PITECO S p A : CFO SIM EQUITY RESEARCH – Piteco Group H1 2020 results

Piteco SpA

Italy - Software	Recurring revenues at 68% of total: almost a utility!

29th September 2020

H1-20 RESULTS RELEASE

RIC: PITE.MI

BBG: PITE IM

A good set of results, consolidating the growing trend of the treasury

management business and strengthening the share of recurring

revenues. The COVID-19 pandemic temporarily slowed down the clients'acquisition process, although the first months of the year showed increasing demand for Piteco's products and services.

Rating:

Buy

Price Target:

• 9.40 (€ 7.00)

Upside/(Downside): 22.4%

Last Price: € 7.68

Market Cap.: € 147.7

1Y High/Low: € 8.76/€ 4.54

Free Float: 28.4%
Major shareholders:
Podini Family	63.4%
Management	5.4%

8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
set-19nov-19	gen-20mar-20mag-20lug-20	set-20
Piteco	Thompson Reuters Software EU

Stock price performance

		1M		3M	12M
	Absolute	-1.3%		20.8%	49.1%
	Rel.to FTSE Italia	-0.4%		12.6%	39.6%
	Rel.to EU Sector	-2.2%		-1.1%	-12.4%

Analysts:

Luca Arena

[phone] [e-mail]

Gianluca Mozzali

[phone] [e-mail]

Results confirm stock resiliency: Buy reiterated, new PT of € 9.40 (€ 7.00)

Interim results were characterised by significant resiliency, thanks to Piteco's business model characterised by a large amount of recurring revenues, services and software sales to captive clients. We updated our model factoring in higher growth and profitability for 2020 and leaving 2021-22 growth rates and margins basically unchanged. The result is a 2.8% and 8.9% average upgrade in Sales and Net Profit, in 2020-22, respectively. We

have updated the DCF valuation criteria and brought the Free Risk Rate up-to-date. The combined result is an upgrade in PT to € 9.40/s (€ 7.00/s), 22.4% upside to current prices. We confirm the Buy: in this turmoil, Piteco represents a defensive player.

Revenues grew 7.8% YoY, reaching € 12.0m driven by the parent-co Piteco SpA

H1-20 revenues grew by 7.8% YoY to € 12.0m, driven by the positive performance recorded by the treasury management business. Piteco's sales grew by 10.7% YoY to € 8.2m, thanks to the acquisition of several new customers in the first two months of 2020 only partially counterbalanced by some slowdown in demand stemming from the spread of COVID-19. Nevertheless, the market dynamism at the beginning of 2020 displayed corporate clients' increasing interest in Piteco's products and services. Juniper Payments reported revenues of € 2.3m, broadly in line with H1-19 as a result of not acquiring any new clients in the first half of 2020 mainly because of the uncertainty generated by the rapid expansion of the COVID-19 pandemic. Myrios' revenues totalled € 1.5m, up 3.7% YoY. As of 30th June, recurring revenues increased by 5% YoY (68% of total revenues).

EBITDA up by 11.6% YoY, margin to 40.5% +140bps

EBITDA increased by 11.6% to € 4.8m, 40.5% margin (vs. € 4.3m, 39.1% margin in H1- 19), thanks to operating costs growing less than proportionally to the top line (+5.3% vs. +7.8%) mainly as a result of the operating leverage sustained by higher volumes. The rise in operating costs was attributable to growing personnel expenses due to the recruitment of new resources supporting the launch of new products. Net profit was € 2.3m, 19.3%

margin (up by 12.8% YoY).

Massive operating cash flow, 65% of sales and 149% of EBITDA

Operating Cash Flow totalled € 7.2m, 65% of net sales and 149% of EBITDA. After 1) dividend distribution of € 3.5m, 2) Myrios' earn-out payments of up to € 2.0m and 3) the € 0.5m acquisition of Everymake, Net Financial Position was negative for € 11.5m, clearly

improved compared to € 14.6m in Dec-19. Including the put options for the acquisition of the minority stakes of Juniper Payments and Myrios, NFP reached € 24.4m, o/w at least 50% corresponding to the value of Myrios' put option, to be paid via Piteco shares.

Piteco, key financials and ratios

	€ m		2018		2019	2020e		2021e	2022e
	Sales		20.21		24.04	25.71		26.85	28.25
	EBITDA
		8.27		10.24	10.96		11.68	12.62
	EBITDA adjusted		8.27		10.24	10.96		11.68	12.62
	EBIT		6.40		7.26	7.99		8.75	9.67
	Net profit		5.27		3.02	5.98		6.72	7.62
	Net profit adjusted		5.07		5.69	5.98		6.72	7.62
	EPS adjusted		0.28		0.31	0.33		0.37	0.42
	EPS adj. growth		44.5%		12.4%	5.1%		12.3%	13.4%
	DPS ord. €/s		0.15		0.15	0.19		0.22	0.24
	Dividend yield		2.0%		2.0%	2.5%		2.8%	3.2%
	NFP (cash)/debt
		26.77		27.46	22.37		17.08	11.38
	Free Cash Flow Yield		8.0%		4.8%	5.7%		6.0%	6.6%
	PER x		16.4		16.5	24.7		22.0	19.4
	PCF x		11.4		12.9	16.1		15.4	14.1
	EV/Sales x		5.4		5.0	6.6		6.1	5.6
	EV/EBITDA x		13.3		11.9	15.5		14.1	12.6
	EV/EBIT x		17.2		16.7	21.3		18.8	16.5

Piteco SpA

Income statement (€ m)	2018	2019	2020e	2021e	2022e
Total revenues	20.21	24.04	25.71	26.85	28.25
Material expenses	0.31	0.15	0.16	0.16	0.17
Change in inventories	0.00	0.00	0.00	0.00	0.00
Personnel expenses	8.12	9.37	9.91	10.01	10.11
Other operating expenses/(income)	3.52	4.28	4.68	4.99	5.35
EBITDA	8.27	10.24	10.96	11.68	12.62
EBITDA adj.	8.27	10.24	10.96	11.68	12.62
D&A	1.87	2.98	2.97	2.94	2.95
EBIT	6.40	7.26	7.99	8.75	9.67
Financial charges/(income)	(0.05)	3.15	1.12	1.02	0.92
Other costs & extraordinaries & other	0.72	0.43	0.00	0.00	0.00
Pre-Tax profit	5.73	3.68	6.88	7.72	8.75
Income taxes	0.47	0.66	0.89	1.00	1.14
Net Profit	5.27	3.02	5.98	6.72	7.62
Net Profit Adjusted	5.07	5.69	5.98	6.72	7.62
Balance sheet (€ m)	2018	2019	2020e	2021e	2022e
Net Working Capital	4.14	5.55	5.54	5.71	6.01
Net Fixed Assets	60.40	60.92	59.22	57.06	54.89
Equity Investments	0.00	0.02	0.02	0.02	0.02
Other M/L Term A/L	(6.63)	(7.61)	(7.90)	(8.07)	(8.32)
Net Invested Capital	57.91	58.88	56.89	54.73	52.61
Net Financial Debt	26.77	27.46	22.37	17.08	11.38
Minorities	0.00	0.00	0.00	0.00	0.00
Group's Shareholders Equity	31.14	31.42	34.52	37.65	41.23
Financial Liabilities & Equity	57.91	58.88	56.89	54.73	52.61
Cash Flow statement (€ m)	2018	2019	2020e	2021e	2022e
Total net income	5.27	3.02	5.98	6.72	7.62
Depreciation	1.87	2.98	2.97	2.94	2.95
Other non-cash charges	0.52	2.67	0.24	0.13	0.21
Cash Flow from Oper. (CFO)	7.65	8.67	9.19	9.79	10.77
Change in NWC	(0.79)	(1.41)	0.01	(0.17)	(0.30)
FCF from Operations (FCFO)	6.87	7.26	9.20	9.62	10.47
Net Investments (CFI)	(23.26)	(0.13)	(1.28)	(0.78)	(0.78)
Free CF to the Firm (FCFF)	(16.40)	7.13	7.93	8.84	9.70
CF from financials (CFF)	16.81	(9.65)	(6.01)	(6.40)	(6.56)
Free Cash Flow to Equity (FCFE)	0.42	(2.53)	1.92	2.44	3.14
Financial ratios	2018	2019	2020e	2021e	2022e
EBITDA margin	40.9%	42.6%	42.6%	43.5%	44.7%
EBIT margin	31.7%	30.2%	31.1%	32.6%	34.2%
Net profit margin	26.0%	12.6%	23.3%	25.0%	27.0%
Tax rate	8.1%	18.0%	13.0%	13.0%	13.0%
Interest coverage x	(0.01)	0.43	0.14	0.12	0.09
Net Debt/Ebitda x	3.24	2.68	2.04	1.46	0.90
Debt-to-Equity x	0.86	0.87	0.65	0.45	0.28
ROIC	11.2%	5.2%	10.3%	12.0%	14.2%
ROCE	9.5%	10.7%	11.8%	12.8%	14.0%
ROACE	11.6%	10.7%	11.8%	12.9%	14.1%
ROE	17.2%	9.6%	18.2%	18.6%	19.3%
Payout ratio	51.7%	95.6%	60.0%	60.0%	60.0%
Per share figures	2018	2019	2020e	2021e	2022e
Final N. of shares # m	18.1	19.2	19.2	19.2	19.2
Final N. of shares (fully diluted) # m	18.1	19.2	19.2	19.2	19.2
Average N. of shares (fd)# m	18.1	19.2	19.2	19.2	19.2
EPS stated €	0.29	0.16	0.31	0.35	0.40
EPS adjusted €	0.29	0.16	0.31	0.35	0.40
EBITDA €	0.46	0.53	0.57	0.61	0.66
EBIT €	0.35	0.38	0.42	0.45	0.50
FCFO €	0.38	0.38	0.48	0.50	0.54
FCFF €	(0.90)	0.37	0.41	0.46	0.50
FCFE €	0.02	(0.13)	0.10	0.13	0.16
Dividend €	0.15	0.15	0.19	0.22	0.24

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 service companies (40%).

FY-19 turnover grew 18.9% to € 24.0m, driven by the increase in recurring revenues, the acquisition of 40 new clients and the Myrios contribution for the entire year. EBITDA declined 5.2% to € 10.2m, 42.6% margin, slightly lower than our estimates, mainly as a result of Juniper's flat performance. PIteco's client base currently comprises some 730 firms operating in over 40 countries: a significant number of them are listed on the Italian stock exchange whereas 98% record a turnover of more than€ 100m.

2019 revenues and…		… and client profile (sales) breakdown
14%				2%
				43%
26%				55%
60%
Maintenance fees Services		Software				< € 100m sales		€ 100m - € 500m		> € 500m sales

Shareholder structure

	%	# m
Podini Family	63.4%	12.2
Dedagroup S.p.A.	52.3%	10.1
Marco Podini	5.4%	1.0
Maria Luisa Podini	5.4%	1.0
Francesca Zanella	0.3%	0.1
Lillo S.p.A.	0.2%	0.0
Management	5.4%	1.0
Andrea Guido Guillermaz	1.8%	0.3
Riccardo Veneziani	1.8%	0.3
Paolo Virenti	1.8%	0.3
Free Float	28.4%	5.5
Ennismore Fund Management	7.3%	1.4
Treasury shares	2.8%	0.5
Total	100.0%	19.2

Source: Company data

Peer group absolute performance

	1D	1W	1M	3M	6M	YTD
Intuit Inc	2.2	5.8	(5.7)	13.1	36.8	24.3
Microsoft Corp	0.8	3.4	(7.1)	5.5	30.7	32.8
Oracle Corp	(0.4)	(2.0)	4.1	8.8	18.3	12.5
Salesforce.com Inc	1.6	0.7	(9.5)	34.5	64.6	51.7
SAP SE	3.6	2.8	(2.4)	10.0	31.8	11.9
Median large players	1.6	2.8	(5.7)	10.0	31.8	24.3
Datalogic SpA	1.3	2.1	6.3	7.9	8.0	(28.8)
Digital Bros SpA	(3.0)	(0.7)	(3.8)	1.2	107.3	71.1
Expert System SpA	(0.2)	(1.5)	(15.1)	(20.8)	9.0	(24.5)
Exprivia SpA	0.3	(7.8)	(15.6)	(22.4)	(8.0)	(23.5)
Reply SpA	2.3	4.4	6.5	38.4	91.6	42.6
TXT e solutions SpA	0.0	(0.7)	(3.8)	(0.9)	18.6	(23.4)
Median small players	0.2	(0.7)	(3.8)	0.1	13.8	(23.4)
Piteco SpA	2.4	2.4	(1.3)	20.8	42.2	20.9

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	38.2	33.5	35.5	31.5	9.7	8.5	26.1	22.7	27.6	23.8
Microsoft Corp	32.5	28.9	25.2	22.4	9.6	8.5	20.6	18.0	25.6	22.3
Oracle Corp	14.3	13.7	12.7	12.3	5.3	5.1	10.7	10.2	11.6	11.1
Salesforce.Com Inc	66.0	64.0	37.6	36.1	10.5	8.8	35.2	29.3	60.4	47.0
SAP SE	27.2	24.6	22.6	19.8	6.2	5.6	18.5	16.2	21.3	19.2
Median large player	32.5	28.9	25.2	22.4	9.6	8.5	20.6	18.0	25.6	22.3
Datalogic SpA	66.3	19.7	19.5	12.1	1.5	1.3	16.1	9.9	38.5	14.5
Digital Bros SpA	18.7	17.4	9.1	9.4	1.9	1.7	7.2	6.7	12.5	10.8
Expert System SpA	n.m.	n.m.	n.m.	n.m.	4.1	3.3	73.9	n.m.	n.m.	n.m.
Exprivia SpA	(3.0)	6.6	1.7	3.0	0.4	0.4	4.0	4.2	(6.9)	6.2
Reply SpA	34.0	29.9	25.3	22.5	2.8	2.5	18.3	15.8	22.8	19.4
TXT e solutions SpA	29.1	21.5	15.3	13.9	2.1	1.4	17.4	11.6	27.8	16.1
Median small player	29.1	19.7	15.3	12.1	2.0	1.6	16.8	9.9	22.8	14.5
Piteco SpA	24.6	21.9	16.5	15.3	6.6	6.1	15.5	14.1	21.2	18.8

Source: CFO Sim, Thomson Reuters Eikon

3

Piteco SpA

Higher volumes boosted margins and Op. Cash Flow

Piteco recorded a good set of 2020 interim results, consolidating the growing trend of the treasury management business and strengthening the share of recurring revenues. The COVID-19 pandemic temporarily slowed down the client acquisition process, although the first months of the year showed increasing demand for Piteco's products and services. Margin improvement was achieved thanks to the operating leverage sustained by higher volumes.

Table 1 - Piteco, H1-20 results summary

€ m	H1-20	H1-19	% YoY
Turnover	12.0	11.1	7.8
Piteco (treasury management)	8.2	7.4	10.7
Juniper (banking)	2.3	2.3	0.7
Myrios (risk management)	1.5	1.4	3.7
Raw material	(0.1)	(0.2)
Services & other costs	(2.0)	(2.0)
Personnel	(5.0)	(4.6)
EBITDA	4.8	4.3	11.6
% margin	40.5	39.1
Piteco (treasury management)	3.5	2.8	23.5
% margin	42.7	38.3
Juniper (banking)	0.7	0.8	(15.6)
% margin	28.6	34.1
Myrios (risk management)	0.7	0.7	(5.9)
% margin	46.5	51.2
D&A	(1.7)	(1.4)
EBIT	3.1	2.9	5.5
% margin	25.9	26.5
Financials	(0.3)	(0.5)
Extraordinary	0.0	(0.1)
Pre-tax Profit	2.8	2.3	23.3
Taxes	(0.5)	(0.2)
Tax rate	17.4	9.7
Minorities	0.0	0.0
Net profit	2.3	2.0	12.8
% margin	19.3	18.5
NFP excl. PUT Options*	11.5	14.6	(21.2)
NFP incl. PUT Options *	24.4	27.5	(11.0)

Source: company data *H1-20 figure compared to NFP at end-19

H1-20 revenues grew by 7.8% YoY to € 12.0m, driven by the positive performance recorded by the treasury management business (namely the parent-coPiteco SpA).

• Piteco's sales grew by 10.7% YoY to € 8.2m, thanks to the acquisition of several new customers in the first two months of 2020, only partially counterbalanced by some slowdown in demand stemming from the spread of COVID-19.Nevertheless, the market dynamism at the beginning of 2020 displayed corporate clients' increasing interest in Piteco's products and services.
• Juniper Payments reported revenues of € 2.3m, broadly in line with H1-19as a result of not acquiring any new clients in the first half of 2020 mainly because of the uncertainty generated by the rapid expansion of the COVID-19pandemic. In other words, Juniper was able to record a steady turnover despite the lack of new clients since almost 100% of its sales are represented by recurring fees.
• Myrios' revenues totalled € 1.5m, up 3.7% YoY.

As of 30th June 2020, recurring revenues increased by 5% YoY accounting for 68% of total revenues.

4