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Synnovia - FY results, encouraging signs

Synnovia - FY results, encouraging signs

Synnovia (LON:SYN) has released its full-year (FY) results to March 2019. These were in line with the forecasts we issued following the April 2019 trading statement. Revenues increased 8.7% to £81.6mln, earnings before interest, tax, depreciation, and amortisation (EBITDA) were up 7.3% at £7.5mln, and earnings per share (EPS) were up 2.1% at 9.7p. We use the company's adjusted profit figures, to exclude the non-cash mark-to-market of foreign exchange (FX) hedging instruments.

The Industrial division and Films division achieved like-for-like revenue growth of 9.7% and 7.5% respectively. In EBITDA terms, positive progress in the Industrial division was broadly offset by the previously disclosed production issues in the Films division, with the group EBITDA up 7.3% after £0.7mln of FX benefit.

The company states that FY to March 2020 is expected to be another year of good progress for the group. We interpret this to mean growth in revenues and earnings, albeit we are now reducing the growth in our forecasts, forecasting revenue of £88mln and EPS growth of 10.3% to 10.7p.

The statement notes that the first quarter (Q1) of FY2020 has been relatively weak due to a pre-Brexit stock build-up in Q4 FY2019 (a negative), but that production issues in the Films division have been largely resolved (a positive). Our forecasts take into account the slow Q1.

Looking further forward, the company has revised its five-year target plan. The previous aim of doubling EBITDA over the five years 2016-2021 is no longer expected to be achieved (we believe this is clear already), and a new target has been set of reaching £15mln EBITDA by 2023/24. We believe that the new target is realistic, and offers compelling upside for shareholders.

At the current share price Synnovia is valued on a March 2020e price/earnings (P/E) ratio of 8.2x. The company has an established record of revenue growth and a significant upside opportunity in improving profit margins. We believe that the valuation could re-rate upwards as risk factors such as Brexit uncertainty begin to dissipate.

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Synnovia PLC Timeline

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July 09 2019
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April 26 2019
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February 28 2019

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February 28 2019

Synnovia (LON:SYN) released a trading update on 19 February, confirming that trading in the full year (FY) to 31 March is broadly in line with expectations. We continue to forecast growth in revenue and earnings; however, we are lowering our FY earnings per share (EPS) forecast from 11.9p to 10.4p to reflect a slower increase in profit margins due to operating issues in the Films division.

Both the Films division and the Industrials division continue to deliver organic growth, and we believe the group is well positioned for growth in FY March 2020. Some details of the divisional dynamics are included on p2.

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December 03 2018

Plastics Capital (LON:PLA) has reported first half  (H1) results to September 2018 showing revenue growth of +11.4%, underlying earnings (EBITDA) growth of +42.8%, and adjusted earnings per share (EPS) growth of +67.9%. These results reinforce our confidence in our full-year (FY) March 2019 forecasts, including our EPS growth forecast of 25.3%.

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April 26 2019

Synnnovia PLC (LON:SYN) has released a trading update for the year to 31 March. The company continues to expect significant growth in revenue and profits, with progress remaining strong in the higher margin Industrial division.

However, profitability for the group as a whole will now be below previous expectations. Previously reported delays in new projects in the Films division were resolved as expected, but the catch-up during January-March has not been strong enough to offset the impacts on profits. Also within Films, there have been some cost escalations affecting profitability for the division.

The company has also announced that it will publish some revisions to previously reported revenues, with the adjustments being described as "non-material".

We are now forecasting revenue growth of 7% and earnings per share (EPS) growth of 2% for the full year (FY) to March 2019. Our new forecasts are below our previous forecasts by 2.4% at the revenue level and 7% at the EPS level.

For FY March 2020 we are lowering our EPS forecast by 12% but are still forecasting 18.6% EPS growth versus FY March 2019. Our new forecast assumes 1) delays in Films are resolved, 2) growth in both divisions, 3) growth will be partially offset by the cost escalations in Films.

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