Given material downgrades made to our Australian and UK economic growth outlooks, we revise down our estimates for BVS. Whilst we expect its pipeline of professional services and maintenance work to remain solid in the near-to-medium term, given a weaker macro environment and social distancing requirements, we expect this to result in delays to new client opportunities in the near term. We now forecast 0 and 1 new client wins in FY20 and FY21 respectively for BVS, down from 1 and 2 respectively, previously. Reductions to our new client win assumptions result in -7% cuts to our FY20-22E EPS. Our updated FY20 NPAT of $37.8mn now sits below the company's FY20 guidance for mid-teens NPAT growth + $3mn for recent acquisitions (15% NPAT growth + acquisitions implies NPAT of A$40.7mn).
Whilst we expect near term earnings to be weaker than previously expected, we continue to expect the business to generate positive net cash flow driven by BVS's pipeline of professional services and maintenance revenues from existing clients. BVS' balance sheet ended 1H20 with net cash of A$100.3mn further providing it with additional flexibility to withstand any significant near term headwinds and also to continue to pursue additional growth opportunities.
Earnings and valuation changes
Our estimate cuts and a mark-to-market of our EV/EBITDA based valuation result in an 22% reduction in our 12-m TP to A$5.40. With this presenting 48% upside, we remain Buy rated. We remain positive on BVS' medium term pipeline of opportunities and see its defensive attributes (high levels of recurring income, with clients typically on 7-10 year contracts) as favourable in this current environment.
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