TRINTECH GROUP PLC TTPA
September 14, 2010 - 4:46pm EST by
bentley883
2010 2011
Price: 4.81 EPS $0.06 $0.19
Shares Out. (in M): 17 P/E 85.0x 25.3x
Market Cap (in $M): 80 P/FCF 20.4x 21.5x
Net Debt (in $M): 0 EBIT 2 3
TEV ($): 31 TEV/EBIT 13.9x 9.0x

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Description

 1) Thesis

TTPA is a cheap stock:

  • TTPA trades at a January FY2011 EV/Operating FCF multiple of 7.9x and a FY2011 P/E of 9.2x (adjusted for excess cash). On FY2012, TTPA trades at an EV/Operating FCF multiple of 8.1x and a P/E of 8.1x (adjusted for excess cash).
  • At an EV/FCF multiple of 15x, the stock would be valued at $6.50-$7.00 per share, or a 38%-49% premium to the stock's current price.
  • I believe that 2011 estimates are conservative. In a recent call with management, they predicted organic revenue growth of 15-20% year over year. My model currently forecasts 9% organic growth.
  • Cash per share is $2.95 as of July 31, 2010.

TTPA is an excellent business:

  • The product line has evolved from solely offering reconciliation software to a complete suite of financial solutions.
  • Customers are locked in to the software. Only 3 customers in the last 3 years have switched or discontinued their use of the product. The average sale is around $60,000.
  • Currently has 50,000 users (570 organizations) including some of the world's largest organizations i.e. Microsoft, Google and Intel.

Growing Market Opportunity:

  • The Unity Financial product suite offers the most potential now that companies are being required to tag financial statements in XBRL, which is a great opportunity for TTPA.
  • As companies are becoming more global and diverse it is cost efficient to have software that consolidates financial statements, evaluates risk, and reconciles data. 
  • In a recent report from Gartner Research, companies on average have reduced their financial close costs by using the Unity platform by $324,000 per year.
  • IDC estimates that the global market for financial governance, risk management, and compliance (GRC) software will grow at an annual growth rate of 16.5%, from $1 billion in 2006 to $2.2 billion in 2010. This growth is being driven by the significant investments from companies to maintain Sarbanes-Oxley and XBRL compliance.

 

2) Company Description

TTPA is a software company focused on financial governance, risk management, and compliance software solutions for large enterprises. The Company's software products provide reconciliation process management, financial data aggregation, revenue and cost cycle management, financial close, risk management, and compliance so it enables customers to gain control of their financial processes leading to better overall business performance. TTPA's customers include retail chains, large enterprises, and financial institutions in the United States, Europe and Australia.

TTPA's product suite, Unity Financial GRC, is a comprehensive suite of operational account reconciliation, financial close, financial reporting, enterprise compliance and risk management applications that allows customers to manage corporate performance, financial operations and compliance. Large corporations are finding it more complicated as they grow and do business in other countries and need solutions to help consolidate and improve efficiency in the office of finance. With TTPA's product suite, customers can choose to have one or all solutions to help improve their financial needs. 

TTPA's only pure play competitor is Clarity Systems, a privately held financial GRC company which offers financial close software similar to TTPA, where customers can manage their close in-house. It is the only other company that offers software to make reporting in XBRL easy outside of consulting firms and printers. Clarity estimates that they have around 5% of the total financial close market. Other competitors include financial printers and consulting companies that provide outsourced financial close services for a fee. 

On April 1, 2010, TTPA sold its healthcare division, Concuity, for $34.5 million. The segment was successful and growing but the market position was subscale and the Company needed to consolidate to pure play GRC. This was treated as a discontinued operation for FY 2010. 

 

3) Valuation

  • At the current market price of $4.71, TTPA trades at a January FY2011 EV/Operating FCF multiple of 7.9x and a FY2011 P/E of 9.2x (adjusted for excess cash). On FY2012, TTPA trades at an EV/Operating FCF multiple of 8.1x and a P/E of 8.1x (adjusted for excess cash).
  • At 15x EV/FCF my 2011 FCF estimate the stock would be valued at $6.50-$7.00 per share, or a 38%-49% premium to today. I believe it makes more sense to value TTPA on 2011 FCF because I believe that the Unity product will generate double-digit revenue growth as more public companies will bring XBRL tagging and SOX compliance back in-house.
  • I believe that my 2011 estimates are conservative. In a recent call with management, they predicted organic revenue growth of 15-20% year over year. My model currently forecasts 9% organic growth.
  • ROIC has been in the high single digits. I have great confidence that their ROIC will be greater in the coming quarters now that they have spun off their healthcare division.

Catalyst

 
  • Currently, companies with a market cap over $5 billion need to have financial statements tagged in XBRL, with smaller companies required to convert by mid-2011. TTPA's customers currently reduce costs associated with the financial close process by $324,000 a year with the Unity product.
  • As XBRL will be a public company standard for financial reporting I believe that there is little to no risk that TTPA's product will become obsolete.
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