Company Overview: Empired Limited is an information technology (IT) services provider. The Company is engaged in design, development and integration of business knowledge, information technology and creativity. The Company operates through two segments: Australia and New Zealand. The Company's business solutions include Cloud Services, Identity and Access Management, Systems Integration, Data Insights and Business Intelligence, Internet of Things, Spatial Services, Mobile Solutions, Digital and Experience Design, Enterprise Content Management (ECM), Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Digital and Experience Design, Infrastructure Transformation Services, Managed Infrastructure Services, Project Management Office (PMO) and Unified Communications. The Company operates in various industries, including retail and manufacturing, public sector, financial services and insurance, health, mining, oil and gas, utilities, transport and education.


EPD Details

Empired Limited, which is an IT Services provider with a broad range of capabilities targeted at delivering enterprise IT solutions that improve efficiency, productivity and competitive advantage through various technology enablers and transformation of the traditional business models in the digital era. The sector growth remains underpinned by proliferation of data, mobile services and by accessibility of high-speed communications that drive the Digital Economy. M&A transactions undertaken in Australian sector by international strategic buyers have been buoyant as there are a number of cloud based companies that have been acquired and this reflects a significant opportunity for the group. Empired’s services are aligned to the high growth segments of the market which include Managed services, Cloud facility, Mobility, Data and Analytics. It has been very consistent in terms of growth and continues to witness year on year growth going forward as well. Majority of its revenue comes from government (24 per cent), and Energy and Natural Resources sector (21 per cent) and this will continue to grow in future also. Its growth outlook is expected to impact the broad array of industries and businesses in about $30 plus billion market.
 

Business Solution Model (Source: Company Reports)
 
Chosen as a launch partner for Microsoft’s Azure Australia Central Regions datacentres: Empired has been chosen as a launch partner for Microsoft’s Azure Australia Central Regions datacentres in Canberra and this opens an opportunity for the Government and highly-regulated organisations to deploy their mission-critical workloads to the cloud. Till now Australian organisations with rigorous security, resilience, connectivity or with supply chain integrity requirements have typically shied away from cloud-based infrastructure and the adoption of cloud across these sectors in Australia and New Zealand has been slow because there are no real, achievable way for them to take the leap securely.  With the introduction of the Microsoft’s Azure Australia Central Regions, cloud-first is now a real possibility for government and for critical industries across ANZ. The new region is designed to support the mission-critical systems and to address the needs of the government. With Microsoft’s Azure Australia Central Regions, Empired can take government and critical industries on that journey. It is now building a Cohesion platform in the Azure Central Region and expects to have a cordial arrangement. It is worth noting that the existing Cohesion cloud-based enterprise content management (ECM) service is used by government agencies such as the Ministry for Primary Industries (MPI) in New Zealand, which signed a six-year Cohesion government contract for NZD$12 million.

Sound Financial Performance: Revenue for the first half of the fiscal year of 2018 amounted to $85.0 million, up 2% over the earlier corresponding period; and consolidated net profit after tax for the period amounted to $1,498,895 as compared to $1,124,390 of prior period, representing an increase of 33 per cent. Net tangible asset backing per security for period was 8.18 cents; and whereas for prior period, it was 8.34 cents. The Interest payment for H1FY18 has declined and is expected to decline further as debt levels will continue to reduce. The capex for H1FY18 was down by $0.5 million as compared to H1FY17. Over 60 per cent of the revenue in 2018 was derived from the multi-year contracts. It is expected that a reduction in non-billable overhead costs by an annualised amount of circa $2.5 million per annum will benefit the earnings growth in H2FY18.
 

Region-wise Revenue Performance (Source: Company Reports)
 
Other Key Updates: Washington H. Soul Pattinson and Company Limited became the substantial holder of the Group by holding 8,154,966 securities with 5.09 per cent of the voting power since 12 March 18. Pengana Capital Limited also became the substantial holder with 8,154,966 shares representing 5.09 per cent of the voting power. Microequities Asset Management Pty Ltd and National Nominees Ltd ACF Australian Ethical Investment Limited, both being the substantial holders changed their holdings and now have 7.25 per cent and 16.24 per cent of the voting power in Empired Ltd. The Group has also secured a multi-million-dollar contract with Catholic Education Western Australia (CEWA) to develop its ‘Administration of School’ (AoS) Platform and the system is based on Microsoft technologies and will form the core engine for CEWA’s “Leading Lights” digital transformation. The digital transformation will provide the entire CEWA school network with an access to an integrated suit of the best-in class learning tools with an educational software storage and will provide a professional learning and development environment. The Group issued 852,000 performance rights under the appropriate listing rule with the approval obtained in the AGM which was held in November 2017.

Guidance and Outlook for 2018: All major regions have been performing well outside of Wellington which was disrupted due to the protracted New Zealand election period. EPD has reflected a solid performance in growth regions and revenue in NSW and in Auckland was up by 15 per cent and by 18 per cent, respectively. US Revenue was also up by 21 per cent. Underlying EBITDA margin was up from 7.6 per cent and reached to 8.5 per cent whilst managing a decline in Wellington and Ratio of EBITDA to Operating Cash Flow was 80 per cent. New Zealand continued to strengthen by building a strong sales pipeline and the Group expects a solid revenue growth and a stronger EBITDA in H2FY18 as compared to H2FY17. It is expected that it will generate strong operating cash flow in H2 which will reduce its net debt and further it is well positioned to generate solid earnings in FY19.
 

Drivers of Revenue (Source: Company Reports)
 
Stock Performance: The Group performed well in the first half of FY18 and management of the Company has made efforts for EPD to grow in the key areas of the business whilst carefully handling the decline in the Wellington to protect earnings in H1FY18 and this combined with the New Zealand public sector outlook is expected to underpin a better second half. The Company continues to invest in differentiation through its software IP and solutions. Current ratio improved over the period and was 1.06 in FY17; and whereas in 2016, the same was 0.80. Debt Equity ratio and Return on Invested Capital in 2017 were 0.22 and 4.1 per cent respectively, and whereas in 2016, the same were 0.37 and (2.4 per cent), respectively. Return on Equity was 5.1 per cent in 2017 against 2016 return of (3.3 per cent). The Group expects a double digit earning growth in FY18 and in FY19. The group also aims to benefit from the changing dynamics of the digital disruption era wherein spending is expected to reach $1.7 trillion worldwide by end of 2019, representing a 42% rise from 2017 at the back of need of a rapidly growing connectivity. The group’s platforms including Cohesion are thus helping in establishing annuity revenue streams. Meanwhile, the stock price was up by 18.9 per cent in the last one month and by 3.3 per cent in the past one week post a six-month fall of about 29%. While the stock is recovering from its low level, there is room for upside momentum looking at the potential. Accordingly, we give a “Speculative Buy” recommendation at the current market price of $ 0.460.
 

EPD Daily Chart (Source: Thomson Reuters)

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