Beeks Trading : Progressive note major deal revenue uplift

BEEKS FINANCIAL CLOUD GROUP

SOFTWARE AND COMPUTER SERVICES

2 February 2022

BKS.L

171p

Market Cap: £95.6m

SHARE PRICE (p)

250

200

150

100

50

0

12m high/low

201p/89p

Source: LSE Data (priced as at prior close)

KEY DATA

Net (Debt)/Cash	£1.9m (at 30/06/21)
Enterprise value	£93.7m
Index/market	AIM
Next news	H1 FY22, March '22
Shares in Issue (m)	56.1
Chairman	Mark Cubitt
Chief Executive	Gordon McArthur
Finance Director	Fraser McDonald

COMPANY DESCRIPTION

Beeks provides low-latencyInfrastructure-as-a-Service (IaaS) for automated trading of financial products.

www.beeksgroup.com

BEEKS FINANCIAL CLOUD GROUP IS A RESEARCH CLIENT OF PROGRESSIVE

ANALYSTS

Blaine Tatum

[phone] [e-mail]

Gareth Evans

[phone] [e-mail]

www.progressive-research.com

Major deal prompts revenue uplift

Beeks has announced a second major contract win for its Proximity Cloud product range, effectively a private cloud specifically tailored for financial markets clients. The deal is for $2.2m over four years, and although some of the upside is already anticipated in our (and consensus) numbers, we upgrade estimates to reflect the positive news. We increase our FY22E revenue estimates and both revenue and profit in FY23E. The group will be reinvesting the additional revenue, so we leave FY22E earnings estimates unchanged at this time.

• Contract announcement. Today's announcement details a win with "one of the world's largest Foreign Exchange brokers", described as a new client for Beeks. The deal gives rise to revenue of some $2.2m over four years, and we assume that Beeks will make a strong gross margin, net of costs of communication links and other dedicated infrastructure that may be required for this customer. The first major Proximity Cloud deal, announced in August 2021, was for $1m, again over multiple years, so this win marks a major step forward in terms of customer and contract size.
• About Proximity Cloud. Dedicated to the demands of capital markets trading‑ and financial‑ institutions, Proximity Cloud is‑ a secure, high performance, low latency private cloud product, pre built into a physical cabinet. With the ability to now offer fully hosted or private cloud solutions from the company's network of global data centres or on client site, Beeks is positioned to cater to the requirements of all financial institutions, no matter their size, and to capitalise on the rapid acceleration of cloud deployment in financial services.
• Changes to estimates. The group intends to invest additional revenue into the product itself and additional marketing. We add £1.0m to our FY22E revenue estimate, but leave earnings estimates unchanged to reflect this additional expenditure. For FY23E, we upgrade revenue and adjusted PBT by £2.6m and £0.3m, respectively.

We are pleased to see another material win for Beeks. Although the group is expecting to reinvest the additional revenue from this deal, we would expect any further increase in sales forecasts to flow through to the bottom line. We await with interest further news flow from the group - around the original core product range, the newer Proximity Cloud offering and the Analytics business.

FYE JUN (£M)	2019	2020	2021	2022E	2023E
Revenue	7.4	9.4	11.6	18.2	22.9
Adj EBITDA	2.5	3.3	4.1	5.6	7.3
Fully Adj PBT	1.3	1.4	1.6	2.3	3.2
Fully Adj EPS (p)	2.6	2.5	3.0	3.8	4.8
EV/Sales (x)	12.7	10.0	8.1	5.2	4.1
EV/EBITDA (x)	37.8	28.1	22.6	16.7	12.9
PER (x)	66.8	69.5	57.0	45.2	35.3

Source: Company Information and Progressive Equity Research estimates.

This publication should not be seen as an inducement under MiFID II regulations.

Please refer to important disclosures at the end of the document.

2 February 2022

Financials

Following the contract announcement, we make revisions to estimates, as summarised in the following table.

Changes to estimates

		FY22E			FY23E
£m unless stated	Old	New	Change (%)	Old	New	Change (%)
Revenue	17.2	18.2	5.8%	20.3	22.9	12.8%
Adj EBITDA	5.6	5.6	0.0%	6.7	7.3	9.0%
Fully adj PBT	2.3	2.3	0.0%	2.9	3.2	10.3%
Fully adj EPS (p)	3.8	3.8	0.0%	4.4	4.8	9.1%

Source: Progressive Equity Research Limited, company information

• Our FY22E revenue forecast is increased by £1.0m. However, our profit forecasts are unchanged, reflecting our assumption of increased investment in the Proximity Cloud offering. For FY23E, we expect the deal to add to both revenue and profits.

2

						2 February 2022
	Financial Summary: Beeks Financial Cloud Group
	Year end: June (£m unless shown)
	PROFIT & LOSS	2019	2020	2021	2022E	2023E
	Revenue	7.35	9.36	11.62	18.18	22.92
	Adj EBITDA	2.48	3.33	4.14	5.62	7.27
	Adj EBIT	1.50	1.18	1.67	2.46	3.30
	Reported PBT	1.04	0.68	1.26	2.09	2.92
	Fully Adj PBT	1.32	1.43	1.61	2.35	3.18
	NOPAT	1.89	1.29	1.84	2.70	3.63
	Reported EPS (p)	2.10	1.13	3.07	3.19	4.47
	Fully Adj EPS (p)	2.55	2.45	2.99	3.78	4.83
	Dividend per share (p)	0.35	0.20	0.00	0.00	0.00
	CASH FLOW & BALANCE SHEET	2019	2020	2021	2022E	2023E
	Operating cash flow	2.13	3.26	5.99	6.78	9.11
	Free Cash flow	0.04	(0.67)	(1.07)	(0.61)	1.54
	FCF per share (p)	0.07	(1.20)	(1.91)	(1.09)	2.76
	Acquisitions	(1.11)	(0.75)	(1.02)	0.00	0.00
	Capex	(1.66)	(3.54)	(6.75)	(6.86)	(6.86)
	Shares issued	0.00	0.00	5.01	0.00	0.00
	Net cash flow	(0.55)	(0.91)	2.42	(0.61)	1.54
	Overdrafts / borrowings	(1.32)	(2.18)	(1.49)	(1.49)	(1.49)
	Cash & equivalents	2.34	1.43	3.37	2.76	4.31
	Net (Debt)/Cash	1.02	(0.75)	1.89	1.28	2.82
	NAV AND RETURNS	2019	2020	2021	2022E	2023E
	Net asset value	5.63	6.72	13.77	16.51	19.95
	NAV/share (p)	10.05	11.98	24.56	29.46	35.58
	Net Tangible Asset Value	2.44	6.76	10.39	13.66	16.10
	NTAV/share (p)	4.35	12.05	18.54	24.37	28.72
	Average equity	5.24	6.17	10.24	15.14	18.23
	Post-tax ROE (%)	22.7%	21.3%	14.0%	10.6%	12.9%
	METRICS	2019	2020	2021	2022E	2023E
	Revenue growth		27.3%	24.1%	56.5%	26.1%
	Adj EBITDA growth		34.3%	24.3%	35.7%	29.4%
	Adj EBIT growth		(21.5%)	42.1%	47.2%	34.2%
	Adj PBT growth		N/A	12.1%	46.1%	35.4%
	Adj EPS growth		N/A	22.0%	26.3%	27.8%
	Dividend growth		(42.9%)	(100.0%)	N/A	N/A
	Adj EBIT margins	20.4%	12.6%	14.4%	13.5%	14.4%
	VALUATION	2019	2020	2021	2022E	2023E
	EV/Sales (x)	12.7	10.0	8.1	5.2	4.1
	EV/EBITDA (x)	37.8	28.1	22.6	16.7	12.9
	EV/NOPAT (x)	49.5	72.4	51.0	34.6	25.8
	PER (x)	66.8	69.5	57.0	45.2	35.3
	Dividend yield	0.2%	0.1%	N/A	N/A	N/A
	FCF yield	0.0%	(0.7%)	(1.1%)	(0.6%)	1.6%

Source: Company information and Progressive Equity Research estimates

3

2 February 2022

Disclaimers and Disclosures

Copyright 2022 Progressive Equity Research Limited ("PERL"). All rights reserved. Progressive's research is commissioned by the subject company under contract and is freely available to the public and all institutional investors. Progressive does not offer investors the ability to trade securities. Our publications should not, therefore, be considered an inducement under MiFID II regulations. PERL provides professional equity research services, and the companies researched pay a fee in order for this research to be made available. This report has been commissioned by the subject company and prepared and issued by PERL for publication in the United Kingdom only. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable; however, PERL does not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of PERL at the time of publication, and any estimates are those of PERL and not of the companies concerned unless specifically sourced otherwise. PERL is authorised and regulated by the Financial Conduct Authority (FCA) of the United Kingdom (registration number 697355).

This document is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. PERL does not make investment recommendations. Any valuation given in a research note is the theoretical result of a study of a range of possible outcomes, and not a forecast of a likely share price. PERL does not undertake to provide updates to any opinions or views expressed in this document.

This document has not been approved for the purposes of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom. It has not been prepared in accordance with the legal requirements designed to promote the independence of investment research. It is not subject to any prohibition on dealing ahead of the dissemination of investment research.

PERL does not hold any positions in the securities mentioned in this report. However, PERL's directors, officers, employees and contractors may have a position in any or related securities mentioned in this report. PERL or its affiliates may perform services or solicit business from any of the companies mentioned in this report.

The value of securities mentioned in this report can fall as well as rise and may be subject to large and sudden swings. In addition, the level of marketability of the shares mentioned in this report may result in significant trading spreads and sometimes may lead to difficulties in opening and/or closing positions. It may be difficult to obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance.

To arrange a meeting with the management team, or for further information about Progressive, please contact: Keith Hodgskiss

[phone] [e-mail]