October 1, 2023

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Many have heard, but few understood the mounting chaos

Many have heard, but few understood the mounting chaos

By Apostolos Manthos

Profile Software (PROF), an international software development company, gave two presentations to group prospects over a short period of time at the beginning of last month. The first was at the Association of Institutional Investors (EHE) on May 5 and the second was in the middle of the Annual Ordinary General Meeting on May 16. Therefore, the first part of the presentations was about the already known financial results for 2022 and the second part with the group’s views on state projects for “digital transformation” and Profile’s now aggressive activity in the field of “financial solutions”. Therefore, during the first part of the presentation Presentation, the flow was calm, in the second part there was a storm in contract numbers and group expansion by Head of Profile Mr. Papis Stassinopoulos and CEO Mr. Evangelos Angelidis that the ball was literally lost.In fact, from what I noticed in ETHE, some took computers and tried to add Revenue figures that the group expects in the coming years.

So what were the things we heard on leg two about the group’s prospects:

FirstlyUntil the end of last March, Profile signed contracts for government projects worth 100 million euros, while it “expects,” according to the administration’s reserved statements, additional projects worth 90 million euros. Despite the reasonable momentum of new contracts, it could again approach another €100m. However, in our calculations we will take the conservative scenario of management as a condition. In fact, in this new package of additional projects, Profile has already received an amount in the region of 8-10 million euros attributable to it from awarding the project for the digitization of public health system records with a total budget of 235.6 million euros with VAT.

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secondly, Public sector projects also have options that can reach a minimum of 18% to 22% of the total turnover.

Third, To all this total turnover figure that will arise, we must also add recurring revenue which for the public sector on a contract basis starts from 7% and approaches 10% of the aforementioned total turnover.

the fourth We, of course, also have the largest potential, the main part of Profile’s activity is the development and sale of products in the broader financial sector around the world in more than 48 countries. Therefore, a group that has the data to date can bring in new project contracts worth more than 25 million euros each year. Here, however, the management view is very conservative as internationally the trend is very favorable for the sector in the coming years. In fact, based on the analysis of Grand View Research, provided by the same group to ETHE, global spending on “financial solutions” in the banking and wealth industries is expected to double in the coming years and from 4.27 billion euros to reach from 2027 to 8.043 billion euros, and based on This analysis, the size of the pie doubles.

the Fifth Is that also in the financial solutions contracts, the group has a very large part of the recurring revenue (recurring revenue), which is constantly reinforced by two categories. Existing legacy contracts business with over 300 clients corresponds to annual revenues of over €20m (in 2023 it is expected to be €21m) and what new contracts could bring in around €5m is the €25m we mentioned above.

the VI The one that was mentioned is the impressive 25-30% EBITDA margins. We’ll take the margin where it was in 2022 and it was 26% of the total revenue that we mentioned from all five items above.

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Finally, the VII And the most important component is the fact that the group “drops” about 60% of its EBITDA directly into the fund.

So what did they not understand?

That the profile group in the coming years will actually rise to revenues of over €420m (!) while EBITDA profitability based on reported percentage margin will be over €109m with figures for 2024 and 2025 coming out with such current numbers being Quite childish.

At the same time, the group will reach a cumulative fund of 80 million euros if we add the 14 million euros it already owns.

This of course means that Profile will have the ability to make two very strong acquisitions which will have the potential to further leverage revenue and EBITDA in excess of €120m.

We are really talking about a messy difference between today’s company and the company that will evolve.

After all, the analysts from the huge Northern European Fund recognized this incredible increase in profitability and immediately took over the entire “pool” of the group’s shares, again good because they left the “magic” 941 shares to resume the buyback, while what they seem to be buying constantly and through the board Leadership.

In terms of shares, just because the current capitalization is 96 million euros, well below profitability expectations, a long-term investor can easily see it through the engagement as a three-year “bond” in which he can almost double his capital.

Imagine that in its latest analysis, Optima Bank’s price excluding futures from financial solutions and digital projects for government was €5.60 or up to +41% from yesterday’s close of €3.98.

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But shares are cheap even compared to peers in the global IT industry and on the Greek stock exchange. So while in the international market the corresponding software companies have, according to 2022 numbers, EV/Sales at 6 and EV/Ebitda at 21, Profile has 3.45 (-42%) and 13.93 (-33%). Also compared to EpsilonNet and Entersoft listed, which have EV/sales of 5.63 and 5 respectively, Profile has a 3.45 or -39% discount from the former. Meanwhile, EpsilonNet and Entersoft’s EV/Ebitda are 15.58 and 16.88, respectively, while Profile has 13.93, or a discount of -21%.

Graphically, the stock has now broken on the monthly chart and the long-term price has now broken the previous resistance area of ​​3.75 euros to the upside, making a new record high for the profile, while during yesterday’s session it “before” all 4 euros. After that, the level that defines the rise of the previous volatility range for the period 2021 – 2022 is set as the next bullish target. This area was recorded at 5.30 euros, while in the medium term fire potential for this price level will have a lot of room for growth as the next target comes out of Through Fibonacci at 7.10 to 7.24 EUR (!) or +82%. Notable for the stock’s behavior is the 21-month Bollinger Band specification closing, which acts as a “cushion” for any sell-offs and has never been broken to the downside since September 2016. Since then, it has only looked … up.

* Apostolos Manthos is responsible for technical analysis and investment strategy