TXT (MI:TXTS) reported H118 revenue growth of 6% y-o-y; investments in R&D and sales and marketing ahead of this growth rate resulted in margin pressure in H118. TXT has completed the acquisition of a majority stake in Cheleo and we have factored this into our forecasts from 1 August. The combination of slightly lower growth forecasts for TXT Next, a one-off tax credit and the higher margin growth of Cheleo results in normalised EPS upgrades of 16% in FY18e and 24% in FY19e. After paying for Cheleo, we estimate the company has funds of more than €70m to invest in accretive acquisitions in the transportation and fintech markets.
H118 results show steady growth and investment
TXT reported 6.1% y-o-y revenue growth in H118 (+4.3% in Q118, +7.2% in Q218). Gross margins have improved on a year-on-year basis, resulting in gross profit growth of 8.2%. Growth in the operating cost base of 17% over the period resulted in a 2.5pp decline in the normalised operating margin to 7.5%. As well as investing in R&D and sales and marketing, TXT is now incurring the full cost of central functions that were previously split across TXT Next and TXT Retail (sold in Q417). Net cash at the end of H118 stood at €74.0m.
To read the entire report Please click on the pdf File Below: