PITECO S p A : CFO SIM EQUITY RESEARCH – Piteco Group FY 2020 results

Piteco SpA

Italy - Software	Setting the pace in a challenging context

29th March 2021

FY-20 RESULTS RELEASE

RIC: PITE.MI

BBG: PITE IM

Piteco reported unchanged results in terms of top line and profitability in

a year characterised by the pandemic. Piteco TMS showed strong

resiliency in this difficult scenario. Recurring revenues amounted to 64% of total. EBITDA margin remained stably above 40%. Operating Cash Flow reached 46% of sales and 110% of EBITDA.

Rating:

Neutral (Buy)

Price Target:

• 11.30

Upside/(Downside): 9.7%

Last Price: € 10.30

Market Cap.: € 207.3m

1Y High/Low: € 12.10/€ 5.10

Free Float: 25.9%
Major shareholders:
Podini Family	63.8%
Management	6.6%

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mar-20mag-20	lug-20	set-20nov-20gen-21	mar-21
Piteco	Thompson Reuters Software EU

Stock price performance

		1M		3M	12M
	Absolute	-5.9%		8.4%	102.0%
	Rel.to AIM Italia	-6.7%		2.7%	26.3%
	Rel.to EU Sector	6.9%		10.3%	40.9%

Analysts:

Luca Arena

[phone] [e-mail]

Gianluca Mozzali

[phone] [e-mail]

PT offers 9.7% upside: Rating downgraded to Neutral (Buy)

Piteco reported flat 2020 results in terms of top line and profitability, lower than our projections and consensus. We have fine-tuned our estimates: the result is a cut of 5%, 6% and 2% in top line, EBITDA and Net Profit respectively, on average, in 21-22. We have updated our DCF valuation criteria and postponed our first valuation projection by one year. The combined result is a PT unchanged at € 11.30/s, 9.7% upside. The limited

upside to PT leads us to downgrade the rating to Neutral (Buy). After the stock's recent grueling rise following the valuation boost brought in by the RAD acquisition, the price of the stock could enter in a meditative phase, awaiting confirmation of the expected recovery in growth at the time of the next earnings release.

TMS unit drove top line progression

FY-20 turnover grew 2.8% to € 24.7m as a result of 1) +4.5% YoY recorded by the parent company Piteco SpA (Treasury Management Software) also thanks to the increase in recurring revenues, reaching 64% of total (60% in 2019); 2) € 0.7m stemming from the RAD contribution. This trend was only partially counterbalanced by 1) a 4.6% decline of Juniper due to the lack of new clients, since almost 100% of sales are represented by recurring fees and 2) a 15.4% drop of Myrios, due to difficulties in signing contracts related to complex projects without physical meetings. Organically revenues were flat.

EBITDA almost unchanged in a difficult year, margin stayed above 40%

EBITDA was € 9.9m, down 3.0% YoY, lower than our € 11.5m forecast and consensus. Piteco TMS grew by 4.4% to € 6.9m, Juniper declined by 17.0% and Myrios dropped by 31.2%. The recently acquired RAD contributed for € 300k. Organically, EBITDA declined by 6.0%. The flatness of profitability is entirely due to the lack of top line growth. Bottom line soared to € 7.1m, vs. € 3.0m in 2019, better than our € 6.2m projection and sustained by higher pre-tax profit and a lighter tax rate.

Massive operating cash flow, 46% of sales and 110% of EBITDA

Operating Cash Flow was € 10.9m. Net Financial Position reached € 65.0m, compared to

• 27.5m as at 31 December 2019, in line with our forecast. This increase is due to the two M&A operations carried out in 2020: 1) the purchase of Everymake and 2) the acquisition of the 70% majority stake of Rad Informatica Srl, paid for respectively € 0.5m and €
  34.8m. In addition, the company distributed a € 2.7m dividend in 2020. Excluding the aforementioned options, NFP totalled € 40.3m. The BoD will propose to the next AGM a € 0.15/s dividend, corresponding to a 74% pay-out ratio and a 1.5% yield at current prices. In Q1-21 Piteco has launched the new version of the Piteco Evo 5.0 product on the market together with IDM, the new suite for data matching, confirming the soundness of the investments and strategies implemented.

Piteco, key financials and ratios

	€ m		2019		2020	2021e		2022e	2023e
	Sales		24.0		24.7	37.3		40.1	43.1
	EBITDA		10.2		9.9	17.7		19.4	21.3
	EBITDA adjusted		10.2		9.9	17.7		19.4	21.3
	EBIT		7.3		6.3	11.3		13.1	13.8
	Net profit		3.0		7.1	9.4		11.1	11.8
	Net profit adjusted		5.7		6.1	9.4		11.1	11.8
	EPS adjusted		0.31		0.34	0.52		0.61	0.65
	EPS adj. growth		12.4%		8.0%	53.1%		18.2%	6.0%
	DPS ord. €/s		0.15		0.15	0.15		0.20	0.20
	Dividend yield		1.5%		1.5%	1.5%		1.9%	1.9%
	NFP (cash)/debt		27.5		65.0	47.8		33.1	17.5
	Free Cash Flow Yield		3.4%		8.0%	9.6%		8.5%	9.4%
	PER x		16.5		21.3	22.0		18.6	17.6
	PCF x		12.4		5.4	9.8		11.0	9.9
	EV/Sales x		5.0		7.9	6.8		6.0	5.2
	EV/EBITDA x		11.9		19.7	14.4		12.4	10.6
	EV/EBIT x		16.7		31.0	22.6		18.3	16.3

Piteco SpA

Income statement (€ m)	2019	2020	2021e	2022e	2023e
Turnover	24.0	24.7	37.3	40.1	43.1
Raw Material	(0.1)	(0.4)	(0.4)	(0.3)	(0.3)
Services	(4.1)	(3.9)	(5.7)	(6.0)	(14.5)
Personnel expenses	(9.4)	(10.3)	(12.9)	(13.7)	(6.3)
Other Costs	(0.1)	(0.2)	(0.7)	(0.7)	(0.7)
EBITDA	10.2	9.9	17.7	19.4	21.3
EBITDA adj.	10.2	9.9	17.7	19.4	21.3
D&A	(3.0)	(3.6)	(6.4)	(6.3)	(7.5)
EBIT	7.3	6.3	11.3	13.1	13.8
Financial (charges)/income	(0.5)	(1.1)	(0.8)	(0.8)	(0.7)
Other costs & extraordinaries & other	(0.4)	(1.0)	0.0	0.0	0.0
Pre-Tax profit	6.4	4.2	10.5	12.4	13.1
Income taxes	(0.7)	(0.2)	(1.0)	(1.2)	(1.3)
Net Profit	3.0	7.1	9.4	11.1	11.8
Net Profit Adjusted	5.7	6.1	9.4	11.1	11.8
Balance sheet (€ m)	2019	2020	2021e	2022e	2023e
Net Working Capital	5.5	4.6	7.9	8.5	9.2
Net Fixed Assets	60.9	124.4	119.5	114.5	108.4
Equity Investments	0.0	0.0	0.0	0.0	0.0
Other M/L Term A/L	(7.6)	(20.1)	(29.3)	(31.5)	(33.8)
Net Invested Capital	58.9	109.0	98.1	91.6	83.8
Net Financial Debt	27.5	65.0	47.8	33.1	17.5
Minorities	0.0	0.0	0.0	0.0	0.0
Group's Shareholders Equity	31.4	44.0	50.4	58.5	66.2
Financial Liabilities & Equity	58.9	109.0	98.1	91.6	83.8
Cash Flow statement (€ m)	2019	2020	2021e	2022e	2023e
Total net income	3.0	7.1	9.4	11.1	11.8
Depreciation	3.0	3.6	6.4	6.3	7.5
Other non-cash charges	2.7	12.5	8.8	2.1	2.3
Cash Flow from Oper. (CFO)	8.7	23.2	24.5	19.5	21.5
Change in NWC	(1.4)	0.9	(3.3)	(0.6)	(0.6)
FCF from Operations (FCFO)	7.3	24.1	21.2	19.0	20.9
Net Investments (CFI)	(0.1)	(67.2)	(1.4)	(1.4)	(1.4)
Free CF to the Firm (FCFF)	7.1	(43.0)	19.9	17.6	19.5
CF from financials (CFF)	(9.7)	51.1	(10.7)	(9.9)	(10.3)
Free Cash Flow to Equity (FCFE)	(2.5)	8.0	9.1	7.6	9.3
Financial ratios	2019	2020	2021e	2022e	2023e
EBITDA margin	42.6%	40.2%	47.4%	48.5%	49.3%
EBIT margin	30.2%	25.5%	30.3%	32.8%	32.0%
Net profit margin	12.6%	28.7%	25.2%	27.8%	27.4%
Tax rate	10.4%	3.7%	10.0%	10.0%	10.0%
Interest coverage x	0.1	0.2	0.1	0.1	0.0
Net Debt/Ebitda x	2.7	6.5	2.7	1.7	0.8
Debt-to-Equity x	0.9	1.5	0.9	0.6	0.3
ROIC	5.2%	8.5%	9.1%	11.7%	13.4%
ROCE	10.7%	4.7%	8.0%	9.1%	9.4%
ROACE	10.7%	6.2%	8.2%	9.2%	9.5%
ROE	9.6%	18.8%	19.9%	20.4%	18.9%
Payout ratio	95.6%	42.7%	32.2%	36.3%	34.2%
Per share figures	2019	2020	2021e	2022e	2023e
Final N. of shares # m	19.2	20.2	20.2	20.2	20.2
Final N. of shares (fully diluted) # m	19.2	20.2	20.2	20.2	20.2
Average N. of shares (fd)# m	18.7	19.7	20.2	20.2	20.2
EPS stated €	0.16	0.36	0.47	0.55	0.58
EPS adjusted €	0.16	0.36	0.47	0.55	0.58
EBITDA €	0.55	0.50	0.88	0.96	1.05
EBIT €	0.39	0.32	0.56	0.65	0.68
FCFO €	0.39	1.22	1.05	0.94	1.04
FCFF €	0.38	(2.18)	0.98	0.87	0.97
FCFE €	(0.14)	0.41	0.45	0.38	0.46
Dividend €	0.15	0.15	0.15	0.20	0.20

2

Piteco SpA

The company at a glance

Piteco, more than 4x the size of its closest competitors, is the undisputed domestic leader in corporate treasury management and financial planning software. The company designs, develops and implements proprietary software and solutions for corporate cash and risk management. It focuses on large/mid enterprises operating in all industries except public administration. The Piteco software is 100% proprietary as well as modular (19 different modules), embeddable (it can work within Oracle, Sap or Microsoft environments), customisable (its open architecture allows several combinations of product modules) and available on foreign markets. The group is developing a challenging internationalisation and diversification process, boosted by the recent acquisitions: 1) Juniper Payments enables Piteco to penetrate the huge US market with a well-managed cash flow generative firm, paid for fairly cheaply; 2) Myrios widened the group's offer with a risk management, capital markets and compliance software dedicated to banks (60% of the business line turnover) as well as to large manufacturing and services companies (40%).

FY-20 turnover grew 2.8% to € 24.7m, driven by the increase in recurring revenues and the contribution of the TMS unit and RAD for one month. EBITDA remained basically flat at € 9.9m vs € 10m in 2019, slightly lower than our estimates, mainly as a result of the weaker-than-anticipated performance of Juniper and Myrios. PIteco's client base currently comprises some 750 firms operating in over 40 countries: a significant number of them are listed, whereas 98% record a turnover of more than € 100m.

2020 revenues and…		… and client profile (sales) breakdown
7%		2%
29%		43%
		55%
64%
Recurring Fees Services Software Licenses			< € 100m sales		€ 100m - € 500m		> € 500m sales

Shareholder structure

	%	# m
Podini Family	63.8%	12.9
Dedagroup S.p.A.	49.8%	10.1
Marco Podini	6.7%	1.4
Maria Luisa Podini	6.7%	1.4
Francesca Zanella	0.2%	0.1
Lillo S.p.A.	0.3%	0.1
Management	6.6%	1.3
Andrea Guido Guillermaz	2.2%	0.4
Riccardo Veneziani	2.2%	0.4
Paolo Virenti	2.2%	0.4
Free Float	25.9%	5.2
Treasury shares	3.7%	0.7
Total	100.0%	20.2

Source: Company data

Peer group absolute performance

	1D	1W	1M	3M	6M	YTD
Intuit Inc	1.1	(1.2)	(3.5)	(1.2)	18.2	(0.9)
Microsoft Corp	1.8	2.7	1.8	6.2	13.8	6.3
Oracle Corp	2.4	6.0	8.9	8.1	17.5	8.6
Salesforce.com Inc	1.8	(1.5)	(3.4)	(7.4)	(13.9)	(6.0)
SAP SE	0.4	(0.7)	0.8	(0.8)	(20.8)	(4.0)
Median large players	1.8	(0.7)	0.8	(0.8)	13.8	(0.9)
Datalogic SpA	0.6	(4.3)	5.6	23.1	49.0	26.2
Digital Bros SpA	4.0	10.2	18.6	7.2	5.5	7.4
Expert System SpA	0.8	(0.2)	(9.6)	20.6	29.0	15.1
Exprivia SpA	(0.2)	(3.5)	1.2	4.5	30.9	3.7
Reply SpA	0.9	2.2	12.0	13.9	11.2	12.9
TXT e solutions SpA	1.7	13.9	10.0	4.5	4.1	(2.3)
Median small players	0.9	1.0	7.8	10.5	20.1	10.2
Piteco SpA	1.0	2.5	(5.9)	8.4	37.3	9.3

Source: Thomson Reuters Eikon

Peer group multiples table

Price & EV multiples x	PER FY1	PER FY2	PCF FY1	PCF FY2	Sales FY1	Sales FY2	EBITDA FY1	EBITDA FY2	EBIT FY1	EBIT FY2
Intuit Inc	46.5	39.2	41.9	35.7	11.6	9.9	32.4	27.1	35.1	29.2
Microsoft Corp	32.0	29.6	26.5	24.0	10.5	9.3	22.2	19.5	26.1	23.2
Oracle Corp	15.2	14.8	13.5	13.1	5.8	5.8	11.5	11.4	12.5	12.5
Salesforce.Com Inc	57.4	45.5	30.3	25.2	7.2	6.0	24.9	20.3	41.5	32.6
SAP SE	22.8	21.8	17.9	17.4	4.9	4.6	14.8	14.2	17.9	16.8
Median large player	32.0	29.6	26.5	24.0	7.2	6.0	22.2	19.5	26.1	23.2
Datalogic SpA	30.3	22.4	16.8	13.5	n.a.	1.7	n.a.	11.2	n.a.	16.8
Digital Bros SpA	18.6	16.3	10.5	8.3	2.1	1.9	8.3	6.2	13.1	10.5
Expert System SpA	n.m.	n.m.	n.m.	n.m.	5.5	5.0	n.m.	n.m.	n.m.	n.m.
Exprivia SpA	n.m.	6.1	2.3	3.6	0.5	0.5	4.6	4.1	(7.9)	5.5
Reply SpA	30.8	27.2	22.7	20.7	2.6	2.3	15.9	13.9	19.8	17.0
TXT e solutions SpA	18.3	15.7	11.6	9.5	1.1	1.4	9.2	10.4	13.2	16.1
Median small player	24.5	16.3	11.6	9.5	2.1	1.8	8.7	10.4	13.1	16.1
Piteco SpA	22.0	18.6	13.1	11.9	6.8	6.0	14.4	12.4	22.6	18.3

Source: CFO Sim, Thomson Reuters Eikon

3

Piteco SpA

Piteco in a nutshell

Piteco, which stands for "Pianificazione Tesoreria Computerizzata" (computerised treasury planning), is the undisputed domestic leader, over 4x larger than its closest competitors, in the niche of corporate treasury management and financial planning software. The company designs, develops and implements proprietary software and solutions for corporate cash and risk management. It focuses on large/mid enterprises operating in every industry except public administration. The group also operates in the digital payment and clearing house sectors serving approximately 3,500 American banks.

The group has four business lines:

1. Piteco - A leading domestic software house for proprietary solutions to corporate cash management and financial planning, serving 650 large industrial groups active in a highly diversified number of sectors. Piteco has over 30 years of track record and covers all different links on the software value chain: R&D, project, development, implementation, sales and assistance. The software is 100% proprietary and is modular (19 different modules), embeddable (can work within Oracle, Sap or Microsoft environments), customisable (open architecture allows relevant combinations of product modules) and available on foreign markets.
2. Myrios - an Italian software house offering treasury, risk management, capital markets and compliance software to banks and large corporations. The firm has developed Myrios Financial Modelling, a software solution dedicated to the manufacturing and services industries (40% of the business line's turnover) as well as to banks (60%). More than 50% of Myrios's turnover is represented by recurring fees, granting relevant cash-flowvisibility.
3. Juniper payments - a leading US software house, with proprietary solutions for digital payment services and clearing houses serving approximately 3,500 American banks and managing the settlement of Interbank financial flows (bank transfers and check collection) for over $ 3bn/day. It can be considered one of the largest US interbank networks. JUNIPER was established in Apr-17 to acquire the assets from LendingTools.com Inc., a US company established in 2000.
4. RAD - an Italian software house which has developed a management tool that connects all those interested in the operational management of NPL and litigation, allowing information sharing, file work progress and all procedural aspects and cooperation in real time. The company, established twenty years ago thanks to the expertise and experience that the founding members had gained in the fields of credit management and software development, today boasts key know-how in the process of debt collection at legal and extrajudicial levels. The company holds 70% of the Italian market and employs a team of over 50 highly skilled analysts and developers.

Piteco's FY-20 turnover grew 2.8% to € 24.7m, driven by the increase in recurring revenues, the contribution of the TMS unit and RAD for one month. EBITDA remained basically flat at € 9.9m vs € 10m in 2019, slightly lower than our estimates, mainly as a result of the weaker-than-anticipated performance of Juniper and Myrios.

The client base currently comprises some 730 firms, a relevant number of which are listed on the Italian stock exchange, with turnover exceeding € 100m with regard to

98% of them, and operating in more than 40 countries. Piteco's long customer list and widespread presence in a large variety of industries significantly reduce its dependence on a key client/sector.

4

Piteco SpA

Chart 1 - Piteco, 2020 revenue and client profile (turnover size) breakdown

7%

2%

29%

43%

55%

64%

Recurring Fees Services Software Licenses		< € 100m sales		€ 100m - € 500m		> € 500m sales

Source: Company data

The group operates in seven sites (Milan, Rome, Padua, Turin, Salerno, Geneva and Wichita US), with 156 staff members:

• 6 managers/founding partners: Paolo Virenti (CEO Piteco), Riccardo Veneziani (CFO Piteco), Andrea Guillermaz (Sales Director Piteco), Marco Pecetto (CEO Myrios), Corrado Costa (CEO RAD) and Vanes Bolandrini (General Manager RAD);
• 8 administration staff;
• 6 staff members employed in competence centre (research), skilled resources in treasury & finance. These people are involved in the study and design of new functions;
• 40 staff members in delivery: skilled resources in treasury and finance with focus on consulting and developing the project in accordance to customer needs. In addition, they are involved in the sale of additional services to existing customers, with an average 180 days/y spent with customers;
• 9 staff members in sales & marketing, focusing on new client development;
• 68 engineers in development: technical resources with analysis and programming skills, and knowledge of the main programming languages and the most sophisticated market technology. They also provide customer services.
• 19 staff members in the subsidiary Juniper Payments, Wichita, Kansas, US.

Piteco was listed on the Milan AIM (Alternative Investment Market) on 31-Jul-15 at € 3.30/share, corresponding to a post-money market capitalization of € 58.9m. The offer was almost entirely represented by new shares (€ 8.5m), existing shares on sale from Sequenza (€ 1.5m, excluding the green-shoe) and € 5m of convertible bond (2015-20, 4.5%, strike at € 4.20/s). The book was oversubscribed by more than 2x the offer size.

The current major shareholder is the Podini family owning 63.8% of the share capital, whereas management holds a 6.6% stake and the free float is 25.9%.

Table 1 - Piteco, Shareholder structure details

	%	# m
Podini Family	63.8%	12.9
Dedagroup S.p.A.	49.8%	10.1
Marco Podini	6.7%	1.4
Maria Luisa Podini	6.7%	1.4
Francesca Zanella	0.2%	0.1
Lillo S.p.A.	0.3%	0.1
Management	6.6%	1.3
Andrea Guido Guillermaz	2.2%	0.4
Riccardo Veneziani	2.2%	0.4
Paolo Virenti	2.2%	0.4
Free Float	25.9%	5.2
Treasury shares	3.7%	0.7
Total	100.0%	20.2

Source: Company data

5