The Panoply Holdings PLC (LON: TPX) – Following acquisition strategy to boost revenue and market share

The Panoply Holdings PLC is an FTSE AIM All-Share Index listed company. Based in the United Kingdom, it offers technology-enabled services. The Company is focused on digital transformation. It works in the following segments, namely, Software development and Automation and Consulting and innovation. The Company's subsidiaries are, Manifesto Digital Limited, iDisrupted Limited, Bene Agere Norden AS, Questers Resourcing Limited, and Greenshoot Labs Limited.

The Company will conduct its Annual General Meeting on 23 September 2021.

Dividend Details: 

The Company declared a final dividend of GBX 0.40 per share to be paid on 1 October 2021. (Ex-dividend date: 23 September 2021).

In FY21, the Company paid a total dividend of GBX 0.60 per share.

Going forward, the Company plans to follow a progressive dividend policy at 15%-20% of the net income.

Planned Technological Advancements Through M&A

Panoply has identified more than 200 target companies, out of which they have received 80 positive responses. As a result, the Company will continue to follow their efficient approach of acquiring companies and expand their capabilities.

(Research done by Kalkine Group)

Growth Prospects

• Huge market opportunity: The value of the Software and IT services market in the UK is around £51.8 billion, out of which £12.1 billion is from the public sector. The Company majorly works in the public sector market, which allows the Company to seize the opportunity. Furthermore, the public sector segment is expected to grow at a CAGR of 1.3% from FY19-FY23. The new solution is likely to take over the heritage sector by the end of FY23, which could drive the Company's profitability going forward.
  

(Source: Company Annual Report)

• A strong vision for 2050: The Company aims to become one of the top 20 public sector suppliers by the end of FY25 and achieve a run-rate revenue of £200 million. The Company plans to deliver 10-15% growth annually till FY25 while generating 70% of its operating profits through cash inflows.
• Growth through acquisitions: Panoply had completed 12 acquisitions since its IPO in December 2018. In FY21, they acquired three additional companies that provided revenue jump and capability and sector penetration.
• Strong financial performance: In FY21, the Company delivered a solid financial performance as the revenue increased by 62%, and the adjusted EBITDA grew by 87%. The Company also delivered an organic growth of 19%, and they were also successful in signing four new contracts of over £3 million.

Key Risks 

• Integration risk: Failure to complete transactions could expose the group to substantial unrecoverable costs. Also, failure to synergize could lead to additional costs and losses.
• Cyber threat: As the Company processes sensitive data, any breach in data security could damage the reputation of the Company. Also, it could affect future revenue streams and contracts.
• Highly competitive industry: The group faces competition from large organizations and small niche companies, which could impact the market share and customer base.

Now we will analyse some key fundamental and shareholders statistics of The Panoply Holdings PLC.

Financial and Operational Highlights (for 12 months ended 31 March 2021 as of 5 July 2021)

(Source: Company Presentation) 

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 3 September 2021, at 8:55 AM GMT, TPX’s shares traded at GBX 240.00, up by 2.13% against the previous day closing price. Stock 52-week High and Low were GBX 325.00 and GBX 93.00, respectively.

On a daily chart, the share price is sustaining above 20-day EMA of about GBX 237.00, indicating the possibility of an upward movement. The 14-day RSI indication suggest trend reversal from the oversold territory. Hence, there could be an uptick in the stock price in the near term.

In the last year, TPX stock has delivered a positive return of ~74.07%. Also, it has outperformed the FTSE AIM All-Share Technology Index with a return of ~22.80% and FTSE AIM All-Share Index with a return of about 35.07%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Peers used in the valuation methodology (Price/NTM Earnings)

Business Outlook Scenario

TPX delivered an excellent performance in FY21, with revenues rising 62% YoY. It also achieved an adjusted EBITDA growth of 87% YoY. The management made four acquisitions during the year. Out of that, three acquisitions contributed £6.3 million in revenue and improved operations and market share. The management remains focused on continuous investments in product and technology through their acquisition strategy, which provides further confidence for FY22 and beyond. The Company's commitment is to achieve 10-15% organic revenue growth annually till FY25 while maintaining a progressive dividend policy of paying out 15-20% of net income as a dividend. The Company also aims to achieve a run rate revenue of £100 million by March 2023 and deliver £12 million to £14 million EBITDA.

Considering the Company's robust financial performance, its technological advancement, acquisition strategy, favourable market drivers, and support from the valuation as done using the above method, we have given a "Speculative Buy” recommendation on “The Panoply Holdings PLC” at the current price of GBX 240.00 (as on 3 September 2021 at 8:55 AM GMT), with a lower-double digit upside potential based on 33.39x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.). 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

*All forecasted figures and Peer information have been taken from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from Refinitiv.

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