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.


MYO Details
 
Pursuing strategic acquisitions to strengthen product portfolio: In the recent past, Myob Group Ltd (ASX: MYO) has been pursuing acquisitions showcasing the ability to further boost the group’s business. Particularly, the group made several acquisitions like PayGlobal in 2014 and Ace Payroll in 2015, and developed MYOB Portal post the acquisition of Dovetail. MYO recently acquired Information Management Services Limited (IMS), which is a New Zealand-based payroll provider for around 10,000 small and medium businesses, which is a step on track to the group’s strategy of strengthening cloud platform to small and medium businesses. Moreover, IMS acquisition is said to boost Myob’s clients in New Zealand ahead of the group’s plans to roll out MYOB’s next generation of cloud accounting and payroll solutions in New Zealand. MYOB Group acquired IMS for a total price of NZ$9.7 million, and already paid NZ$8.1 million. The group intends to pay the rest of the amount of the acquisition during 2016 and 2017 depending on the market conditions.
 

Transition strategy to generate a long term growth (Source: Company Reports)
                 
Focusing on offering cloud solution for small and medium businesses: Myob Group has been offering practice ledgers services as part of its Accountants Office and Accountants Enterprise solutions and now intends to expand these services by launching a new online practice ledger, leveraging its expertise in the domain as well as to capture the booming cloud opportunity. The group reported a revenue rise to $41.6 million for Practice Solutions segment during the first half of 2015, against $40.5 million in the same period of last year. On the other side, MYOB Essentials and MYOB AccountRight remains a priority to the group’s focus while MYOB Advanced delivered a solid performance in the first six months since its launch, witnessing over 18% of enterprise new registrations. Management also reported that its customers for MYOB Cloud Solution and MYOB Practice Solutions have successfully reduced the time for their annual compliance work by 40% to 50%. Given this strong response, Myob is developing AdvancedPeople, the next module for MYOB Advanced which would complement the ERP system with an HRM system. Meanwhile, the group delivered an 11% increase in its paying users per year since the last 2.5 years (As of first half of 2015 reports) boosted by the improving cloud users. The group intends to improve its non-paying MYOB users into paying user base as well as targeting to improve ARPU and retention by growing Cloud subscriptions. MYO’s Cloud users achieved a 142k paying users in first half of 2015 on track with the prospectus forecasts. Moreover, the group’s paying desktop users are shifting towards online and hence the group is also making investments to launch a next generation of BankLink, an online solution which allows accountants to do the books on behalf of their clients. With this move, MYO is also targeting small businesses who are constantly seeking for a cheap and best ways to get their accounting solutions. Myob group’s SME perpetual licenses reported a cloud mix of 68% in the 1H15 against 55% in the first half of 2014. MYO also partnered with OnDeck Australia, a major provider of online small business loans, which enables a smooth process for small businesses who are seeking to take a loan. Accordingly, the group expects that this partnership would lead the MYOB clients to smoothly undergo through a loan application process.
 

Practice Solutions’ Revenue Highlights (Source: Company Reports)
 
Solid free cash flow and cash conversion: Myob Group reported a solid cash flow conversion of 91% during first half of 2015, which is a 1% increase as compared to the first half of 2014 and way better than the group’s prospectus forecast of 82%. This indicates the group’s long term client subscriptions for its cloud solutions, wherein MYO had 528,000 paying clients during the first half, a 10% increase as compared to the prior corresponding period (pcp). Average revenue per user (ARPU) for the group’s SME business rose by 5% during the period against pcp, and also better than the prospectus estimates, as the group’s focus on SME business are paying off. The group also delivered a positive $1.1 million of change in net working capital during the first half, way ahead than the prospectus estimate on the back of the changes in unearned revenue. This increase was due to recent acquisitions impact as well as higher level of prepaid subscriptions than forecasted during 1H15. Meanwhile, Myob Group is also making aggressive marketing initiatives as well as investing on new products to boost its cloud penetration as well as expand its SMEs and Accountants in the long term. MYO spent most of its capital expenditure (incurred a total of $8.9 million) on research & development ($6.7 million) during the first half of 2015. Myob’s Product development (research & development) costs comprised 13.4% of revenue, on track with its forecasted range of 13% to 16%. The group expensed most of its product development costs (which even includes development costs related to the new SaaS solutions) via the P&L in the first half of 2015. Myob group was listed in ASX in May 2015, and the group planned to raise a capital in the range of $831.7 million to $833.8 million for a proposed issue price in the range of $3.00 to $4.00 per ordinary share. After the listing, MYO got around $833 million in the first two days of book build alone.
 

Ongoing focus on R&D which is driving the group’s innovation (Source: Company Reports)
 
Dividend Reaffirmation: The group had reiterated that they are on track to pay a dividend for the second half of 2015 fiscal year as well as intends to deliver an interim dividend for the first six months to June 2016. Management also reaffirmed that both of these dividend estimations are on track to achieve an estimated dividend payout ratio in the prospectus range of 60% to 80% of NPATA. However, since the group is carrying major forward tax losses, MYO might not be able to deliver any franked dividends for over twelve months (as of first half of 2015 report). MYO had issued FY15 and FY16 revenues guidance of $323.0 million and $336.4 million, respectively. Myob group forecasted its EBITDA to be $150.6 million for fiscal year of 2015 and over $160.7 million in fiscal year of 2016. NPATA is forecasted to be at over $84.8 million in FY15 and $90.7 million in FY16.
 
Stock Performance: The shares of Myob Group Ltd (ASX: MYO) got an uplift recently from its strong first half of 2015 performance coupled with the group’s ongoing focus on cloud solutions. MYO delivered revenue increase of 8% yoy to $161 million in the first half of 2015, and has a strong recurring revenues of 94% during the period. The group’s pro forma EBITDA improved by 14% yoy to $72 million during the first half of 2015. The company has also informed about the release of its full year results ended December 31, 2015 on February 25, 2016. Meanwhile, the group’s stock has corrected about 10.5% since its ASX launch (as of November 2015) and offers an attractive opportunity to investors seeking for a long term value stocks at bargain prices. Based on the foregoing, we reiterate our “BUY” recommendation on Myob group at the current price of  $3.10
 
 
MYO Daily Chart (Source: Thomson Reuters)

---

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 © 2016 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.

---