UTW Very Positive Research........10 Feb 2014 08:49
Eddison Research Limited 6/02/2014
Utilitywise’s trading update highlights that the business is growing slightly
ahead of management’s expectations, delivering on an ambitious growth
plan. We leave our forecasts unchanged, but update our valuation analysis
to provide an indicative price range. Currently Utilitywise trades on a PEG
ratio of just under 1.0x increasing to just over 1.2x at a price of 350p/share.
Year end Revenue
(£m)
PBT*
(£m)
EPS*
(p)
DPS
(p)
P/E
(x)
Yield
(%)
07/12 14.7 4.2 6.0 1.0 45.3 0.4
07/13 25.3 7.2 8.7 2.6 31.3 1.0
07/14e 41.7 12.6 13.0 4.0 20.9 1.5
07/15e 52.7 17.5 18.0 5.6 15.1 2.1
Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items
and share-based payments.
Growth ahead of expectations
Utilitywise’s trading update for the six-months ending 31 January 2014 indicated the
company has performed slightly ahead of management’s expectations in both
revenue and adjusted PBT, driven in part by the rapidity of headcount additions.
The company also revealed that a key indicator of profitability, contracts secured
but not gone live, stood at £23.8m at the end of January, compared to £16.6m at
the end of July 2013, equivalent to a growth rate of 43%.
Delivering on ambitious business plan
We upgraded our FY14 figures at the end of October, following the FY13 results,
based on the expectation of a significant rise in consultant headcount (increase of
120 for FY14 to 400). While yesterday’s confirmation that Utilitywise is performing
slightly ahead of management’s expectations is welcome news, we keep our
forecasts unchanged and the risk to the numbers remains on the upside. We still
expect the company to make further acquisitions in 2014 that would add earnings
growth.
Valuation: Growth drives valuation
Utilitywise’s share price has performed well since the release of the full-year results
in October, driven by expectations of strong growth. To provide an update to current
and potential valuation metrics, we have considered PEG and DCF valuations as
we do not believe static valuation multiples sufficiently capture the potential growth
at Utilitywise. At the current share price, based on our forecasts for FY14,
Utilitywise trades on a P/E for FY14e of c 21x, (expected CAGR in EPS 33% 2013-
15) equivalent to a PEG ratio of just under 1.0x (based on historic P/E 31.6x). At a
price of 300p, the PEG ratio rises to just over 1.0x and at 350p reaches c 1.2x. A
DCF valuation, using a discount rate of 9% and a perpetuity growth rate of 2%,
would imply a share price of 296p, but a 1% reduction in the discount rate used, to
8%, would increase the valuation to c 345p.
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