Warsaw Stock Exchange: Ailleron – 2022 year of dynamic development
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Record 2022 results, creating a high comparative base, along with signals from the company regarding operations, cause us to revise our valuation and forecast 13% revenue growth for 2023, with a return to faster growth expected from '24 with the impact of the announced acquisition. We are positive about the parent's plan to improve profitability to Software Mind (SM). As a result, we value the company in a 24-month horizon at PLN 30.0/share, which gives 28% upside potential.
Current price 23,4 zł
Valuation 30,0 zł
Upside/downside +28%
Market cap. 289 mln zł
Free float 39,6%
Avg. Vol. 6M 20 730
Record-breaking 2022 results
The main influence on the results achieved in 2022 was the significant improvement in the dominant Technology Services segment. Performance at the consolidated level should also be evaluated very well. Revenues were 4% above our forecasts, EBIT and EBITDA also exceeded expectations. Net profit amounted to PLN 38.5 million vs. PLN 30.1 million forecast by us. The reported net profit of CU amounted to PLN 13.2 million, despite the burden of costs related to M&A processes (PLN 2.3 million) and the write-down of the Robowealth and Chatbot project's CCI (PLN 1.95 million), and was 28% above our forecast. The strong liquidity position is noteworthy, with nearly PLN 16 million of net cash in the group despite completed acquisitions for nearly PLN 130 million.
Software Mind assumes at least one acquisition in '23
Software Mind has about PLN 70 million in cash, which, together with the loan, gives it the potential to continue its growth through acquisitions. According to the company's declarations, it is in the analysis process and wants to make at least one acquisition this year. The group is interested in entities employing 100-500 specialists, located close to target customers, i.e. primarily in the US, Germany and the UK.
Parent company focused on Financial Technology Services (FTS)
Ailleron intends to focus on improving profitability this year as part of the implementation of its FTS strategy until 2026, which involves increasing the scale of its business by focusing on software development services supported by the company's off-the-shelf platforms and components for financial institutions while reducing investments in its own products. The company assumes a significant increase in the scale of FinTech business in the time&material billing model, avoiding the fixed price model. The strategy also aims to improve Ailleron's profitability to the level achieved by Software Mind (18.6% EBITDA profitability in '22) and generate significant cash.
HotelTech's MBO process completed
According to the promise agreement, the transfer of ownership of HotelTech's OCP took place on January 1, 2023 (in 2022, the negative EBIT contribution was about PLN 2 million). The buyer is a company controlled by a key member of HotelTech's staff, and the transaction represents a kind of management buyout. Ailleron was left with intangible assets related to the rights to use the iLumio software, for which a monthly fee is to be paid to Ailleron for 10 years.
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 30.0/share.
COMPANY PROFILE
The activities of the Ailleron group focus on providing specialized products for the financial, telecommunications and hospitality industries. The group's offer includes interactive finance (LiveBank), use of multimedia during leisure time and mobile entertainment. The group is also engaged in outsourcing of IT services provided both domestically and to international clients.
SHAREHOLDERS
IFF SA i podm. powiÄ…zane 23,64%
Dariusz Orłowski i pow. 23,33%
ESALIENS TFI 7,75%
Grzegorz MÅ‚ynarczyk 5,67%
Pozostali 39,61%
VALUATION
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 30.0 / 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 May 2023 (previously beginning of October 2022),
- Net debt (MSR17) level as of December 31, 2022 of -14 million (previously -87 million),
- Long-term growth rate after the forecast period equal to 1.0% (no change),
- Effective tax rate at 26,4% (previously 28%),
- Risk-free rate at 5.90% (previously 7.73%), Risk premium at 7.40% (previously 7.19%), Net debt / EV 10% (unchanged), Cost of debt 7.5% (unchanged), 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 the company is generally trading at a discount on both indices relative to peers.
Peers valuation summary of Ailleron:
Dariusz Dadej
dariusz.dadej@noblesecurities.pl
+48 602 445 334
