K3 Business Technology Group plc
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Description
K3 is a leading global supplier of integrated business systems to retailers, manufacturers and distributors. It is a leading supplier of Microsoft’s business solutions. K3 develops its own tailored software for companies within the food, retail and manufacturing industries.
Our view
K3 experienced management change in 2016; the new team implemented a number of changes to strategic focus and style of delivery, aimed at better capitalising on the growing retail software opportunity. Recent results reflected that period of material change within the group as it looks to build a sustainable and balanced platform for own-IP software sales growth. We believe the heavy lifting has now largely been done, and the foundations are now in place for the next phase of delivery.
Recent Research
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Financial Summary
Year end: November (£m unless shown)
| 2016(i | 2017 (ii | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|
| Revenue | 89.2 | 118.2 | 83.3 | 88.0 | 88.0 |
| Adj EBITA | 9.5 | -1.7 | 4.6 | 5.3 | 6.0 |
| Fully adj PBT | 8.8 | -3.0 | 4.0 | 5.3 | 6.0 |
| Fully adj dil EPS (p) | 22.9 | -7.7 | 6.8 | 9.2 | 10.3 |
Profit & Loss
Year end: November (£m unless shown)
| 2016(i | 2017 (ii | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|
| Revenue | 89.2 | 118.2 | 83.3 | 88.0 | 88.0 |
| Adj EBITDA | 12.8 | 2.5 | 8.1 | 9.4 | 10.3 |
| Adj EBITA | 9.5 | (1.7) | 4.6 | 5.3 | 6.0 |
| Reported PBT | 4.5 | (16.1) | 0.0 | 2.7 | 3.4 |
| Fully adj PBT | 8.8 | (3.0) | 4.0 | 5.3 | 6.0 |
| NOPAT | 7.8 | (1.4) | 3.9 | 4.4 | 5.0 |
| Reported EPS (p) | 12.3 | (35.3) | (1.1) | 5.0 | 6.3 |
| Fully adj dil EPS (p) | 22.9 | (7.7) | 6.8 | 9.2 | 10.3 |
| Dividend per share (p) | 1.8 | 1.4 | 1.5 | 1.7 | 1.8 |
Cash Flow & Balance Sheet
Year end: November (£m unless shown)
| 2016(i | 2017 (ii | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|
| Operating cash flow | 5.5 | 5.9 | 8.2 | 7.2 | 8.0 |
| Free Cash flow | (2.0) | (3.1) | 3.4 | 3.1 | 3.3 |
| FCF per share (p) | (4.7) | (7.2) | 7.9 | 7.3 | 7.8 |
| Acquisitions | (7.4) | (1.0) | 0.0 | 0.0 | 0.0 |
| Disposals | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Shares issued | 13.2 | 8.4 | 0.0 | 0.0 | 0.0 |
| Net cash flow | 3.8 | 4.3 | 3.4 | 3.1 | 3.3 |
| Overdrafts / borrowings | (11.6) | (6.2) | (7.5) | (7.5) | (7.5) |
| Cash & equivalents | 2.8 | 1.9 | 6.9 | 10.0 | 13.4 |
| Net (Debt)/Cash | (8.9) | (4.3) | (0.6) | 2.5 | 5.8 |
Nav & Returns
Year end: November (£m unless shown)
| 2016(i | 2017 (ii | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|
| Net asset value | 73.4 | 69.7 | 69.0 | 70.7 | 75.9 |
| NAV/share | 171.2 | 162.5 | 160.9 | 165.0 | 177.1 |
| Net Tangible Asset Value | 2.4 | 2.5 | 2.3 | 1.9 | 2.6 |
| NTAV/share | 5.6 | 5.8 | 5.4 | 4.3 | 6.1 |
| Average equity | 74.4 | 80.6 | 78.1 | 72.3 | 70.0 |
| Post-tax ROE (%) | 10.5% | (1.7%) | 5.0% | 6.1% | 7.2% |
Metrics
Year end: November (£m unless shown)
| 2016(i | 2017 (ii | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|
| Revenue growth | 6.9% | 32.5% | (29.5%) | 5.6% | |
| Adj EBITDA growth | 17.0% | (80.7%) | 228.5% | 15.3% | 10.0% |
| Adj EBIT growth | 18.0% | (90.7%) | 558.5% | 10.6% | 9.6% |
| Adj PBT growth | 21.8% | (134.3%) | (231.9%) | 33.7% | 13.0% |
| Adj EPS growth | 19.7% | (133.6%) | (188.6%) | 34.1% | 13.0% |
| Dividend growth | 16.7% | (20.0%) | 10.0% | 7.1% | 10.0% |
| Adj EBIT margins | 10.7% | (1.4%) | 5.6% | 6.1% | 6.8% |
(i) FY2015 and FY2016 are June year ends
(ii) FY2017 is 17 months to November 2017