Rhipe Limited achieves FY17 guidance
Rhipe Limited (RHP) released its FY17 un-audited results. Key metrics include:
- A$157m revenue (+15% on the previous corresponding period);
- A$28.2m gross profit (+9% on the pcp);
- 18.0% gross margin (vs 18.8% for the pcp); and
- A$4m EBITDA (+167% on the pcp).
Pleasingly, RHP's FY17 EBITDA was in line with guidance and our forecasts. RHP noted that it ended June 2017 with 130k CSP/Office 365 seats which was ahead of our forecasts and compares to 117k at May-end and 42k the pcp. Revenue per seat was also higher suggesting good bundling from RHP. Additionally, RHP noted that it has grown CSP's annualised revenue run-rate to A$22m (vs A$20m at May-end and A$4.6m for the pcp). RHP's Solutions business has now achieved a break-even run-rate (vs a A$1.8m loss in FY16 and a A$0.4m loss in FY17). RHP reported an FY17-end cash balance of A$19.8m (vs our forecast of A$15m), with the beat attributed to improved working capital management and the reversal of some temporary negative working capital impacts in FY16.
1H issues largely overcome – licensing momentum picks up
In our view, today's announcement showed that the challenges of 1H17 look to have been largely overcome, with revenue growth accelerating and gross profit margins holding steady. Importantly, RHP's licensing revenue trajectory improved from 1H17 to 2H17 (+17% half on half) which should abate some market concerns that the division was losing momentum. We also highlight that the licensing gross profit margin improved year on year and was broadly flat from 1H17 (15.8%) to 2H17 (15.6%), which shows this hasn't been sacrificed to maintain top-line growth.
Changes to forecasts
We have incorporated the released FY17 metrics into our forecasts and have rebased our growth assumptions accordingly. After a strong focus on cost control, we have incorporated some additional overheads (cA$0.7m in FY18) to reflect expansion of RHP's operational capacity. We note that RHP flagged expansion into North Asia (including Korea) at its FY16 AGM. We view these increased costs as necessary to continue to grow the business and provide RHP with additional international presence.
With RHP achieving its FY17 guidance and the risk moving from a downside to an upside story, we now remove the 15% discount to valuation in setting our price target. We continue to believe that RHP offers a healthy risk/reward proposition for investors, given its relatively low valuation and high-growth outlook. Based on our forecasts, RHP is trading on c9x FY18F EV/EBITDA, which continues to look attractive based on our FY18 EBITDA growth forecast of c85%.
We retain our Add recommendation with an upgraded share price target.
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