Magic Software Enterprises Ltd. reports 28.8% Net Income growth in 2018 and almost no change in EBITDA Margin of 15.6%
03/04/2019 • About Magic Software Enterprises Ltd. (
$MGIC) • By InTwits
Magic Software Enterprises Ltd. reported 2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Magic Software Enterprises Ltd. is a growth stock: 2018 revenue growth was 10.2%, 5 year revenue CAGR was 14.4% at 2018 ROIC 10.6%
- Magic Software Enterprises Ltd. has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.4%. At the same time it's a lot of higher than industry average of 7.4%.
- CAPEX is quite volatile: $6m in 2018, $7m in 2017, $4m in 2016, $7m in 2015, $1m in 2014
- The company has business model with average profitability: ROIC is 10.6%
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 surged on 10.2%. Revenue growth showed slowdown in 18Q4 - it was 9.1% YoY. EBITDA Margin showed almost no change in 2018. EBITDA Margin declined at -0.71 pp per annum in 2014-2018.
Gross Margin decreased slightly on 0.91 pp from 32.1% to 31.2% in 2018. Gross Margin followed a declining trend at -2.0 pp per annum in 2014-2018. SG&A as a % of Revenue decreased slightly on 1.3 pp from 19.4% to 18.1% in 2018. During the last 5 years SG&A as a % of Revenue topped in 2015 at 20.7% and was declining since that time.
Net Income margin increased slightly on 1.0 pp from 6.0% to 7.0% in 2018. During the last 5 years Net Income margin bottomed in 2016 at 5.9% and was growing since that time.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 1.6% in 2018. Magic Software Enterprises Ltd. showed small CAPEX/Revenue decline of 1.2 pp from 2.8% in 2015 to 1.6% in 2018. For the last three years the average CAPEX/Revenue was 2.0%. CAPEX as a % of Revenue stuck to a declining trend at -0.40 pp per annum in the last 5 years.
Return on investment
The company operates at low ROIC (10.6%) and ROE (8.8%). ROIC increased slightly on 1.2 pp from 9.4% to 10.6% in 2018. ROE increased slightly on 1.2 pp from 7.6% to 8.8% in 2018. During the last 5 years ROIC bottomed in 2016 at 8.9% and was growing since that time. During 2014-2018 ROE bottomed in 2016 at 6.1% and was growing since that time.
Leverage (Debt)
Debt level is -1.3x Net Debt / EBITDA and 0.6x Debt / EBITDA. Debt dropped on 25.4% while cash jumped on 14.5%.
Magic Software Enterprises Ltd. has no short term refinancing risk: cash is higher than short term debt (1,006.0%).
Valuation and dividends
Magic Software Enterprises Ltd.'s trades at EV/EBITDA 7.9x and P/E 20.6x.
Financial and operational results
FY ended 12/31/2018
Magic Software Enterprises Ltd. ($MGIC) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 164.3 | 176.0 | 201.6 | 258.1 | 284.4 | 10.2% |
| Gross Profit | 64.6 | 62.8 | 68.3 | 83.0 | 88.8 | 7.0% |
| SG&A | 24.6 | 36.5 | 41.3 | 50.1 | 51.4 | 2.7% |
| EBITDA | 29.4 | 31.3 | 32.7 | 39.6 | 44.3 | 11.9% |
| Net Income | 15.5 | 16.2 | 11.9 | 15.4 | 19.9 | 28.8% |
Balance Sheet
|
|---|
| Cash | 72.5 | 62.2 | 75.3 | 76.1 | 87.1 | 14.5% |
| Short Term Debt | 2.9 | 0.0 | 5.6 | 9.8 | 8.7 | -11.4% |
| Long Term Debt | 0.5 | 3.3 | 29.8 | 27.8 | 19.4 | -30.3% |
Cash flow
|
|---|
| Capex | 5.3 | 5.0 | 5.0 | 5.2 | 4.5 | -12.4% |
Ratios
|
|---|
| Revenue growth | 13.3% | 7.1% | 14.6% | 28.0% | 10.2% | |
| EBITDA growth | 6.8% | 6.6% | 4.4% | 21.0% | 11.9% | |
|
|---|
| Gross Margin | 39.3% | 35.7% | 33.9% | 32.1% | 31.2% | -0.9% |
| EBITDA Margin | 17.9% | 17.8% | 16.2% | 15.3% | 15.6% | 0.2% |
| SG&A, % of revenue | 15.0% | 20.7% | 20.5% | 19.4% | 18.1% | -1.3% |
| Net Income Margin | 9.4% | 9.2% | 5.9% | 6.0% | 7.0% | 1.0% |
| CAPEX, % of revenue | 3.2% | 2.8% | 2.5% | 2.0% | 1.6% | -0.4% |
|
|---|
| ROIC | 12.2% | 10.6% | 8.9% | 9.4% | 10.6% | 1.2% |
| ROE | 9.9% | 8.6% | 6.1% | 7.6% | 8.8% | 1.2% |
| Net Debt/EBITDA | -2.4x | -1.9x | -1.2x | -1.0x | -1.3x | -0.4x |
Magic Software Enterprises Ltd. ($MGIC) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 70 | 70 | 72 | 72 | | 14.8% | 7.2% | 9.9% | 9.1% |
| EBITDA | 11 | 11 | 11 | 12 | | 8.6% | 15.2% | 3.3% | 21.3% |
| Net Income | 5 | 6 | 5 | 5 | | 7.4% | 59.6% | 32.8% | 19.6% |
Balance Sheet
|
|---|
| Cash | 73 | 78 | 107 | 87 | | -18.7% | -10.4% | 38.3% | 14.5% |
| Short Term Debt | 10 | 9 | 9 | 9 | | 26.5% | -0.6% | -8.8% | -11.4% |
| Long Term Debt | 27 | 25 | 25 | 19 | | -23.5% | -30.5% | -22.9% | -30.3% |
Ratios
|
|---|
| Gross Margin | 33.3% | 31.3% | 29.8% | 30.6% | | 0.9% | -0.4% | -2.7% | -1.4% |
| EBITDA Margin | 15.4% | 15.9% | 15.1% | 15.9% | | -0.9% | 1.1% | -1.0% | 1.6% |
| Net Income Margin | 6.6% | 8.1% | 7.0% | 6.3% | | -0.4% | 2.7% | 1.2% | 0.5% |
Peers in Application Software
Below you can find Magic Software Enterprises Ltd. benchmarking vs. other companies in Application Software 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 |
|---|
| nFusz Inc ($FUSZ) | | | | | 433.3% |
| CloudCommerce Inc ($CLWD) | | -38.1% | 247.6% | 40.9% | 301.1% |
| Seven Stars Cloud Group, Inc. ($SSC) | | 134.7% | 663.8% | 310.3% | 161.7% |
| Aurora Mobile Limited ($JG) | | | | 304.9% | 150.8% |
| Intelligent Systems Corporation ($INS) | | 14.2% | 71.0% | 12.2% | 119.0% |
| |
|---|
| Median (151 companies) | -43.3% | 14.0% | 13.6% | 14.8% | 15.2% |
|---|
| Magic Software Enterprises Ltd. ($MGIC) | | 7.1% | 14.6% | 28.0% | 10.2% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Skkynet Cloud Systems Inc ($SKKY) | 99.7% | 97.4% | 98.0% | 97.6% | 96.5% |
| hopTo Inc ($HPTO) | 91.8% | 87.8% | 95.9% | 98.2% | 95.4% |
| Aware, Inc. ($AWRE) | 75.4% | 87.2% | 90.3% | 94.6% | 92.3% |
| Alteryx, Inc. ($AYX) | 77.5% | 80.5% | 81.3% | 83.4% | 91.0% |
| Aspen Technology, Inc. ($AZPN) | 86.5% | 88.7% | 89.7% | 90.2% | 89.9% |
| |
|---|
| Median (150 companies) | 63.4% | 61.9% | 64.2% | 64.6% | 66.1% |
|---|
| Magic Software Enterprises Ltd. ($MGIC) | 39.3% | 35.7% | 33.9% | 32.1% | 31.2% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Aspen Technology, Inc. ($AZPN) | 34.5% | 42.2% | 46.0% | 45.2% | 43.3% |
| ANSYS, Inc. ($ANSS) | 45.9% | 45.8% | 45.1% | 41.9% | 41.4% |
| Paycom Software, Inc. ($PAYC) | 15.1% | 19.5% | 35.1% | 34.4% | 35.9% |
| j2 Global, Inc. ($JCOM) | 41.6% | 40.6% | 41.7% | 36.5% | 35.7% |
| Adobe Inc. ($ADBE) | 17.5% | 25.9% | 31.2% | 34.2% | 35.3% |
| |
|---|
| Median (152 companies) | -10.3% | -10.7% | -5.3% | -4.2% | -3.3% |
|---|
| Magic Software Enterprises Ltd. ($MGIC) | 17.9% | 17.8% | 16.2% | 15.3% | 15.6% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| TimefireVR Inc ($TFVR) | 0.0% | 350.5% | 4.3% | | 1,021.9% |
| MGT Capital Investments Inc ($MGTI) | 0.0% | 36.5% | 221.4% | 129.8% | 344.5% |
| Integrated Ventures Inc ($INTV) | | | | | 199.9% |
| ShotSpotter, Inc. ($SSTI) | | 18.3% | 28.9% | 27.1% | 24.3% |
| Ellie Mae, Inc. ($ELLI) | 12.3% | 20.6% | 16.7% | 21.1% | 19.4% |
| |
|---|
| Median (153 companies) | 2.8% | 2.7% | 3.0% | 2.3% | 2.4% |
|---|
| Magic Software Enterprises Ltd. ($MGIC) | 3.2% | 2.8% | 2.5% | 2.0% | 1.6% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InsPro Technologies Corp ($ITCC) | -558.9% | | | | 127.4% |
| Manhattan Associates, Inc. ($MANH) | 64.8% | 78.7% | 99.3% | 102.5% | 80.9% |
| Intuit Inc. ($INTU) | 34.2% | 23.7% | 52.1% | 72.6% | 66.8% |
| Aspen Technology, Inc. ($AZPN) | 133.4% | | | | 58.1% |
| Paycom Software, Inc. ($PAYC) | 16.7% | 30.5% | 75.4% | 51.1% | 47.5% |
| |
|---|
| Median (179 companies) | -14.4% | -13.1% | -9.8% | -11.8% | -10.4% |
|---|
| Magic Software Enterprises Ltd. ($MGIC) | 12.2% | 10.6% | 8.9% | 9.4% | 10.6% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Upland Software, Inc. ($UPLD) | | | 16.4x | 115.6x | 16.7x |
| Nuance Communications, Inc. ($NUAN) | 7.9x | 5.7x | 5.3x | 7.1x | 15.2x |
| Asure Software Inc ($ASUR) | 3.4x | 4.5x | 3.6x | 9.5x | 14.5x |
| SS&C Technologies Holdings, Inc. ($SSNC) | 1.7x | 7.3x | 4.6x | 3.1x | 8.5x |
| Avaya Holdings Corp. ($AVYA) | | | | | 7.4x |
| |
|---|
| Median (69 companies) | -1.2x | -0.9x | -0.9x | -0.8x | -0.6x |
|---|
| Magic Software Enterprises Ltd. ($MGIC) | -2.4x | -1.9x | -1.2x | -1.0x | -1.3x |
