|Shares Out. (in M):||13||P/E||NA||0.0x|
|Market Cap (in $M):||11||P/FCF||9.4x||0.0x|
|Net Debt (in $M):||-9||EBIT||1||0|
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Electronic Data Processing (LSE: EDP)
EDP is a micro-cap UK software company with two core product groups, Quantum VS and Vecta, which focuses on servicing mainly distribution oriented businesses. It operates predominantly in its home country and tends to sell to smaller businesses. Quantum VS is a software suite that includes product catalogue, sales management & order processing, eBusiness, inventory & purchasing management, financials, business document & data exchange, business intelligence and sales intelligence. Vecta is a sales intelligence product.
Despite being a UK micro-cap with limited liquidity, the company appears to be grossly undervalued. Below are a few summary financial figures and trading statistics:
Market Cap: £ 7.0 mm
Net Cash: £ 5.6 mm
Underfunded Pension: £ 1.1 mm
Real Estate for Sale: £ 1.9 mm
Adjusted EV: £ 0.6 mm
EBITDA: £ 1.1 mm
FCF: £ 0.73 mm
Adjusted EV/EBITDA: 0.54 x
Adjusted EV/FCF: 0.82 x
|Cost of Goods Sold||(626)||(563)||(529)||(551)||(410)||(322)||(328)||(471)|
|% of Sales||8.99%||8.90%||7.99%||8.04%||7.02%||5.77%||5.86%||8.11%|
|% of Sales||91.01%||91.10%||92.01%||91.96%||92.98%||94.23%||94.14%||91.89%|
|% of Sales||88.81%||88.47%||85.80%||81.88%||87.05%||84.32%||85.11%||80.03%|
|% of Sales||2.20%||2.62%||6.21%||10.07%||5.94%||9.91%||9.04%||11.85%|
|Profit on Disposal of Property||0||420||0||1,157||0||0||335||(849)|
|Earnings before Taxes||431||866||700||2,222||456||584||896||(83)|
|% of Sales||6.19%||13.69%||10.58%||32.44%||7.80%||10.47%||16.00%||-1.43%|
|Provision for Income Tax||(143)||(29)||(222)||(390)||(129)||(160)||(158)||26|
|Effective Tax Rate||33.18%||3.35%||31.71%||17.55%||28.29%||27.40%||17.63%||31.33%|
|Net Income (Loss)||288||837||478||1,832||327||424||738||(57)|
|% of Sales||4.14%||13.23%||7.22%||26.74%||5.60%||7.60%||13.18%||-0.98%|
The company has owned a significant amount of real estate over the years, which it has been slowly selling. Prior to the company’s recently released results, it owned four properties, three of which it was marketing for sale. The company took a write-down of £ 0.85 mm and has agreed to sell two of the three properties it had been marketing for £ 1.86 mm. £ 1.7 mm worth of real estate will remain on the balance sheet. I have not factored any additional value from real estate sales into the thesis, though I will note the following:
In 2008 just before the world changed, the chairman, Michael Heller, who now owns over 25% of the company, was planning a buyout. Instead, the financing world collapsed and the company repurchased 48.9% of the outstanding shares at 50p. This appears to have been a superb use of capital and followed the sale of real estate in that year. While there is a risk of a take-under, I believe a buyout by this large owner is a potential catalyst.
In 2007, the company finally exited a computer maintenance business that it owned. Financials through that period reflect the exit.
Using a 10x FCF multiple plus excess cash results in a total value of approximately £ 13 mm or 104p per share. This would be an increase of 89% from the current share price of 55p.
Based on the median EV/EBITDA of UK public software companies of 8.58x the total value would be approximately £ 15.8 mm or 126p per share. The constituents are provided below and include companies in the UK that are below $100 mm in market cap and produce at least $1 mm in EBITDA. This would be an increase of 129% from the current share price of 55p.
|Company Name||Ticker||Market Cap||EBITDA||EV/EBITDA|
|K3 Business Technology Group plc (AIM:KBT)||AIM:KBT||67.9||18.3||4.97887|
|Ebiquity plc (AIM:EBQ)||AIM:EBQ||82.7||13.8||7.56556|
|Allocate Software plc. (AIM:ALL)||AIM:ALL||81.8||8.01||8.94111|
|OMG plc (AIM:OMG)||AIM:OMG||37.5||5.27||6.00167|
|Tracsis Plc (AIM:TRCS)||AIM:TRCS||63.1||5.06||9.75665|
|MAM Software Group, Inc. (OTCBB:MAMS)||OTCBB:MAMS||40.7||5.02||7.76496|
|Netcall plc (AIM:NET)||AIM:NET||56.6||4.89||8.57908|
|Etherstack plc (ASX:ESK)||ASX:ESK||55.0||4.8||10.73259|
|dotDigital Group Plc (AIM:DOTD)||AIM:DOTD||62.6||4.74||11.56328|
|Lombard Risk Management plc (AIM:LRM)||AIM:LRM||41.0||4.47||9.59191|
|Bond International Software plc (AIM:BDI)||AIM:BDI||35.5||4.19||9.00852|
|Tangent Communications PLC (AIM:TNG)||AIM:TNG||35.1||3.6||9.19005|
|Dillistone Group Plc (AIM:DSG)||AIM:DSG||20.9||2.82||6.45739|
|Assima PLC (ENXTPA:ALSIM)||ENXTPA:ALSIM||34.4||2.79||9.45071|
|Gresham Computing plc (LSE:GHT)||LSE:GHT||63.5||2.68||21.52849|
|Pilat Media Global plc (AIM:PGB)||AIM:PGB||30.6||2.17||8.361|
|Pennant International Group plc (AIM:PEN)||AIM:PEN||17.6||2.11||6.59726|
|Electronic Data Processing plc (LSE:EDP)||LSE:EDP||10.6||1.72||1.71841|
|Sopheon plc (AIM:SPE)||AIM:SPE||14.0||1.68||8.29014|
|Herald Investment Trust||13.81%|
|Henderson Fledgling Trust||4.99%|
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