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NEOVIA (LON:NEO) report: New year, new way

Contributed by Daniel Stewart & Company

By Daniel Stewart & Co

- 2009 represented a year of material investment and improvements in NEOVIA’s payments platform, product offering and client base, yet the group still delivered EBITDA of $8.0m.

- NEOVIA saw a 15% dip in FY09A annual revenue ($64.5m vs $75.9m), predominantly due to a significant reduction in interest income (reported as revenue, down 73% YoY to $1.6m), as well as some softness in both Netbanx and European e-wallet fees (consumer/economy and gambling volume-related).

- NEOVIA’s gross margin fell by 72bp to 54.6%, with the group suffering from the material reduction in high-margin interest income and the need to maintain a relatively high level of gross costs. The group reported negligible tax for the year and, pre-exceptionals ($8.9m, principally including impairment of its Centricom joint venture at $4.6m and $1.6m of restructuring costs), it achieved FY09A EPS of 4.63c (-63% YoY).

- The group ended the year with adjusted net cash of $73.5m ($61.1m excluding $12.4m of excess restricted cash), the equivalent to 41p/share, representing c.65% of the group’s current equity value. The group has zero gross debt/bank loans.

- Recent client wins, stronger Q4 2009 and current trading, the improved platform and impressive customer sign-ups give us confidence for 2010.

- The outlook for the group is the strongest it has been for some time and the group should continue to deliver solid organic growth from a dramatically improved platform and improved cost base, with the new CEO driving a business transformation and focused strategy.

- On this basis, we have revised our valuation analysis to reflect a brighter outlook and potential for significant positive performance and earnings momentum from 2010.

- We have utilised DCF-discount, EBITDA and EPS analysis tools to value the group and the result is a new 92p price target. On this basis, we retain our Buy recommendation.

*Daniel Stewart acts as Broker and NOMAD to NEOVIA