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Synnovia - FY results, encouraging signs

Synnovia - FY results, encouraging signs
FY 2019 results

Synnovia (LON:SYN) has released its full-year (FY) results to March 2019. These were in line with the forecasts we issued following the April 2019 trading statement. Revenues increased 8.7% to £81.6mln, earnings before interest, tax, depreciation, and amortisation (EBITDA) were up 7.3% at £7.5mln, and earnings per share (EPS) were up 2.1% at 9.7p. We use the company's adjusted profit figures, to exclude the non-cash mark-to-market of foreign exchange (FX) hedging instruments. 

The Industrial division and Films division achieved like-for-like revenue growth of 9.7% and 7.5% respectively. In EBITDA terms, positive progress in the Industrial division was broadly offset by the previously disclosed production issues in the Films division, with the group EBITDA up 7.3% after £0.7mln of FX benefit.


The company states that FY to March 2020 is expected to be another year of good progress for the group. We interpret this to mean growth in revenues and earnings, albeit we are now reducing the growth in our forecasts, forecasting revenue of £88mln and EPS growth of 10.3% to 10.7p.

The statement notes that the first quarter (Q1) of FY2020 has been relatively weak due to a pre-Brexit stock build-up in Q4 FY2019 (a negative), but that production issues in the Films division have been largely resolved (a positive). Our forecasts take into account the slow Q1.

Looking further forward, the company has revised its five-year target plan. The previous aim of doubling EBITDA over the five years 2016-2021 is no longer expected to be achieved (we believe this is clear already), and a new target has been set of reaching £15mln EBITDA by 2023/24. We believe that the new target is realistic, and offers compelling upside for shareholders.

Valuation and conclusion

At the current share price Synnovia is valued on a March 2020e price/earnings (P/E) ratio of 8.2x. The company has an established record of revenue growth and a significant upside opportunity in improving profit margins. We believe that the valuation could re-rate upwards as risk factors such as Brexit uncertainty begin to dissipate.

Year end Mar 31 2018 2019 Current 2021
Revenue £M 75.1 81.6 88.0 91.0
EBITDA (£M) 7.0 7.5 8.6 9.1
Underlying PBT 4.2 4.2 4.6 5.0
EPS (p) 9.5 9.7 10.7 11.6

In 2019 the company achieved strong organic revenue growth in both divisions

The company's activities are grouped into two divisions - Films, which contains the films, sacks and pouches activities, and Industrials, which contains the other activities.

The chart above shows the revenue per division, together with the group's EBITDA margin.

In 2019 the company achieved strong organic revenue growth in both divisions; however, this did not translate into improving margins, due to additional operating expenditure to drive future revenue growth, and also the negative impact of production issues in the Films division, detailed in the trading statement of April 2019 and previous updates. The issues within Films are now largely resolved, and we believe that margins will improve in 2020 and 2021 driven by organic revenue growth in both businesses, and non-recurrence of the issues in Films.

Quick facts: Synnovia PLC

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Market: LSE
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