Warsaw Stock Exchange - Ailleron – high growth rates sustained
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The company maintains very high earnings growth rates at the consolidated level, and the Board of Directors does not see any risk of revenue decline in the foreseeable future. We view the plans for further growth of the dominant Technology Services segment, as well as the announced actions regarding the other two segments, positively. Seeing the rapid growth, we are raising revenue forecasts for the coming years and adjusting the parameters in the DCF. As a result, we value the company in a 24-month horizon at PLN 17.5/share, which gives 46% upside potential.
Strong 2Q22 results The main influence on the results achieved in Q2 2022 was the significant improvement in the dominant Technology Services segment. Performance at the consolidated level should be assessed very well. Revenues were 66% above our forecasts, EBIT and EBITDA 2% below. Net profit was PLN 8.5 million vs. the PLN 4.3 million we had forecast. Of note is the significant deterioration in margins - gross margin falls 5.2 p.p. to 23.9%, while EBITDA profitability falls 5.6 p.p. to 10%. However, this is due to one-time events charged to the period's results in the form of M&A costs in SG&A and invoicing of future periods in acquired companies.
Export growth in revenue
Increasingly (85%), sales are made outside Poland. Export sales increased in 1H22 to nearly PLN 135 million and achieved a growth rate of more than 179%. The successive increase in exports is a consequence of the growing share of the Technology Services business, which is almost 100% export business, as well as the increasing share of exports in products such as LB (LiveBank). Ailleron is emphasizing growth in several key directions, primarily these are: Western Europe, Southeast Asia and the US - markets where higher margins can be achieved.
Development of Financial Technology Services (FTS)
The company announces the sale of technology - services to banks and companies in the financial sector, using its experience in providing technology-services (recruiting and building IT teams) and in manufacturing products for the financial sector. Services are to be sold under the Time & Material model with stable profitability (targeting 20% EBITDA margin).
Changes in FinTech and hotel segment
Management announces a review of investment plans in the LiveBank SaaS product, including an option to renegotiate the problematic agreement with Pekao SA. upon completion of its first phase. We consider the recent changes made to the company's board as the first sign of FinTech transformation. In addition, negotiations are underway for the hotel segment - MBO (management buy-out) of iLumio, which is a platform integrating, among other things, booking functions and hotel TV. Decisions in this regard are expected to be made later in 2022.
Our 24-month price target (PT) for Ailleron SA is based on both peer multiples and a DCF (equal weighted) resulting in a PT of PLN 17.5/share.
WYCENA
We use two methods to value Ailleron 1) DCF and 2) Peers multiples valuation (both equally weighted). Our 24-month price target (PT) for Ailleron equals PLN 17.5 / share. Please note that in the calculation we take into account the Management Option Programme adopted by the EGM on 24 September 2021 in its entirety, i.e. we assume the issue of 821,076 new shares. In table below we present valuation summary:
DCF VALUATION
Assumptions:
- Value of cash flows discounted as of the beginning of October 2022 (previously beginning of March 202),
- Net debt level as of December 31, 2021 of -87 million (no change),
- Long-term growth rate after the forecast period equal to 1.0% (no change),
- Effective tax rate at 28% (previously 27%),
- Risk-free rate at 7.73% (previously 4.00%), Risk premium at 7.19% (previously 5.08%), Net debt / EV 10% (previously 5%), Cost of debt 7.5% (previously 5.5%), Beta at 1.0 (unchanged).
DCF AND SENSITIVITY ANALYSIS
Below we present a sensitivity analysis of the DCF model depending on the risk-free rate and risk premium:
Below we present Cost of Equity and WACC calculation:
PEERS MULTIPLES VALUATION
We based our comparative analysis on selected Polish and foreign companies. The analysis was carried out using P/E and EV/EBITDA multiples (equally weighted). Both multipes show that Ailleron is trading at a significant discount when compared to peers comparable companies.
Peers valuation summary of Ailleron:
