Member Info for TargetPractice

I stand corrected - they do in their presentations state how much revenue is recurring and repeat. Last year they had £7.9m recurring and £8.8m repeat out of £68m ie about 11% recurring and 13% repeat, ie about 25% total.

Also their order book was about 40% of FY revenue expectations so it seems they depend quite a lot on short cycle (<6m) projects that are won and delivered within the same year.

I'm sceptical now, initially thought this was really cheap, but net cash is going down this year, EBIT / FCF is much less than EBITDA, H2 risk with hitting numbers, and I'm just not sure 10x EV/EBIT is that cheap for a business with such limited visibility / repeat revenues, and with low margins. Mid single digit adjusted EBITDA margins are v low given adjust EBITDA is so far removed from actually cash generation due to leases, exceptional costs and capitalised development spend. If the tech was really good I would have thought this business should generate at least 15% and probably 20% EBITDA margins in a normal year, but it only generated 12% last year despite a mammoth one off contract that was 20%+ of revenues.

What am I missing on this one? Why are people invested in this and should I take a second look?

Is the entire investment case predicated on winning some new big contracts ahead of expectations and getting upgrades / potentially back to FY25 type revenue and profit figures?

Anyone know how their contracts are generally structured? Seems like there are some parts that are recurring (eg they have signed 5 year deals before), but they don't spell out in their comms how much recurring / repeat revenue they have/ Which I guess implies most of their revenues are from the initial installation / 1st year of a contract and they are pretty dependent on contract flow to meet numbers each year.

Also they said they won their biggest contract ever in Canada. I guess they mean the biggest one FOR CANADA as a market, not the biggest ever overall (I think their big contract in Asia in FY25 was £12-13m or something?). Again I thought the wording was a little disingenuous and they didn't state anything in terms of scale.

I've been following this for a while and think it probably is cheap, but these little things are giving me pause. I'm not sure I fully trust mgmt to be open / transparent with the market and the volatility of the order book is a worry assuming they don't have much recurring revenues...

Also worth bearing in mind that although cash was £14m at y/e, it seems they have a year of heavy investment so will fall to around £10m apparently by end FY26. So there is a fairly big difference between EBITDA and u/l EBIT in this business , and even more so vs cash generation. I guess EV is c.£20m currently. Capex last year was over £2m so u/l EBIT assuming no downgrades this year is really around £2.0m (4.1m - 2.2), so EV/EBIT is 10.5x which is not as optically cheap as it looks... Especially as the H2 weighting suggests there is some risk to them getting to their numbers this year

ByeHi - my understanding was they were going to prioritise paying down debt, but AFTER the current buy back, ie not cancel the £17m they still have outstanding to complete on that. After that I think it probably depends on where they are at FY results, ie what is trading like, what is cash / debt like.

I think analysts have been behind the curve on the way down on this, and will be behind the curve on the way up. They tend to be OK at forecasting revenue / profit, but pretty terrible at forecasting and ascribing value to cash generation (more so in this case due to the buy back) and they rarely go out on a limb on valuation.

For me it's v simple. IF Future can simply stabilise earnings at the current levels, this should generate approx 35% return pa just in the cash it generates. With the buy back this will be amplified if it ever rerates to a sensible rating, which to my mind is AT LEAST 5-6x EV/EBITDA.

Assume flat earnings next year £180m EBITDA at 5x and £100m of debt paid down by Sept 2027 (ie £180m net debt by year end) gets you to £720m mcap. And roughly 88m shares by then after current buy back. Share price of 800p+. Personally I think this is pretty conservative.

The obvious challenge is the wait for earnings to stabilise, and we'd be foolish to not accept that further weak trading is possible. But on the upside there could be disposals in the near term, and any improvement in price comparison or advertising market could help us out also. Any upgrades and this absolutely flies.

FWIW the buy back was a bit higher last week, 320k shares, so about 65k per day. There's still c.£17m left on the current buyback to complete, which is c.6m shares or about 6.5% of the company to buy back, which is not insubstantial. At the current rate this is about 18-20 weeks worth ie will take us through to around September / October ie their FY year end. FY results are in December.

The only thing I can think of (other than the usual negative sentiment etc) was the signalling that they were likely going to pause the buy back to prioritise paying down debt. Which means after the £18m or whatever remaining is spent we may not have a buy back for a while until net debt to EBITDA is down to 1.0x.

Given debt is probably going to be c.£280m, EBITDA is c.£180m, and FCF is c.£100m it could imply a year with no buy backs which obviously removes one pillar of support for the shares. Although I know there are some that would prefer this to reduce the risk, I would like to think that they would be able to do both and target 1.0x over a longer period - ie next year aim for another £20-30m buy back (7%+ to 10%+ at these prices), and they could still degear the balance sheet substantially (by £70-80m depending a little on earn outs, dividend etc). We won't get clarity on this until finals I don't think.

If you're a pessimist you'd say the risk here is another downgrade and the debt starts to get close to the 2.0x mark at which point some investors will get nervous. My personal view is that we are quite far from this point.

Any news / ideas on what is driving the SP today? More broker negativity? Something else?

RNS out confirming Kleinman's scoop. The phrase 'among the bidders' strongly implies that there are also other interested parties - I don't think they'd be able to include that phrase whilst in an offer period unless it was verifiably true. Good news.

Kleinman is usually bang on the money. I don't think this goes for 1bn though. Just looking at the SP chart, we were at 1200p a year ago, I don't think less than that is credible. 1200-1500 in my books. TBH at 1bn, ie c.1100p I'd probably rather just own this for a few years and let the european strategy play out.

Just seen the news re further WS logistics deal. All part of the strategy. At 400m run rate revenues now, they want to get to 500m so would expect a few more little bolt ons.

Increasingly over time I expect the value of this to become more and more weighted to the logistics assets, especially as they start to divest the other bits as and when it makes sense. SQLI has been in the portfolio for 4 years now, has just delivered record H2 profits and is most likely the first one on the block. PE usually operates to 3-5 year holding periods. Finsbury has just refinanced so expect it will be in for a while longer, Alliance Pharma similarly just made a divestment so I think will continue to be owned for a while unless there is an attractive approach from a buyer. I think all three are valuable assets that will be attractive to both trade and other private equity buyers.

Subscriptions I think is a good incremental thing for the stock. The other thing I've noticed is becoming the norm is for online news websites to force you to either accept cookies or pay for a subscription. So even if you don't pay, it should be easier to monetise given tracking by cookies is becoming normalised again.

If yields remain this high as they do their triennial pension review, it could see a material reduction in the acturial deficit, possibly also in cash contributions.

Nothing new in the results. Continuation of very average IR. These results are almost 5 months out of date and nothing of substance on trading ytd.

I think we will get more useful info when the Q1 valuation comes out which is end of May I believe, which will still be backward looking and 2 months out of date.

We're almost at a 50% discount to NAV atm, which is crazy. You kind of need to close your eyes and back mgmt to realise value from the assets in due course, but you need to just buckle in for the long haul I think.

On my numbers this is trading on around 2.5x ev/ebit, and around 2x ev/ebitda? £25-30m net cash on BS. Generates a ton of FCF.

I know, AI, google, programmatic etc etc. But this valuation is silly.

Is it cause people don't trust management with the cash ie expecting expensive / bad m&a? Or expecting more down grades? Or forced seller?

Is there any chance the board are sensible and decide to do a buyback?

+7%... Now what's going on here then?

Leaky ship re MB deal? Something else?

If I'm reading things correctly, we're now pretty close to re-entering the FTSE 250 at the next reshuffle. Particularly as there will likely be a few deletions from the 100 and 250 cause of takeouts (Intertek, Spire, Tate&Lyle) and NCC (will be much smaller post tender). Another 10% from here and I think it becomes very likely. Should be supportive - I think a few % of tracker buying is usually expected. Next review is 3rd June I think.

The intraday / 2 day swings in this market are crazy. No real price discovery. Stupid low liquidity.

Frustrating and irrational.

H1 this year EBITDA 83m vs c.185m FY guidance. ie H2 c.100m

H1 last year 110m vs FY 225 ie H2 c.115m

The business shouldn't be that seasonal, so our run rate EBITDA is actually closer to 200m if H2 levels can be sustained. Plus phasing of cost cuts in H2 means some more benefit in H1 next year. So net net, even if the business still shrinks a little next year, we could still be on for 180-190m EBITDA next year, or possibly even low level of growth. Should translate into 100-110m FCF.

At this SP, assuming buy back completed, mcap will be 245m ish.

On a runrate basis means we're trading at 40-45% FCF yield. It's just completely bonkers.

I think new CEO will go down very well on the roadshow also, so would expect further strength from here... Am back in the black on this, but think a lot more to go, 550-600p in due course. I don't think a bid will get any airtime from the Board south of 550p now.

Re Board purchases. Reading between the lines it sounds like they have a disposal or two in progress, which would make the Board inside and unable to buy shares. Having said this, they have been alluding to this for some time so it does beg the question of why it's taking so long...

Also a good point from the CFO. The programmatic part of the business which is the main detractor on performance is only 16% of the business. The simple maths means that this headwind will get smaller going forward. The rest of the business is much more stable or growing.

Decent tone, and good level of sell side interest on the call. Good to see Cavendish on there also - maybe we'll actually get a note that is available to be read by retail / non institutional investors!