LON:EDP | Electronic Data Processing (EDP) - Final Results Tiny Value Small Cap.

17th Dec '13 by jjis

5 comments 11900 reads

Update as at December 2014.

Poor looking final results today which saw T/O, margins and eps lower for some of the reasons they flagged earlier in the year. They say they expect the effects of these to hit T/O by a further £300k in 2015 but have taken some cost cutting action to offset.

Dividend was maintained at 5p given balance sheet full of cash still (although down on last year at £5m v £5.7m) so still yields 6.6&% at 75 pence. But no cherry on top as hoped for property disposal has fallen through, although they do flag a potential £122k of annual cost savings if they do manage to offload them.

Summary & Conclusion:

Remains cheapish given balance sheet but less so as operating performance has deteriorated rather than improved, so given they are flagging a tough year again in 2015 on this front, it looks like the yield will remain the main attraction, but given the outlook and the market cap. I can't see it getting people excited, but I can see why people might want to carry on holding on value grounds.

Having sold most of my stock earlier in the year around the 80 pence level post the poor update and XD I have lost patience with the balance given the poor outlook and its size - so as they say on Dragon's Den - "I'm out" or oot if I'm doing a Duncan Bannatyne impression.

Merry Christmas

JJIS

@CompoundIncome (Twitter)

Compoundinome.org (website)

Original note from Dec 2013 below here:

Electronic Data Processing (LON:EDP) reported final results today which were fairly flat but did contain some hints of improvement going forward. For those not familiar with it - which is probably most people it is an IT solution provider to the UK wholesale distribution industry and a supplier of Sales Intelligence software solutions more widely.

The list of industries it supplies for its main Quantum VS product as detailed in the results today are:

· builders and timber merchants
· suppliers of fixings and fastenings
· industrial and security products
· electrical wholesalers
· food distributors

This is a software as a service business which has moved more towards hosting now with 172 customers and recurring revenues equal to 48% of revenue.
They state in the results that:

"Our business model revolves…

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TMFMayn

23rd Dec '13

hi jjis

i agree with your comments about patience, quality and undervaluation :-)

but i am more conservative that you with my EV for EDP, as I subtract the deferred income (upfront customer payments) from the cash pile as technically these payments could be returned back to clients should they cancel their contracts part way through the year.

http://boards.fool.co.uk/time-to-update-this-from-latest-annual-results-12945656.aspx

mayn

jjis

31st Dec '13

Hi Mayn,
Thanks for your comments, hopefully we are not both suffering from confirmation bias! Interesting that Boyles have taken a 17% stake - thanks I had missed that. They say they are patient investors too but as you say they may agitate for the inherent value to be realised.

I guess the bottom line is that this is a value situation in need of a catalyst which could be in no particular order:
1) Improved results
2) Earnings enhancing acquisition with the cash
3) Return of capital / share buy back / tender offer
4) Bid for the company or management take it private - which they considered a few years ago.

Happy New Year

17th Feb '14

They announced an IMS today covering the period from 1 October 2013 to 14 February 2014.There were no material events or transactions, so presumably no progress on the sale of the surplus property yet. They say that trading is similar to last year, but they sounded more cautious to me on current activity stating:

"However, as reported in our results for the year to 30 September 2013, business confidence remains patchy and, as a result, we see many organisations continuing to exercise a significant degree of caution when assessing their IT expenditure decisions."

Note the addition of the word significant this time versus the full year announcement.

They also stated that Contracted recurring revenues amounted to 86% of turnover to date which is up from 77% last year. I guess you could read this that other new business has therefore been slow, or they have signed lots of new contract customers?

Cash remains about the same at £5.6m at 14th Feb. 2014 v £5.67m at September 2013 year end. In the Outlook they mention the strength of the balance sheet and their business model and also mention possible future acquisitions. This word did not feature in the year end statement so I can only assume that perhaps they have something in mind, which could use some or all of the cash and should be earnings enhancing.

Bottom line is that trading still seems to be flat, balance sheet remains strong and further property disposal still awaited. Shares are up 20% or so since December, but probably still offer some value, especially if they can come up with an earnings enhancing acquisition(s) to utilize the cash.

20th Feb '14

Good spot :-)

Possibly. But I note these Feb updates do tend to reveal higher recurring amounts. Last year was 80%, with the subsequent FY results showing 77%. The year before was 81%, with the subsequent FY results showing 76%. I think what happens is that most customers renew their annual contracts at the start of the calendar year, which therefore skews the proportion of recurring sales enjoyed since the previous Sept year end. But by the upcoming Sept year end, other sales are generated and the recurring proportion is reduced.

That said, 86% is high, so perhaps there has been some shift in revenue type.

Cash remains about the same at £5.6m at 14th Feb. 2014 v £5.67m at September 2013 year end.

Cash was £0.3m less that Feb last year. Adjusting for the dividends, the property sale, I think 'cash earnings' in the past 12 months were about £0.6m which is about right.

In the Outlook they mention the strength of the balance sheet and their business model and also mention possible future acquisitions. This word did not feature in the year end statement so I can only assume that perhaps they have something in mind, which could use some or all of the cash and should be earnings enhancing.

Ah, but if you search for the word 'acquire', you will see references in results back to May 2012 :-)

Agreed!

Mayn

21st Feb '14

Hi Maynard,
Good to see you moonlighting on Stockopedia again, thanks for your thoughts. One other thing that occurred to me in relation to the recurring revenues was their comment in last years final results where they stated:

These results reflect the success of our strategy in growing the hosting/cloud computing side of the business. As customers now require much lower investment in their own on-site computer equipment, this has had the expected effect of reducing the amount of relatively low margin computer hardware that we sell.

I guess that could also account for some of the change in this figure this time around.

Electronic Data Processing (EDP) - Final Results Tiny Value Small Cap.

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Jjis

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