Expert System (MI:EXSY) saw an uptick in demand towards the end of FY17, resulting in revenues and EBITDA ahead of our forecasts. The company has revised its outlook for FY18/19, expecting double-digit sales growth and EBITDA margin expansion; we have revised up our FY18 forecasts to reflect this. The company expects to burn cash in FY18 before turning cash-flow positive in FY19. Evidence of sustained customer demand combined with good cost and cash control will be key to share price upside.
Strong pick-up in revenues in H217
Expert reported FY17 sales growth of 11.8% y-o-y, versus our expectations for flat sales. This implies that H217 sales grew 110% sequentially, highlighting in part the typical seasonality that Expert experiences, but also a pick-up in demand for its solutions towards year end. Combined with slightly lower than expected operating costs, this generated a positive EBITDA of €1.7m before exceptional restructuring costs of €0.7m. The proportion of annual licences sold increased to 41% of licence revenues from 28% in FY16, and grew in absolute terms by 145% y-o-y. Year-end net debt of €8.8m was higher than we forecast, mainly due to higher receivables resulting from the heavy weighting of licence sales close to year end.