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"? 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."
FYI here's Zeus summary from their initiation a week ago, with a 60.1p valuation:
Https://zeuscapital.co.uk/log-in/research-portal-login/#/portal/zeus-capital
"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 potenti
"Over the last few years, the group has made a handful of strategic acquisitions and the ‘buy and build’ process is expected to continue – offering massive cross-selling opportunities as this tiny organisation expands both in size and in its service offerings....
The Equity
There are some 48.86m shares in issue.
Larger professional holders include Gresham House Asset Management (28.65%), Canaccord Genuity Wealth (18.42%), Herald Investment Management (7.05%), Helium Rising Stars Fund (6.96%), Downing Ventures (6.17%) and Praetura Group (3.50%).
Named private holders include Darren Carter (7.27%), Non-Executive Director Michael Fletcher (3.50%), The Fragrance Shop founder William Currie (2.78%) and Michael Edelson (1.76%).
Recent results and the ‘green shoots of recovery’
On Monday of this week the group declared its results for the year to end March 2022.
Last year it endured some corporate rationalisation at the same time as its revenues were impacted by the Covid-19 hassles.
They showed revenues down 19% at £14.75m (£18.13m), however its adjusted pre-tax profits were just 2% lower at £2.04m (£2.09m), the earnings came out at 3.6p against 3.5p per share previously.
The net cash at the year-end was 59% higher at £2.99m (£1.88m).
Adam Binks, the group’s CEO, stated that:
“The Adjusted EBITDA performance and strong cash generation in a year when turnover was impacted by COVID highlights the strength of our business model. We have invested to drive future growth whilst maintaining prudent financial discipline throughout the business.
Operationally, the Group is ideally placed to take advantage of conditions as they begin to normalise and we have started to see the early green shoots of such a recovery.”
Broker’s View
Analyst Bob Liao, at the group’s recently appointed NOMAD and broker Zeus Capital, has estimates out for the current year of £20.5m in revenues, £2.4m profits and 3.7p earnings per share.
Furthermore, he has compared the group’s growth opportunities and its cash generation with its peer group. In so doing he has put out an estimated valuation of 60.1p per share.
In the longer term he sees it generating up to a £50m revenue target, with a 30% EBITDA margin, which could give it a £100m enterprise value.
My View
One item I have kept until late in this Profile is the fact that the group lifted its annual recurring revenue for its last year by some 8% to 87% – I love it!
This little company offers some massive upside to patient investors – already its shares are cheaply offered in the market at just 26.5p, showing just 7.03 times current year price-to-earnings – that is far too low a rating and is also why I am confident of today’s Profile feature.
The current price is just 44% of the Zeus Capital value of the group’s shares.
My Target Price is a very easy 34p and could well be scored within months. In fact, I see them rising a great deal higher than that price objective, possibly
Https://masterinvestor.co.uk/equities/sysgroup-a-chance-for-sysadded-value/?mc_cid=e799b4f147&mc_eid=db9f9bbaf2
"SysGroup – A chance for SysAdded value?
By Mark Watson-Mitchell 22 June 2022"
"Ready for an upwards climb
Do you want to know what little stock I reckon will soon be in for a cracking run?
Capitalised at just under £13m, the SysGroup (LON:SYS) is an award-winning managed IT services, cyber security, expert IT consultancy and cloud hosting provider in the UK.
The group has offices in Liverpool, London, Bristol, Edinburgh, Manchester and Newport.
It operates through two main segments, Managed IT Services (87% of group revenues) and Value-Added Resale (13% of sales).
It offers cloud-based public, private, and hybrid hosting services, as well as virtual private cloud, PCI-DSS hosting, cloud desktop, and SysCloud services.
Other services include managed IT services comprising managed cloud, managed infrastructure, managed IT support, managed IT security, managed office 365, managed AWS, and managed azure.
It provides disaster recovery and back up services, as well as IT security services, such as penetration testing, endpoint security, DDOS, email security, security awareness training, firewalls, multi factor authentication, and GDPR automation services.
The company also provides connectivity solutions, and IT consultancy services; and sells IT hardware, licenses, and warranties from supplier partners.
It serves charity, education, financial, government, healthcare, legal, leisure, manufacturing, retail, and tech industries.
The Group’s Selling Tag
It really could not be clearer – the group describes its mission to its customers as
“We focus on your business, providing solutions built from the best-in-class technologies offered by experts to help you grow in a dynamic, technological world.”
The Group’s Clients
Despite its tiny size the group already has an impressive client list, including some top names, such as – AEG, FiloFax, MoneyWeek, the VSO, AXA, Catapult, The Duke of Edinburgh’s Award, Admiral, Mulberry, PWC, Science Museum Group, Hill & Smith, The Welsh Rugby Union, Garden Site, the University of Northampton, CMO Stores, the Royal Albert Hall, Holiday Inn, Servomex, Confused.com, the IOD, the Bradfords Group, hmv.com, ScrewFix, Adelante, itgroup, Sega, homebargains, RCPCH, SilverDoor, Hill Dickinson, sequel, and Beesley & Fildes amongst so many others."
The Group’s Partners
The company operates with and through various partners, including with Dell, WatchGuard, Microsoft, Veeam, HP, Nimble Storage, Cisco, Kemp Technologies, Meraki, Fortinet, Mitel, NetApp, RIPE NCC, Mimecast, VMware and Zerto.
Accretive acquisitions ahead
Chaired by the magic Michael Edelson, the company was formed in 2007 and was formerly known as Daily Internet. It floated on the AIM market in 2013 and changed its name to SysGroup in July 2016."
I note that Zeus have initiated coverage today with a 60.1p per share valuation here - 127% upside.
They forecast 3.7p EPS this year, so I was spot on! Revenue is expected to rise to £20m, with EBITDA at £3m and adjusted pre-tax profit of £2.4m.
They also "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."
That's serious upside against the current £13.1m m/cap.
Encouraging results given the pandemic - turnover well down, yet EBITDA almost unchanged at £2.8m and EPS up to 3.6p.
Recurring revenue is up to 87%....
With a £3m cash pile at the year end utilised for earnings-enhancing acquisitions, and the outlook hinting repeatedly at improving markets and conditions, it's easy to see EPS this year improving very nicely.
I'd have thought initial forecasts would be for say a conservative 3.7p EPS with quite a bit of potential upside from there.
Plus there's the potential for further acquisitions - also hinted at in the narrative.
Good to see today's RNS notifying that SYS are doing an Investor Meet presentation on 21st June:
Https://www.investegate.co.uk/sysgroup-plc--sys-/rns/investor-presentation/202206081222171756O/
This is the day after the prelims to 31st March.
A reminder that the £13.11 m/cap at 26.5p reflects rather cheaply (imo!) against a forecast 3.3p EPS to March '22 and a £3m cash pile.
The new forecast for the current year will include the two post year-end acquisitions, which are both immediately earnings-enhancing.
Looks like an excellent second acquisition in the last three weeks. Orchard Computers made £2.1m revenues and £0.3m EBITDA last year, so at a £1m purchase price in cash it's pretty cheap - plus Orchard has 56% recurring revenues and will be immediately earrnings-enhancing.
Https://uk.advfn.com/stock-market/london/sysgroup-SYS/share-news/SysGroup-PLC-Acquisition-of-Independent-Network-So/87918574
Given 3.3p historic EPS - and that during the pandemic - plus a new earnings-enhancing cyber-security acquisition, with further acquisitions on the agenda, it's easy to see SYS catching people's eyes at some point soon with it being on a single-digit P/E at 28.5p.
Here's a direct link:
Https://martinflitton1.wixsite.com/privatepunter/post/sysgroup-shares-look-good-value-g4m-headwinds-24-04-22
16187 shares bought at 30.888p
Nice turnaround into the blue from the MM's initial mistaken markdown. Zeus should be publishing their maiden research as SYS's new broker, but perhaps they'll wait until the prelims are out in June.
An encouraging update today, nicely in line despite the deliberate reduction in lower margin sales and the general economic climate - which SYS now states is beginning to improve.
So SYS are likely to have achieved around 3.3p historic EPS to 31st March - a P/E of just 8.8 for an IT services and cyber security company.
Plus SYS have a £3m cash pile, well ahead of the broker's £2.7m forecast and backing up a substantial percentage of the entire m/cap:
Https://uk.advfn.com/stock-market/london/sysgroup-SYS/share-news/SysGroup-PLC-Trading-Update-and-Notice-of-Results/87848594
Good to see the share price rise 1p after just a £2k buy :o))
Presumably not much stock around.
Change % Chg Cur Bid Offer High Low Open Volume Chg Time RN NRN
0.50 1.7% 29.50 28.00 31.00 29.50 29.00 29.00 0.00 10:21:06
Interesting that SYS has closed up on the day, with precisely nil volume of shares traded.
The mid price change (now 29.5p) is due to the offer price being raised to 31p ... which suggests that the m.m.s are wary of a flood of buy orders.
More news must be imminent.
Especially as the pandemic has depressed valuations in the sector, which makes this the perfect time to pick up some bargains, and the Truststream acquisition certainly looks like one.
And it lends credence to SYS's stated £100M. market cap. ambition:
"October 21st, 2021 by Bethany Whelan
Creating a ‘super-brand’: SysGroup targets £100m market cap
CEO and CFO explain how transformational deals and organic growth are key to rapidly scaling a technology company
... “Our plan is to take the business to a £100m market cap,” says CEO Adam Binks. “It only takes two or three strategic acquisitions.” ..."
https://www.sysgroup.com/about-us/newsroom/press-releases/creating-a-super-brand
"Tech update 4th April 2022
Russian cyber-attack threat: How to protect your business
As the devastating Russian invasion of Ukraine continues, the risk of a cyber-attack hangs over every business here in the UK.
It’s thought Russia could launch online attacks in response to sanctions and the Government has been warning us about the risk for some time. ..."
https://www.geekingitsimple.co.uk/2022/04/04/tech-update-4th-april-2022/
With the threat of Russian cyber-attacks now looming larger than ever, then SYS's acquisition of a cyber-security firm to enhance its offering and reach looks very timely.
5th Apr 2022 7:00 am RNS Acquisition of Truststream Security Solutions Ltd
" ... Adam Binks, Chief Executive Officer, commented:
"I am delighted to announce the acquisition of Truststream. The addition of Truststream to the Group further supports our stated strategy to become the leading provider of managed IT services to the UK mid-market. The business strongly complements our existing portfolio of services and has high levels of recurring revenue.
In addition, cyber security remains a key priority for businesses of all sizes as threats become both more prevalent and more harmful. Our end-to-end offering means that we can help companies navigate the forever evolving technological landscape and provide best of breed solutions backed by the highest quality of ongoing security, monitoring and support.
Our investment in the Group's systems and infrastructure over the last few years means that we have the platform in place to be able to scale SysGroup and will continue to identify further complimentary acquisition opportunities in line with our stated strategy.
I'm excited to welcome the Truststream team and look forward to working with them all as part of the enlarged Group." ..."
https://www.lse.co.uk/rns/SYS/acquisition-of-truststream-security-solutions-ltd-o0w0salvfdffqx7.html
There's a few further potential s.p. catalysts for SYS in the very near term:
1. We should receive a year end trading update from SYS for the year to 31st. March soon (it was on 19th. April last year).
- And the signs are bulllish.
2. Potential directors share buying on the day of the update, as occurred 2 years ago:
21st Apr 2020 7:00 am RNS Directors Share Purchase
https://www.lse.co.uk/rns/SYS/directors-share-purchase-dh2tc9ggnyf5cf4.html
3. New research note from newly-appointed Zeus Capital, including upgraded forecasts, & Zeus's s.p. target for SYS.
Online looks very good indeed. I can buy just a maximum 800 shares at 30p! Whereas I can aell 35,000 at a big premium to the bid at 28.7p.
SYS were forecast to make 3.3p EPS for the year just ended 31st March.
On 22nd November SYS confirmed:
"The Board remains confident that Adjusted EBITDA for the current financial year will be in line with its expectations"
Hopefully the trading update will follow pronto - tomorrow?. At which point I'd assume the newly appointed Zeus Capital will bring out forecasts incorporating the new acquisition (there wasn't anything out earlier from Zeus).
SYS could look very cheap indeed at these levels, particularly for a cyber-security specialist, if all goes well.
News has been very thin on the ground for SysGroup, so it's great to get an update like this.
I like the synergy and the earnings enhancement. A good job by the board.
Agree, Santander have made a committed 5 year loan of £8m to a company with few hard assets if it goes belly up.
They must be comfortable with the cashflow and trading dynamics.
Start of a change in sentiment here, hopefully.
Very good news. Quite transformational, and immediately earnings-enhancing.
And all paid for without dilution - Santander evidently have great faith in SYS and its management in significantly increasing the available facilities. Which would suggest that they've been given sight of the latest management accounts? Perhaps a clue as to that forthcoming trading update.
Truststream has high recurring revenues, and there's lots of cross-selling opportunities, synergies etc. Plus of course the huge and growing cyber-security market.
There's much to like about today's news.
4th Apr 2022 7:00 am RNS Change of Adviser
"SysGroup plc (AIM:SYS), the multi award-winning managed IT services and cloud hosting provider, is pleased to announce the appointment of Zeus as Nominated Adviser and Sole Broker with immediate effect."
https://www.lse.co.uk/rns/SYS/change-of-adviser-yj83anmagabehlf.html
SYS had cash of £3.47M. at 30 September 2021 (30 September 2020: £3.02M.), and net cash at 30 September 2021 of £1.96M (30 September 2020: £1.17M.), and is profitable.
But the company has been looking for acquisitions, and with the appointment of Zeus something could be in the offing - perhaps something quite substantial.
With depressed tech valuations now looks like a good time to be buying, and acquisition placings tend to be at higher prices than placings to fund losses.
From the current depressed s.p. of 23.5p, a premium placing should be very possible.
We should receive a year end trading update from SYS for the year to 31st. March soon (it was on 19th. April last year).
And interestingly, SYS has 9 current job opportunities on its website, which suggests that business is good.
"Current Opportunities
We are always on the lookout for sharp, agile and enthusiastic people to join our team! If you are excited by who we are and what we do and want to be part of SysGroup then take a look at the amazing opportunities below."
https://www.sysgroup.com/about-us/careers/current-vacancies
Nice to see SYS move up today, its first blue day since November.
Though at its current s.p. of 27p, its market cap. is still just £13.19M. - less than its annual revenue.
For a profitable, cash-rich IT company, with great growth prospects, that looks too cheap, and a good recovery from this level looks very possible.
Good to see another buy at above the published offer price this morning, this time 12,500 shares at 32.5p.