Sysgroup Share Discussion Threads

[rivaldo] 03/11/2022 11:23

Here's the latest update from Mark Watson-Williams at Master Investor:



"SysGroup (LON:SYS) – 58p ‘fair value’ for shares now at just 25p

Last Wednesday this multi award-winning managed IT services, cyber security and cloud hosting provider, provide a trading update for the six-month period ended 30 September.

SysGroup focuses on a customer’s strategic and operational requirements – enabling clients to free up resources, grow their core business and avoid the distractions and complexity of managing IT services.

The Update reported a strong trading performance, despite the challenging macro-economic environment.

It expects to report first-half revenue of £11.32m (£7.58m) and adjusted EBITDA of £1.67m (£1.34m),

The company notes the need for managed IT services remains prevalent and as businesses increasingly seek to invest in technology to increase efficiencies and improve their margins, it is ideally placed to capitalise on that growing market opportunity.

Analysts Bob Liao and Carl Smith at Zeus Capital consider that this strong update demonstrates just how robust its business model is in the face of the general hassles.

They state that the group’s recent acquisitions are doing well, and that they are confident in their estimates for the current year.

The brokers are going for revenues to end March 2023 to rise to £20.5m (£14.7m) while adjusted pre-tax profits will rise to £2.4m (£2.0m), generating earnings of 3.7p (3.4p) per share.

Their valuation on the shares is 58.3p, which is significantly higher than Friday night’s closing price of just 25p.

The group’s interim results are due to be announced on Monday 21 November, by that time I would hope that the shares will be trading towards the 34p level at which they stood this time last year."

[the chairman elect] 03/11/2022 07:20

SysGroup plc (AIM:SYS), the multi award-winning managed IT services, cyber security and cloud hosting provider, is pleased to announce that Adam Binks, Chief Executive Officer and Martin Audcent, Chief Financial Officer will host a live investor presentation relating to the Group's interim results for the period ending 30 September 2022 via the Investor Meet Company platform on 22 November 2022 at 11.00am GMT.

The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event via your Investor Meet Company dashboard up until 9am the day before the meeting or at any time during the live presentation.

Investors can sign up to Investor Meet Company for free and add to meet SysGroup via:

hxxps://www.investormeetcompany.com/sysgroup-plc/register-investor

Investors who already follow SysGroup on the Investor Meet Company platform will automatically be invited.

[rivaldo] 02/11/2022 11:26

Been on family hols for nigh on three weeks, so pleased to see the rather encouraging H1 trading update here.

As hastings noted, the P/E looks ridiculously low.

Zeus now forecast 3.7p EPS this year, with £3.3m adjusted EBITDA and £2.4m PBT.

Interestingly, H1's revenues represent 55% of total forecast revenues for the year, and the £1.67m EBITDA is 51% of the forecast. So SYS look well on course to meet and potentially beat forecasts.

Zeus have a 58.3p valuation for SYS, which gives good upside in itself. But they also state that they believe SYS could reach £50m revenues with 30% EBITDA margins, thus indicating an enterprise value of around £100m against the current £13m m/cap.

[eezymunny] 26/10/2022 08:36

An almost entirely pointless EBITDA drivel statement, IMO.

IMO no company, in the IFRS 16 world, should quote EBITDA. It's painfully stupid and hides the important stuff.

[hastings] 26/10/2022 07:36

Positive TU, looking comfortably in-line at this stage and on a very lowly PE of less than 6. Looks increasingly cheap compared to peers.

[masurenguy] 03/8/2022 13:44

Thanks for the Zeus and Techinvest updates Riv.

[rivaldo] 03/8/2022 11:45

Techinvest have published their new issue, so it should be OK to copy their update on SYS from the July issue:

"SysGroup 26.5p (SYS; AIM)

SysGroup has reported that disruption linked to the pandemic resulted in a 19% drop in revenue to £14.75m for the year ended March 31. Recurring revenue increased to 87% compared to 79% of total revenue in fiscal 2021. Adjusted EBITDA was 3% lower at £2.82m and adjusted pre-tax profit was £2.04m compared to £2.09m last time. Adjusted basic earnings per share were 3% higher at 3.6p, giving an historic P/E of 7.2. Cash generation from operations was down 16% to £2.47m, although net cash at the period end was 59% higher at £2.99m (5.7p per share).

Despite the pandemic challenges, SysGroup continued to make good operational progress. The group’s project to deliver a unified platform of systems was completed, delivering benefits across all parts of the business. Multi-tenanted cloud platform, SysCloud 2.0, went fully live recently and is reported to be delivering higher efficiency with greater capacity from less physical space. Office rationalisation was completed with a refurbishment programme in Newport and closure of the Telford office. Post period-end, two acquisitions have been added, Trustream Security Solutions and Independent Network Solutions. Trustream is a provider of cyber security solutions and gives the group a presence in Scotland from which to grow. Independent Network Solutions, which trades as Orchard Computers, further enhances the group’s presence in the Southwest region and complements its South Wales based operations. Both acquisitions are expected to be immediately earnings enhancing.

Despite the short-term disruption caused by the pandemic and wider economic uncertainty, the market opportunity for SysGroup continues to grow. Success for the business in the competitive and highly fragmented IT managed services domain will be greatly aided by building scale. In that respect, the acquisitions of Truststream and Orchard look well-timed, adding customers, technical expertise, and geographical reach to the enlarged group. SysGroup’s ambition to be a consolidator in the UK market is supported by the success of the business in lifting recurring revenue close to the 90% mark.

Cash generation also remains strong, contributing to a robust balance sheet that provides ample scope for further acquisitions. The pandemic has greatly enhanced the demand for digital transformation and managed IT services with businesses needing reliable technology solutions to ensure the continued smooth running of their operations in an increasingly hybrid working environment. That provides an encouraging background for SysGroup’s ambitious expansion aims, but management now needs to prove that recent operational improvements and strengthening of sales teams can restore top line growth. Failure in that regard could make SysGroup itself an acquisition target for a larger IT managed services operator. Hold."

[rivaldo] 27/6/2022 15:28

FYI here's Zeus summary from their initiation a week ago, with a 60.1p valuation:



"Initiation of coverage

SysGroup is an award-winning provider of managed IT services, cyber security, cloud hosting and IT consultancy. The Group offers investors an attractive business model with high recurring revenue and a diversified customer base. SysGroup is competitively well positioned to benefit from sector trends and is investing in sales capacity to take advantage of cross-selling opportunities and a recovering market. In addition, the company has opportunities to make highly accretive acquisitions and its shares trade at depressed multiples that we believe do not reflect the company's strong fundamentals.

 Financials: In the year to 31 March 2022 revenue declined 18.7% to £14.7m due to customers temporarily delaying IT refresh programs and scaling back contract sizes through the pandemic. However, most of this impacted lower margin Value Added Resale revenues rather than core Managed IT Services revenue, leading to only a 15.1% decline in gross profit to £8.9m. Managed IT Services revenue declined 10.5% to £12.8m and earned a 66.3% gross margin, whilst Value Added Resale (VAR) revenue declined 49.8% to £1.9m, at a 21.5% gross margin. Good cost control and the realisation of headcount synergies from prior acquisitions meant that adj. EBITDA decreased by only 3.4% to £2.8m and adj. PBT decreased 2.4% to £2.0m. Strong cash conversion (88% of adj. EBITDA to adj. CFO) led net cash (excl. leases) to grow to £3.3m at 31 March 2022.

 High revenue reliability: SysGroup has high revenue visibility (87.1% recurring revenue in FY22, supported mostly by contracts with a typical 36 month life at inception) and high cash conversion (88% in FY22). In addition, SysGroup has diverse industry exposure (largest sector is only 10% of revenue) and low customer concentration (c. 6% in FY22, with a target of <5% going forward).

 Forecasts: We forecast a 39.0% increase in revenue to £20.5m in FY23, driven by the post-Covid recovery in SysGroup’s existing business and two acquisitions made in April 2022. A structural shift in revenue mix (due to acquisitions and the recovery in VAR) means we expect gross margin to decrease to 55.0%, with absolute gross profit increasing 26.5%. Adj. EBITDA increases 18.9% to £3.3m in FY23 in our forecasts, accounting for some cost inflation and strategic hires. We expect FY23 closing net debt to be £3.1m (ex. leases), reflecting M&A outflows and conservatively recognising £3.1m of contingent consideration as debt. We expect this net debt balance to quickly reduce as SysGroup achieves 80-90% EBITDA to cash conversion with minimal required capex, notwithstanding further M&A. The high cash generation and banking facilities provide the firepower for future acquisitions that are not explicitly included in Zeus forecasts, but provide upside earnings potential.

 Undervalued: Shares trade at 4.8x FY23 EV / EBITDA compared to a peer average of 7.3x, which is not reflective of the Group’s attractive growth opportunities or cash generation, in our view. The average of our valuation estimates (peer mean EV/EBITDA, DCF, regression analysis) gives an estimate of 60.1p per share, or 126.8% upside to today’s price. In the long term, we believe the company could reach £50m in revenue and 30% EBITDA margins, with the scale provided by acquisitions and organic growth. Valuing this long-term potential EBITDA (£15m) at sector mean multiples (7.3x) indicates an enterprise value in excess of £100m."

[jolomo] 22/6/2022 08:21

Adam was COO at the time of Rockford acquisition so presumably had some input. I notice that Zeus describes previous acquisitions as 'poorly implemented'.

Forecast organic growth rates look very poor in the broker note. On the back of a weak 2022 performance & considering the new Manchester Sales & Marketing hub (a decision that Adam was certainly responsible for) these numbers had better be very conservative!

[cockerhoop] 21/6/2022 15:46

You could make a similar argument that Mike didn't buy ATIK Cameras for SDI but he's not done a bad job of developing it subsequently :-)

Rockford certainly had a growth profile prior to being acquired but who knows?

[tiltonboy] 21/6/2022 15:44

SCAP still offering at 27.39

[hastings] 21/6/2022 15:26

In fairness to him he wasn't CEO at the time of purchasing Rockford, so one wonders whether it's something he would have bought or not. It'll be interesting to see how things progress this year and if the broker numbers which look conservative to me are met or beaten. They're increasing the headcount again too, after going through the pandemic impacted years.

[cockerhoop] 21/6/2022 15:16

I've looked at SYS a couple of times with a view to invest but it appears to me Adam has been unable to grow the top line at any of the companies bought.

Take an example Telford based Rockford IT

It had grown strongly by 129% between 2014 & 2017 with a revenue of £4.45m.
Acquired in Nov 2017.

By March 2020 (last separate CH accounts) revenue had dropped to £3.2m and this year we find the Telford office has been closed with remaining business transferred.

Cash flow has been decent but is as a result of pretty aggressive cost cutting including large headcount reductions. Glassdoor suggests very high staff turnover. It's not possible to take cost out indefinitely, at some point you have to grow the business.

This trend appears to be repeated across the subsidiaries - I'm not convinced they're very good exponents of buy & build in contrast to Mike Creedon or David Cicurel.

[rivaldo] 21/6/2022 13:43

Agreed hastings - the SCSW review makes absolutely no mention of the value here given the forecast rise in EPS to 3.7p this year. Nor of the new (ish) management who are overhauling the company and were stymied by Covid, but with the new acquisitions - and hopefully more acquisitions now to come - have the chance to show their worth.

[hastings] 21/6/2022 12:49

True Jolomo, but then Mike is a one off!Do you have the Zeus note?If not DM me on Twitter and I'll forward on.

[jolomo] 21/6/2022 12:38

Although to be fair Adam is no Mike Creedon.

[hastings] 21/6/2022 10:45

Saw that, very brief and little delving.I recall one of its contributors suggesting SDI as being unappealing some years back when the shares were around 40p!Buy/build model isn't everyone's cup of tea, which is fair enough, but it can certainly deliver.

[the chairman elect] 21/6/2022 10:40

Not my views but those of Graham Neary over at SCVR

[weatherman] 21/6/2022 10:36

"Few attractions"? A PE of under 8, and forecast of growth.

[the chairman elect] 21/6/2022 10:10

From the SCVR yesterday

SysGroup (LON:SYS) - this managed IT services company reports lower revenues but succeeds in maintaining profitability. Looking to grow through acquisitions and achieve success through increased scale. But for now the share appears to have few attractions. The cash balance has been spent on its two most recent deals.

[tiltonboy] 21/6/2022 08:53

Don't know how many they have got, but they were offering at 27.3 yesterday

[masurenguy] 21/6/2022 08:23

Really ! Zeus replaced Shore circa 11 weeks ago so why would they still be offloading stock now?

[tiltonboy] 21/6/2022 08:17

SCAP offering stock after being replaced as advisor!