06.2014 the Divisional breakdown was as follows:-

Recruitment Software (49% of revenue)

HR & Payroll software (14%)

Outsourced HR & Payroll services (37%)

The Outsourcing Division is clearly the engine of growth in the new Bond and I would anticipate that it now comprises c.40-45% of company revenues at the current revenue run-rate and offers higher operating margins.


Major Shareholders

Constellation Software Inc 20.9%
(also has 4,720,558 non-voting convertible shares)
Liontrust Investment Partners Llp 19.0%
S R Russell (CEO) 14.7%
Axa Investment Managers Uk Ltd. 10.7%
Fidelity Investments International 6.0%
Octopus Investments Ltd 5.20%
T Richards (Exec) 3.2%

This is where Bond gets very interesting. The acquisition of VCG in 2010 that was supported by Constellation Software Inc, led to Constellation increasing their stake in Bond to c.24% and entering into a standstill agreement that they would not increase their holding from this level (or 29.9% from 20 October 2015).

As the AIM Prospector update acknowledges, with 80% of the shares in Constellations, institutional & management hands, it's not too fanciful to suggest that Constellation Software with a $7.3 billion market cap may well decide the time is ripe to acquire Bond in 2015. As an aside, they undertook 30 acquisitions in 2013!

Mark Leonard, Constellations CEO, left his non-Exec role in Bond during March 2014 and it's unclear whether this indicates a change in Constellations intentions on Bond either in terms of it's investment or as an acquisition target.

This article provides a brief overview of Mark and Constellation




Fundamentals

Market Cap:- £32.5m @ 86p (01.01.2015)
Shares in issue:- 37,843,216
Last Annual:- December 31st, 2013
Last Interim:- June 30th, 2014
Free Float:- 20.6m (54.4%)

Interim results (15.09.2014)



FINANCIAL HIGHLIGHTS

* Revenue of £18.4m (H1 2013: £17.0m) now represents 98% of fixed operating costs (H1 2013 94%)
* Operating profit up 25% to £1.7m (H1 2013: £1.3m)
* Operating Margin increased to 9% (H1 2013: 8%)
* Adjusted Profit before Tax increased by 31% to £1.4m (H1 2013: 1.1m)
* Adjusted earnings per share up 29% to 3.41p (H1 2013: 2.65p)

Highlighted the transition of move to a SaaS model with revenues resuming a growth trajectory in 2014. H1 sales increased by 8% to £18.4m including a small maiden contribution from Eurowage which was acquired in April 2014 and provides significant economies of scale to their existing payroll division.

Importantly recurring revenues of £12.4m represent 67% of total sales revenues and
covered 98% of the group’s fixed operating costs (94% in 2013). Operational gearing self evident with company delivering a 25% rise in adjusted operating profit to £1.68m. Pleasingly they reported 14.3% organic growth & the operating margin rose from 8% to 9%.

With the purchase of Eurowage this provides Bond with an excellent strategic fit for their existing Payroll Outsourcing division as it brings a blue chip customer base which extends Bond’s reach outside the UK and also enhances the recurring revenue profile of the Group. The acquisition of FMP was immediately accretive to forecasts, 30%+ in FY14, and given its expected contribution in H2, the momentum in the rest of the Group and the turnaround in Japan we will hopefully observe a strong finish to 2014.

Bond should deliver on forecasts for year just ended (31.12.2014) of 8.6p adj EPS which at 86p provides for a PER 10 and 30% earnings growth for 2014.

Moving into 2015, brokers are estimating that Bond will deliver further 15% earnings growth and 9.9p EPS or PER 8.7 @86p

Earnings

(EPS listed below on a adjusted fully diluted basis)

•​31/12/12 - 2.3p - £950k PBT (Dividend 1.8p)

•31/12/13 - 3.52p (+50%) - £1.45m PBT (Dividend 2.2p)

Forecasts

•​31/12/14 - 8.56p (+144%) - £4.6m PBT (Dividend 2.4p)
Dividend Yield 2.8% (@86p)

•​31/12/15 - 9.9p (15.7%) - £5.3m PBT (Dividend 2.7p)
Dividend Yield 3.1%


Conclusion

In conclusion Bond appear to have been successful in the transition from cyclical recruitment software business to one that delivers high levels of recurring revenue and growth via the outsourcing payroll offering. It also offers increasing operating margins (c.16&) and improved scale following the Eurowage acquisition earlier in the year.

The shareprice has come off significantly this year & has fallen from a peak of 151p at the end of May 2014 to 86p at the time of this write-up...a 43% fall. I can't see anything in the interim statement that would warrant such a material pullback in the shareprice, especially with brokers indicating that Bond will deliver earnings of 8.6p for the year just ended and further 15% earnings growth this year, and dividend yield c.3%.

Looks a good risk/reward play to me although with the 80% of equity held by significant parties, the shares are very illiquid. Might explain why they fell so far...but conversely could also lead to substantial gains. Illiquidity works both ways.

I have taken a small holding here and await a trading update of preliminary results for 2014 before commenting further/

Please DYOR.

Regards,
GHF

[aishah] 31/12/2014 11:06

I've been accumulating recently. Good value imo.

[value viper] 25/11/2014 20:25

So quiet and tightly held ; the smallest bit of volume moves this materially (up or down); still here and believe patience will assist.

[value viper] 12/11/2014 19:41

I bought some of these today; under a £1 looks decent value IMO based on last update; hoping improvement continues and have always wondered whether constellation might one day take the lot; we'll see.

[value viper] 12/11/2014 15:07

i've grabbed a few here

[aishah] 02/10/2014 13:03

Some profit taking going on. Cenkos forecast 8.65p(2014) followed by 9.9p(2015) to drop p/e to 10. Div covered around 3x. Might add a few.

[bakunin] 15/9/2014 12:27

fargonorthdakota
Have you considered the disadvantages of racing to put ERP/HR systems in the cloud? Switching costs for such application software are very high. It would be more instructive to know what the product road map is for the vendor. I would expect vendors of legacy ERP/HR systems to offer cloud and non-cloud-based versions and also provide the possibility to switch from one to the other if the customer should want that. This obviously takes a lot more time to develop than just knocking up a cloud-based version of an app. Did you ask what the road map was for Bond's products?

[boadicea] 15/9/2014 08:20

Excellent interims today and a very positive outlook.

[fargonorthdakota] 25/6/2014 15:53

I had BDI flagged as a potential share as they seemed to be breaking out. However I am currently leading a project for new HR systems and I saw Bond at a recent show in Olympia. Their system is very legacy based and not what I expect in a modern HR/Payroll system (however their salesmen are excellent). Over time they will lose customers unless they make a transition to cloud based services, and that is always fraught with difficulty when you have a large legacy system and lots of customers.

[boadicea] 16/6/2014 14:52

Five price changes today - and only two trades reported (so far)!

[boadicea] 29/5/2014 15:36

Market likes it!
Certainly it's a good capture in a developing area of operation for the company.
So glad I hung on to these through the bleaker times - now up 60% since April and doubled over the past year.
I see that it is just four weeks since I noted, "On balance a period of relative quiescence (the pennant formation) might serve us better [than volatility] until further company progress is reported to justify the next step up." Well, we have a sure foundation in news here - so now for another 'rest' (lol) without too much retrace, I hope..

Similar recent performance from TRI - perhaps my luck is improving at last!

I have a couple of other 'great expectation' shares that have stalled or fallen over past months due to delayed progress that should come good some time - soon I hope. Hoping to prove that patience pays.

[aishah] 29/5/2014 15:29

Nice contract win today.

[jonwig] 07/5/2014 06:36

A new (free) online magazine has an in-depth article on BDI, which holders might find interesting:

[boadicea] 30/4/2014 14:52

Chartwise, one might suggest that it looks about to form a pennant around the 125p level. However, the price action, with one determined buyer paying a premium for just 5k shares, suggests a very tight market with mm's needing to get hold of some stock.
In such circumstances, any minor interest (or disinterest) could produce disproportionate volatility. On balance a period of relative quiescence (the pennant formation) might serve us better until further company progress is reported to justify the next step up.

[boadicea] 25/4/2014 21:33

For a relatively illiquid share it was looking overbought and as I noted previously (post 143) had overshot its trend band (unless one used a log axis).
The current share price puts it more where I would expect with still some modest short term downside as thrill seekers exit. Upside to ~150p around next results imho with a possible quiet time for the next few months. I will happily wait and forego the opportunity to make (or lose) a quick buck elsewhere.

The recruitment field promises to be active for the next year or so at least and with many companies in a healthy cash position and becoming more willing to invest I see little reason for BDI to disappoint. The possibility of corporate action is included as an unpriced-in bonus.

[2breakout] 25/4/2014 18:49

Bought a few more at 123p, couldn't buy anymore than 2500 even after all that selling, without paying a premium.

[2breakout] 25/4/2014 12:41

Looks like I spoke too soon!

[aishah] 24/4/2014 22:21

No probs 2breakout. I added more on results day as per my post on CR's board. Most of mine were bought around 50p back in March 2013, so a handsome return. Took some off the table and have a target of 140p to exit completely. There is ofcourse a chance that the acquisitive Constellation may pounce.

[2breakout] 24/4/2014 19:57

Thanks for the heads up on this once AISHAH on the CR board, bought a few at 99p and a few more at 115p, but won't be selling until later in the year. Will add more on a meaningful dip, think this could be worth north of 150p. Read this in an ft article 'Bond's shares closed the week at 102.5p, putting them on a forward price/earnings ratio of 11.9, against 20 for its peers in the sector'. Even if they only achieve pe of 18 then thats 150p, i like the fact they,ve gone from being in debt to net cash and recruitment is in a good cyclical spot at the moment.

[boadicea] 24/4/2014 15:10

Looking at the trend over a 12-15 month period it would appear that the share price went to sleep for the 6 month up to recent results due to trading inactivity and failure to test valuations, resulting in the share price falling well below trend. This has now been corrected with a slight overshoot on arithmetic trend, rather more in line on a log basis.
A period of stability (stagnation?) may be in prospect with support in the 115-120p area unless there is a more interesting explanation of the rise.

A continuation of current trend would possibly see ~150p or more at interims in September if company progress continues.

[boadicea] 24/4/2014 14:58

Someone is having some hassle over the trade of 2000 at 10:07 on Tuesday.
It was originally entered at 126p. Yesterday it was contra'd and re-entered at 123p. Today it is reversed again back to the original 126p! (All archived back to Tuesday 22nd in advfn records.)
Possibly all points to mm's scratching around for stock.

[aishah] 23/4/2014 21:21

A blistering run since the results. Have reduced a few and probably exit completely around 1.40 if it gets there.

[boadicea] 23/4/2014 15:14

Someone doesn't mind pushing the price up. Some recent buys, not particularly large ones but above your average punter's size, have been at 3 or 4p above the quote at the time (not obvious as publication delayed until they looked in line).
The stock is relatively illiquid with a wide spread resulting in an absence of short term traders and there is clearly little bb interest.

As the company trading picture looks healthy enough (recurrent revenue stream almost covers running costs) and the economic background is well supportive of further advance, I shall be holding tight until we find out what is fuelling the rise.

[boadicea] 15/4/2014 10:23

A very modest increase in holding (indirect) by AXA has helped push up the share price by 20%. Apparently little stock around and holders are tight. If AXA, or anyone else, want any significant quantity the implication is they won't get them cheap.