Synnovia - FY results, encouraging signs

Written by Ed Stacey

Synnovia (LON:SYN) has released its full-year (FY) results to March 2019. These were in line with the forecasts we issued following the April 2019 trading statement. Revenues increased 8.7% to £81.6mln, earnings before interest, tax, depreciation, and amortisation (EBITDA) were up 7.3% at £7.5mln, and earnings per share (EPS) were up 2.1% at 9.7p. We use the company's adjusted profit figures, to exclude the non-cash mark-to-market of foreign exchange (FX) hedging instruments.

The Industrial division and Films division achieved like-for-like revenue growth of 9.7% and 7.5% respectively. In EBITDA terms, positive progress in the Industrial division was broadly offset by the previously disclosed production issues in the Films division, with the group EBITDA up 7.3% after £0.7mln of FX benefit.

The company states that FY to March 2020 is expected to be another year of good progress for the group. We interpret this to mean growth in revenues and earnings, albeit we are now reducing the growth in our forecasts, forecasting revenue of £88mln and EPS growth of 10.3% to 10.7p.

The statement notes that the first quarter (Q1) of FY2020 has been relatively weak due to a pre-Brexit stock build-up in Q4 FY2019 (a negative), but that production issues in the Films division have been largely resolved (a positive). Our forecasts take into account the slow Q1.

Looking further forward, the company has revised its five-year target plan. The previous aim of doubling EBITDA over the five years 2016-2021 is no longer expected to be achieved (we believe this is clear already), and a new target has been set of reaching £15mln EBITDA by 2023/24. We believe that the new target is realistic, and offers compelling upside for shareholders.

At the current share price Synnovia is valued on a March 2020e price/earnings (P/E) ratio of 8.2x. The company has an established record of revenue growth and a significant upside opportunity in improving profit margins. We believe that the valuation could re-rate upwards as risk factors such as Brexit uncertainty begin to dissipate.


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