Scisys PLC’s (SSY: AIM) share price is currently up 50% year on year, and currently has a market cap of around £45 million. The company appears to be seriously growing revenues rapidly, but will the share price continue to rise?
Scisys chart up 50% YoY
Scisys is essentially a developer of technology services, applications and solutions. The company’s customer base is widely varied and includes some major names in business, including the likes of Vodafone, the BBC, Siemens and Pets at home. Government accounts are also part of the company’s customer base, with the company being able to secure work from the Environment Agency, the Ministry of Defence, and the European Space Agency. Main revenue streams have been classed into Enteprise Solutions & Defense (ESD), Media & Broadcast (M&B), Annova, Space and Xibis. More insights into each of these streams can be viewed from the company’s most recent set of results.
The positives of Scisys
The company’s most recent set of results were released last month for FY 2017 and appear to be very impressive indeed.
Let’s take a look at the numbers:
– Operating profit of £4.6 million
– Revenues up 25% YoY to £57m
– Dividend is 2.16p (on share price of 155p)
– Year end order book £91.3m, up 41%
– Significant contract wins were achieved in all divisions
The first thing that stood out about this for me was the P/E ratio being 10. For software companies, the P/E ratio is normally much higher than 10 across the industry. At a P/E of 10, Scisys does immediately appear to be valued much lower than its peers.
In addition, another thing that stood out was that both the year end order book and the company’s revenues grew significantly (41% and 25%). If the company can continue this sort of growth, the £4.6m in profits could potentially increase very quickly and with a P/E of even 10, the share price could significantly increase as a result.
The negatives
From the most recent set of published statements, the company has net debt of £5.9m. However, this has improved significantly from £10m at YE 2016. In addition, on a balance sheet basis, the net assets of the company leaves much to be desired. Net assets are reported to be £25m, but a large proportion of this is goodwill (£15m), leaving a net asset value of just £10m versus the current market cap of £45m. However, it should be noted that this is not unusual for software companies and software companies normally have high intangibles on the balance sheet.
One other thing to note though, is that the company’s revenue streams has exposure to the outcome of the Brexit negotiations. The company has European state customers, and with Brexit, there is a risk the company could eventually lose some or all of this customer base. However, the company has already engaged in contingency planning to minimize the impact of Brexit.
In addition, the Space and ESD streams were the largest contributors to revenue in 2017 (at a combined 64% of revenue). Revenue therefore appears to be a bit weighted on these 2 streams, given that the company has 5 main revenue streams. These 2 streams have also been identified as streams that could possibly be impacted by Brexit and as a result, future profitability could potentially be affected if Brexit does not go well.
Summary
It appears that Scisys is definitely growing, and the company continues to secure major customers; the year end order book also appears to be solid. However, the current revenue streams are weighted primarily to the SPACE and ESD streams at the moment – streams that could be affected by Brexit. In addition, the company still needs to clear £5.9m of debt.
Nevertheless, with the low P/E ratio, the company appears to be at an attractive valuation at the moment and the current share price may be a good entry point for new investors.
As always though, please do your own research before buying/selling this share; the opinions above are only my personal views and should not be considered as advice.
