Globo - Focus on cash management29 Sep 2015 11:28
Strong beat, but known. As we published in Globo:
_Strong_H1_beat_'EUR"_It's_not_all bad_in_Greece, Globo's 1H revenues beat our revenue estimates by c17%, mainly driven by Go!Enterprise and MAPD sales.
Turning to profitability, gross margin was 1.3 percentage points above our 58% forecast at 59.3% due to better direct sales and EBITDA of 'x¬34.2M was comfortably ahead of our 'x¬30.9M forecast while EBITDA margin of 47% was slightly below our 50% estimate.
Focus on cash management 'EUR" shining a light on DSO's: with all of the key metrics having been reported at the end of July, investors' attention should be focused on cash flow management. Free cash flow of 'x¬7.2M was up significantly on last year's 'x¬4.2M. Net cash has improved as a result to 'x¬47.4M from 'x¬40.4M as of December.
Despite this, high growth has led to a significant increase in the cash outflow from working capital ('x¬15m in 1H15 vs 'x¬9.3m in 1H14). Globo management has also used the
1H release to shine a light on Days Sale Outstanding (DSO's), the company argues that a simplistic approach to DSO's does not fully capture the underlying movements as LTM revenue does not include the service component of licence sales (recognised as deferred revenue), but this is included in their receivables. Their definition of receivables also excludes prepayments to vendors.
Under the new disclosure, DSO's have increased by 15 days to 129 (from 114 days in LTM 1H14). In expansion mode. Globo has signed a conditional letter of intent (LOI) to acquire a European mobile Bring-Your-Own-Device (BYOD) and Mobile Security Software provider. While the name of the target is still undisclosed, the company had previously flagged that it would use M&A to accelerate the growth strategy (see Globo:_In_expansion_mode).
The company has also highlighted that while the current cash position enables it to pursue selective acquisitions opportunities, high yield bond discussions will be continuing. In addition, Globo intends to continue with their U.S. expansion which now accounts for 21% of total group revenue. Valuation.
We estimate Globo trades on a 2016E EV/sales of 0.5x, EV/EBITDA of 1.0x and P/E of 3.3x.