Proact: 2022e likely to show pent-up demand - ABG
This is a third party research report and does not necessarily reflect our views or values
Cloud sales have troughed, system faces easier comps
Estimates up in 2021e, small changes to 2022-23e
9.6x 2022e EV/EBITA is a 43% discount to peers
Proact delivered another report in line with its historical pattern of stable service sales alongside volatile system sales. The -16% organic growth in system sales is primarily due to a strong Q3’20 driven by a large NHS order in the UK. The flat organic growth in service revenues is best explained by small growth in cloud revenues, flat in consulting revenues and a decline in support revenues linked to system deliveries. We understand that Proact has been affected negatively by the pandemic, as sales cycles are relatively long for infrastructure projects and physical meetings have been the preferred way of closing deals, particularly for the public sector. We therefore think that there should be a degree of pent-up demand for Proact’s services (data storage infrastructure) post-COVID-19, and estimate that the 2021e organic decline of -3% will turn into 5% organic growth in 2022e. If this can be driven by service revenues outgrowing system sales, and particularly cloud revenues leading the way, margins should have potential to further expand.
The share currently trades at 9.6x 2022e EV/EBITA on our estimates, while we forecast an EBITA margin of 6.3-6.5% in 2022-23e vs. the company’s target of >8%, which we think is based on a ~three-year horizon. The valuation is currently a 43% discount vs. the peer group of ATEA, Dustin, Bechtle and Cancom. We estimate an adj. EBITA CAGR of 6% in 2020-23e vs. the peer median at 14%.
Estimates up in 2021e, small changes to 2022-23e
9.6x 2022e EV/EBITA is a 43% discount to peers
Proact delivered another report in line with its historical pattern of stable service sales alongside volatile system sales. The -16% organic growth in system sales is primarily due to a strong Q3’20 driven by a large NHS order in the UK. The flat organic growth in service revenues is best explained by small growth in cloud revenues, flat in consulting revenues and a decline in support revenues linked to system deliveries. We understand that Proact has been affected negatively by the pandemic, as sales cycles are relatively long for infrastructure projects and physical meetings have been the preferred way of closing deals, particularly for the public sector. We therefore think that there should be a degree of pent-up demand for Proact’s services (data storage infrastructure) post-COVID-19, and estimate that the 2021e organic decline of -3% will turn into 5% organic growth in 2022e. If this can be driven by service revenues outgrowing system sales, and particularly cloud revenues leading the way, margins should have potential to further expand.
The share currently trades at 9.6x 2022e EV/EBITA on our estimates, while we forecast an EBITA margin of 6.3-6.5% in 2022-23e vs. the company’s target of >8%, which we think is based on a ~three-year horizon. The valuation is currently a 43% discount vs. the peer group of ATEA, Dustin, Bechtle and Cancom. We estimate an adj. EBITA CAGR of 6% in 2020-23e vs. the peer median at 14%.