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Netcall Net Income dropped on 90.8% in 2018 while Revenue jumped on 35.4%

16 Oct 2018 • About Netcall ($NET) • By InTwits

Netcall reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
  • EBITDA Margin is declining: 12.3% in FY2018 vs. 18.5% in FY2017 vs. 25.5% in FY2014
  • Netcall has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.2%. At the same time it's in pair with industry average of 3.3%
  • CAPEX is quite volatile: £0m in FY2018, £0m in FY2017, £0m in FY2016, £0m in FY2015, £0m in FY2014
  • The company has potentially unprofitable business model: ROIC is 3.2%
  • It operates with medium-size leverage: Net Debt/EBITDA is 0.3x while industry average is -2.0x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability


The company's Revenue jumped on 35.4%. During the last 5 years Revenue growth bottomed in FY2016 at -3.1% and was accelerating since that time. Revenue growth was financed by EBITDA margin decline. EBITDA Margin decreased on 6.2 pp from 18.5% to 12.3% in FY2018. EBITDA Margin followed a declining trend at -3.1 pp per annum in FY2014-FY2018.

Gross Margin decreased slightly on 1.5 pp from 91.7% to 90.2% in FY2018. SG&A as a % of Revenue increased on 4.7 pp from 73.2% to 77.9% in FY2018. During the last 5 years SG&A as a % of Revenue bottomed in FY2016 at 71.6% and was growing since that time.

Net Income margin decreased on 8.5 pp from 9.1% to 0.62% in FY2018. Net Income margin followed a declining trend at -3.1 pp per annum in the last 5 years.

Investments (CAPEX, working capital and M&A)


Netcall's CAPEX/Revenue was 0.78% in FY2018. CAPEX/Revenue showed almost no change from FY2015 to FY2018. Average CAPEX/Revenue for the last three years was 1.4%.

Return on investment


The company operates at low ROIC (3.2%) and ROE (0.6%). ROIC decreased on 4.3 pp from 7.5% to 3.2% in FY2018. ROE decreased on 6.1 pp from 6.8% to 0.64% in FY2018. ROIC declined at -2.8 pp per annum in FY2014-FY2018. ROE declined at -2.8 pp per annum in FY2014-FY2018.

Leverage (Debt)


Company's Net Debt / EBITDA is 0.3x and Debt / EBITDA is 2.4x. Net Debt / EBITDA surged on 4.5x from -4.3x to 0.3x in FY2018. Debt jumped while cash dropped on 54.6%. During FY2014-FY2018 Net Debt/EBITDA bottomed in FY2016 at -4.3x and was growing since that time.

The company has no short term refinancing risk: short term debt is zero.

Valuation and dividends


Netcall's trades at EV/EBITDA 33.1x and P/E 652.6x.

Financial and operational results


FY ended 30 Nov -0001

Netcall ($NET) key annual financial indicators

mln. £201420152016201720182018/2017
P&L
Revenue16.86617.15116.62716.15121.87535.4%
Gross Profit15.35315.58715.16414.81819.73233.2%
SG&A13.54113.34911.91211.83017.04344.1%
EBITDA4.2934.0343.2522.9882.700-9.6%
Net Income2.2132.6551.8861.4750.136-90.8%
Balance Sheet
Cash11.37713.72614.12212.7245.779-54.6%
Short Term Debt0.0000.0000.0000.0000.000
Long Term Debt0.0000.0000.0000.0006.518
Cash flow
Capex0.1680.1630.4440.1210.17141.3%
Ratios
Revenue growth4.7%1.7%-3.1%-2.9%35.4%
EBITDA growth15.0%-6.0%-19.4%-8.1%-9.6%

Gross Margin91.0%90.9%91.2%91.7%90.2%-1.5%
EBITDA Margin25.5%23.5%19.6%18.5%12.3%-6.2%
SG&A, % of revenue80.3%77.8%71.6%73.2%77.9%4.7%
Net Income Margin13.1%15.5%11.3%9.1%0.6%-8.5%
CAPEX, % of revenue1.0%1.0%2.7%0.7%0.8%0.0%

ROIC15.1%12.0%7.1%7.5%3.2%-4.3%
ROE11.9%12.4%8.3%6.8%0.6%-6.1%
Net Debt/EBITDA-2.7x-3.4x-4.3x-4.3x0.3x4.5x

Peers in Software & Computer Services


Below you can find Netcall benchmarking vs. other companies in Software & Computer Services industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %

Top 5 FY2014 FY2015 FY2016 FY2017 FY2018
Pinnacle Technology Group ($PINN)-17.1%108.6%
Wandisco ($WAND)40.0%-2.0%3.5%72.6%
Microgen ($MCGN)-0.0%7.2%34.5%45.7%
Lombard Risk Management ($LRM)21.6%5.4%10.3%44.8%
Zoo Digital Group ($ZOO)19.9%1.5%41.7%73.2%
 
Median (39 companies)0.8%6.3%11.7%12.4%3.0%
Netcall ($NET)1.7%-3.1%-2.9%35.4%


Top companies by Gross margin, %

Top 5 FY2014 FY2015 FY2016 FY2017 FY2018
Lombard Risk Management ($LRM)99.2%98.6%99.3%99.6%
Wandisco ($WAND)80.7%93.2%88.1%90.0%
Eleco ($ELCO)87.8%88.9%86.7%87.9%
Dotdigital Group ($DOTD)90.5%89.3%87.4%86.1%78.9%
Proactis Holdings ($PHD)73.6%80.4%82.4%86.0%
 
Median (33 companies)57.5%55.0%56.6%55.1%35.3%
Netcall ($NET)91.0%90.9%91.2%91.7%90.2%


Top companies by EBITDA margin, %

Top 5 FY2014 FY2015 FY2016 FY2017 FY2018
Rightster Group ($RSTR)-146.3%-64.1%-19.9%114.2%
Dotdigital Group ($DOTD)29.2%32.0%30.4%31.7%26.9%
Sopheon ($SPE)6.8%19.8%22.6%27.9%
Mail.Ru Group Ltd ($61HE)50.5%34.6%35.2%25.1%
Gresham Computing ($GHT)8.8%18.1%20.6%22.6%
 
Median (39 companies)10.3%12.3%10.2%10.7%6.8%
Netcall ($NET)25.5%23.5%19.6%18.5%12.3%


Top companies by CAPEX/Revenue, %

Top 5 FY2014 FY2015 FY2016 FY2017 FY2018
Actual Experience ($ACT)2.6%6.0%39.9%48.7%
Csf Group ($CSFG)2.4%7.1%4.9%8.5%16.5%
Pennant International Group ($PEN)1.4%0.2%6.3%7.1%
Nasstar ($NASA)2.1%5.2%8.9%6.5%
Oxford Metrics ($OMG)2.8%2.4%1.8%5.8%
 
Median (39 companies)1.9%1.4%1.2%1.3%1.0%
Netcall ($NET)1.0%1.0%2.7%0.7%0.8%


Top companies by ROIC, %

Top 5 FY2014 FY2015 FY2016 FY2017 FY2018
Rm ($RM.)130.8%289.2%254.7%73.8%
Triad Group ($TRD)24.5%61.5%74.4%61.1%41.0%
Sopheon ($SPE)-10.5%14.7%22.7%32.3%
Dotdigital Group ($DOTD)28.5%31.4%28.9%29.3%26.6%
International Bus Mach Corp ($IBM)31.6%29.7%21.5%19.5%19.8%
 
Median (41 companies)9.0%4.0%8.2%6.3%7.5%
Netcall ($NET)15.1%12.0%7.1%7.5%3.2%


Top companies by Net Debt / EBITDA

Top 5 FY2014 FY2015 FY2016 FY2017 FY2018
Datatec ($DTC)0.3x0.4x1.1x10.2x
Progility ($PGY)1.8x12.8x6.8x3.9x
Zoo Digital Group ($ZOO)38.3x3.2x0.9x
Statpro Group ($SOG)-0.3x-0.2x3.0x
Idox ($IDOX)1.0x1.3x1.2x2.2x
 
Median (31 companies)-0.3x-0.5x-0.8x-0.5x-0.5x
Netcall ($NET)-2.7x-3.4x-4.3x-4.3x0.3x