Ailleron: 4Q22 results: Record quarter, continued high y/y earnings growth
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Ailleron ( TP 17,5 PLN)
The company continues its impressive year-on-year earnings growth at the consolidated level reporting a record quarter in terms of sales, EBITDA, EBIT and net income. Revenues in 4Q22 amounted to PLN 123.1 million, up 72% year-on-year vs. the PLN 115.6 million we assumed. TECHNOLOGY SERVICES plays a dominant role in total revenues, with a share close to 83%. This is a result of the adopted acquisition strategy and consolidation of the results of the acquired entities, as well as organic growth. Consolidated EBITDA increased by 35% y/y and operating profit +30% y/y. However, the significant erosion of margins is noteworthy. Net profit amounted to PLN 14.3 million vs. PLN 9.0 million a year ago and our forecast of PLN 8.6 million. The net result attributable to the parent shareholders due to the negative contribution of HotelTech and write-downs was PLN 5.5 million, which, however, still represents a result 88% higher than our assumptions. Ailleron declares to achieve comparable profitability and cash generation capacity as Software Mind, which is expected to continue further organic growth by adding at least one acquisition in 2023. In addition, the company aims to limit cost growth. Representatives declare a positive resolution of the ongoing negotiations with Pekao bank regarding the problematic contract within 2 months.
Revenues for 4Q22:
Consolidated net sales revenues amounted to PLN 123.1 million vs. PLN 71.4 million in the same period last year, an increase of 72% y/y. The increase in sales revenue is mainly attributable to the rapidly growing Technology Services (d. EnterpriseServices) segment, whose revenue growth rate in 4Q22 was +104% y/y. This is largely the result of consolidation due to acquisitions, but also organic growth. Technology Services remains the dominant segment in the company's revenues and currently accounts for 82.7% of sales. FinTech generated 16.2% of revenues, and HotelTech 0.8%. Note the continuing favorable trend in export sales, for 4Q2022 it accounted for 76% of total sales vs. 58% a year ago. The downside of such a situation is a greater openness to foreign exchange risk, which is evident in Q4 in the statement of comprehensive income where foreign exchange differences on translation of foreign units exceeded PLN -11 million.
Revenues (mln PLN) and selling and administrative expenses as % of sales revenues
Segment share in revenue
Operating costs. Since 4Q19, the positive downward trend in cost of sales relative to revenue has continued, the share of the above-mentioned currently accounting for 0.7% of sales. As the scale of operations increases, we expect further declines in this parameter in relation to revenues (on average), with the very low level from 4Q22 most likely not being the rule, which means that a correction in 1Q23 should be expected. Noteworthy is the strong decline in general and administrative expenses in relation to revenue, which has oscillated around the average of 10.2% of revenue since 1Q20. This time the parameter for 3Q22 was 7.3% vs. 10.7% a year ago and 13.1% in the previous quarter. The Company's Board of Directors decided to write off in FY2022 (recognized as part of other operating expenses)Robowealth's TIPS (book value of PLN 1,495,931.98) and Chatbot's TIPS (PLN 911,649.64). The Company's Management Board considered that there is currently no indication that these solutions can be sold.
Profitability earned by Ailleron since 1Q18.
EBIT for 4Q22 +30% y/y; EBITDA +35% y/y.
The Group's operating profit amounted to PLN 16.0 million, compared to PLN 12.3 million in the fourth quarter of 2021, an increase of 30% y-o-y, mainly attributable to the Enterprise Services segment (PLN 17.7 million EBIT). Operating profit in the FinTech segment does not contribute negatively to the group's results this time, reporting +1.8 million zlotys. HotelTech's EBIT continues to remain negative, negatively affecting, further, the result for the parent shareholders. HotelTech generated an operating loss of PLN 0.38 million (the negative EBIT contribution was about PLN 2 million in the 2022 results). Due to the completion of HotelTech's MBO, according to the promised agreement, the transfer of ownership of the OCP took place on January 1, 2023, this is the last quarter of its consolidation. Consolidated EBITDA increased year-on-year by 35% to PLN 19.5 million vs. PLN 14.4 million a year ago.
Net profit
At the consolidated level, it amounted to PLN 14.3 million, up from PLN 9.0 million a year ago. In the case of net profit, this represents an increase of 59%. Net income attributable to parent shareholders due to HotelTech's negative contribution and write-downs was PLN 5.5 million, 88% higher than our forecast.
The company had PLN 89.4 million in cash at the end of 4Q22, while financial debt was PLN 98 million. This means that net debt vs. 12 mo. EBITDA was 0.14x vs. -2.49x in 4Q21. The strong balance sheet position and very low net debt makes it possible to sustain the dividend payment for 2022.
Cash flows for 4Q22
We view Ailleron's 4Q22 results positively, pointing out that they ranked well above our earlier forecast. The company continues its impressive year-on-year earnings growth at the consolidated level reporting a record quarter in terms of sales, EBITDA EBIT and net profit. The parent company's net profit for 2022 is also a record, with a year-on-year increase from PLN 7.4 million to PLN 17.7 million (+137% excluding one-time events). The reported net profit of the parent company is PLN 13.4 million, burdened by costs related to M&A processes (PLN 2.3 million) and the write-down of the Robowealth project and Chatbot (PLN 1.95 million). What is noteworthy, however, is the significant deterioration in margins y/y, and this despite the uncharacteristically low cost of sales and tax in the income statement. FinTech results are seasonally stronger in Q4, but EBIT for the full year is burdened by a loss on the contract with Pekao (PLN 5.7 million) and non-cashable LiveBank SaaS product development costs (PLN 2.7 million). Representatives of the Management Board declare the settlement of ongoing negotiations with the bank within 2 months assuming a positive solution. The completion of the HotelTech MBO process means that the negative contribution of this segment to the group's results will cease to be visible as of January 1, 2023. We assume that Technology Services will remain on a growth trajectory, with Board members at the conference pointing to a cooling market compared to the last 3 years and lowered expectations due to uncertainty about the macroeconomic situation, meaning that we should expect weaker dynamics in 2023 than in '22 or '21. In 2023, the company is betting on Software Mind's continued organic growth, and maintains its plan for at least one acquisition. The circle of interest includes companies with 100-500 specialists located close to target customers, who are primarily in the US, Germany and the UK. The company announces that it will continue to implement its new Ailleron SA/Fintech strategy for 2023 - 2026 to improve its financial performance and cash generation capacity. The new strategy involves focusing on comprehensive software development services, supported by Ailleron's off-the-shelf platforms and components for banks, leasing companies, fintechs and other financial industry players, while reducing investments in its own products. The goal of the new strategy is to be self-sufficient in investments from 2023, and to achieve Ailleron's profitability similar to Software Mind in the medium term once sufficient scale of operations is achieved.
Last valuation: 17.5 PLN /share as of 17.10.2022. Price on the day of issue: PLN 12.0.
Dariusz Dadej
Analyst
+48 602 445 334
