Here's (part-of)the post-result update from MQ re CSV.
Result delivers to expectations: CSG (CSV) reported strong FY10 results to market expectations with earnings before interest, tax, depreciation and amortisation (EBITDA) of A$59.3m. Core print services and KMBS results were the highlight; however, IT services was slightly below forecast.
Overall EBITDA margins at 21.7% were below FY09 of 25.6%. This did not surprise given a higher proportion of lower margin Enterprise Services contracts and that New Zealand Print currently has lower margins than the Australian business. Net profit after tax (NPAT) of A$31.5m (A$23.7m in FY09) was impacted by one-off acquisition costs, Canon integration and a payment to ASG for securing the Ultranet contract (totalling -A$2.8m).
Acquisitions on track
KMBS contributed A$9m of EBITDA in the 2H (ahead of our A$8m) and LSL reported A$2m to earnings. The result was encouraging as the 2H run-rate gives us a reasonable degree of comfort around our FY11 KMBS forecast (we expect continued improvement in margins with increased colour penetration). The next hurdle is the Canon integration, which is expected to deliver A$75m of revenue and we estimate A$15m of EBITDA.
Operating cashflow the highlight
Cashflow of A$35m was well ahead of our expectation due to better working capital management in the New Zealand business. Net debt at A$52m was also below our A$70m forecast and gearing at 0.9x EBITDA was a very good result given the significant changes in the business over the past six months.
Maintain Outperform recommendation
We have lifted our target price to A$3.04 (from A$2.97). CSG delivered a strong FY10 result and met market expectations. KMBS is delivering to budget, which is positive, but the bigger test will be Canon?s performance in FY11. We believe the stock is more than compensating for any acquisition risk, trading at an FY11 price-to-earnings multiple of 8.5x ? maintain Outperform.
PS.MQ do have some concerns re margin erosion on IT services in FY11. Expect 3% revenue growth in the base business and a 5% EBITDA decline on FY10. how well the Canon aquisition does in FY11 is the key. Drop in debt also welcome imo. dyor.
PPS. SP falling since result is baffling me but newbies maaay be be to buy below $1.80... which is something i couldn't imagine a week ago. dyor
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