Company Overview - MYOB Group Limited is a provider of business management software solutions. The Company provides software and services to businesses, including accounting, payroll, retail point of sale (POS), customer relationship management (CRM), Websites and tax, among others. Its segments include small and medium enterprises (SME) Solutions, which provides business management software and services; Practice Solutions, which provides business software and services to accounting professionals, and Enterprise Solutions, which provides enterprise resource planning and human resource management software and services. It offers a bank feeds service, MYOB Banklink, and cloud accounting product suites, such as MYOB Essentials and MYOB AccountRight. Its products include MYOB EXO, which helps in building business management solutions; MYOB Advanced, which delivers cloud-based enterprise resource planning (ERP) solutions, and MYOB PayGlobal, which is a human resource and payroll management solution.
.PNG)
Solid SME cloud subscriptions growth: Myob Group Ltd (ASX: MYO) reported a revenue increase of 8% yoy to $161 million, while pro forma EBITDA growth of 14% yoy to $72 million was recorded in the first half of 2015. Around 94% of first half of 2015 revenues were recurring driven by 10% growth in paying user base to 528,000. Moreover, 5% increase in number of cloud users in SME ARPU led to better retention rates during the period. Accordingly, MYO achieved a record cloud solutions adoption, resulting in SME cloud subscriptions to 142,000 and 150,000 during June 2015 and early August 2015, respectively. Overall, the group’s forma NPATA improved by 14% yoy to $40 million. Operating expenses rose to $89 million in the first half of 2015, as sales & marketing and product costs rose by 6% and 4%, respectively. The Staff costs were $2.3 million more than the prospectus forecast due to Enterprise Solutions sales and service costs and investments by the firm in digital marketing capabilities. Myob Group delivered a solid cash conversion of 91%, which is better than the prospectus forecast of 82%. Net working capital change reached $5.9 million boosted by recent acquisitions impact and prepaid subscriptions. MYO incurred major capital expenditure on research and development with capex reaching $8.9 million in 1H 2015.
.png)
Ongoing users’ growth (Source: Company Reports)
Improving Cloud mix: With regards to SME segment business, revenues rose by a CAGR of 12.4% in 1H14 to 1H15 driven by 14.9% CAGR increase of SME recurring revenues during the period. The recurring SME revenue growth was boosted by 10% yoy increase in paying user base and 5% growth in ARPU. Ace Payroll added over $0.3 million of revenue in the first half. SME perpetual licenses achieved a cloud mix of 68% during the first half of 2015, as compared to 55% in the prior corresponding period (pcp). Cloud users delivered 26k net additions during the period, which is on track with the prospectus estimations. As per the Practice Solutions segment, the segment revenue improved to $41.6 million in 1H15 from $40.5 million in 1H14, driven by 98% of recurring revenue and ARPU. Accountants Enterprise/Accountants Office first module went live during the period, and received positive response, which enabled to sign documents by clients through their mobile phone. Coming to the Enterprise solutions segment highlights, recurring revenue rose by CAGR of 2.2% in 1H14 and 1H15 driven by paying users and annual product prices growth. On the other hand, the new license revenues were flat at the back of transition from new license revenue (recognized up front) to cloud subscriptions (recognized over time).
.png)
Better than estimated segment results (Source: Company Reports)
Efforts to shift to a cloud accounting solutions provider: Myob Group is making efforts to shift to a cloud accounting solutions provider for micro till mid-tier clients from software provider. Accordingly, the group introduced MYOB Advanced, a cloud-based ERP solution for mid-sized businesses (for business with target employees in the range of 30 to 500) which was built in Australasia, as well as launched MYOB smart bills in MYOB AccountRight Live. The group recorded 18% of new client registrations in its enterprise solutions division driven by MYOB Advanced (since its launch in Jan till the first half ending period). The group also started MYOB Portal, a cloud-based solution for accountants, which would generate benefits in online collaboration by enhancing business for accountants and their clients. Meanwhile, the group won the Most Innovative Large Company BRW Award and was among the second in top 50 BRW’s Most Innovative Companies. Myob Group invested around $115 million in research and development efforts from the last three years. In fact, Myob is diverting 13 to 16% of its revenues and investing for innovation in the cloud space. Innovation remains key focus by the group and is planning to take BankLink product in to the cloud to enable accountants work online by leveraging its functionality benefits. Meanwhile, the government awarded the group’s PaySuper as the first gold certified super compliant solution. SuperStream would be mandatory for all Australian businesses from July 2016, and accordingly the group’s PaySuper is SuperStream compliant, and even offers benefits by decreasing the time for small business clients. The group upgraded its PayDirect during the first half, which enables mobile business to issue an invoice and collect payment through either direct debit or through EFTPOS. As a result of the upgrade, the clients can just tap PayDirect device to enable automatic process of payment, leading to a better cash flow of Australian small businesses.
.png)
Myob product portfolio (Source: Company Reports)
Acquired IMS to further boost its accounting cloud space: MYOB Group acquired Information Management Services Limited (IMS), a New Zealand-based payroll provider to over 10,000 small and medium businesses for NZ$9.7 million. The group would be paying over NZ$8.1 million with the acquisition completion, while the rest of the amount would be paid in 2016 and 2017 as per conditions. With this acquisition, the group will be able to enhance its core business as well as leverage the attractive online growth potential of the Payroll market in New Zealand. The group already acquired Ace Payroll in May 2015 and PayGlobal in August 2014 to boost its New Zealand Payroll market. Accordingly, MYOB Group is well positioned to leverage the demand for the next generation of cloud accounting and payroll solutions.
MYOB Daily Chart (Source -Thomson Reuters)
Outlook: MYOB Group reiterated its guidance for the fiscal year of 2015 and 2016 in line with the prospectus forecast and estimates its FY15 and FY16 revenues to reach $323.0 million and $336.4 million respectively. The group estimates its EBTDA to be $150.6 million and $160.7 million during FY15 and FY16, respectively; while NPATA would be around $84.8 million in FY15 and $90.7 million in FY16. Management reported that it would pay dividends at par with first half of 2015, and maintain the target dividend payout ratio. Meanwhile, the group believes that it has a significant potential opportunity to improve its cloud user’s growth in the coming periods. In fact, there is only 10% to 15% of cloud accounting penetration in the Australia and New Zealand regions. Moreover, based on a MYOB Management SME Survey (conducted by the group on Dec 2014 among 1,003), 56% of MYOB cloud customers said that they were interested in adopting payments add-ons, while 50% of MYOB cloud users showed interest for buy add-ons. Meanwhile, management also said that its clients who used MYOB Cloud Solution and MYOB Practice Solutions were able to decrease the time for their annual compliance work by 40% to 50%. Accordingly, the group is also targeting the opportunity to grow non-paying MYOB users into paying user base and intends to improve ARPU and retention by growing Cloud subscriptions.
.png)
SME Cloud Subscriptions and registrations growth as of first half (Source: Company Reports)
Stock Performance: The shares of MYOB group started trading this year on the ASX on May 4th. As per the IPO prospectus, the group proposed an issue price of $3.00 to $4.00 per ordinary share which would result to a capital raise in the range of $831.7 million to $833.8 million. Accordingly, the group raised over $833 million in the first two days of book-build. On the other hand, the shares fell over 11.3% (as of October 16, 2015) since its listing date on investor’s concerns of its outlook in the current challenging market conditions. However, the better than estimated first half of 2015 results offered some respite to the stock. We believe that the growing demand for cloud space, group’s ongoing investments in building its capabilities and innovation, as well as the synergies from acquisitions would underpin the stock in the coming periods. The shares already recovered about 4.86% in the last four weeks. Based on the foregoing, we give a “BUY” recommendation to the stock at the current price of $3.40
Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in: BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
Copyright
Copyright © 2014 Kalkine Pty Ltd ABN 34 154 808 312. No part of this website, or its content, may be reproduced in any form without the prior consent of Kalkine Pty Ltd.
Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.
AU
CA
NZ
UK
US
IND
Please wait processing your request...