GFI Informatique – established in 1992 and listed on the Paris stock exchange – is a France-based outfit but with a footprint in the Americas and across Europe in IT service solutions landscape. The company supports multiple business sectors: retail, financial services, transport, energy, public sector, and telecoms.
Services offered include outsourcing, digital transformation, integration, e-commerce, installation, software publishing, and consulting.
International business accounted for almost 30% of revenue in the first half of 2018, and without compromising margin (which actually increased to 4.7% of revenue in the first half of 2018). Restructuring and increased debt costs however pulled net profit 10% below that in the previous period.
Nearly €220m was spent in the first half of the year on acquisitions, necessitating a restructuring of group debt including new syndicated, bridging, and revolving credit loans. The company’s gearing is very high with debt at 104% of equity at 30 June 2018 (versus 43% at 31 December, 2017). Equity is itself dangerously low after allowing for massive goodwill and other intangibles.
The group’s capital structure has become precarious because it is now over-loaded with debt. To add to the financial risk, massive goodwill could be written down with a downturn in the economy and performance of the companies acquired. Against this backdrop, the group intends to pursue a transformation of its business, improve operating margin, and expand internationally.
Commenting on Q3 2018, Vincent Rouaix, Chairman and CEO of GFI Informatique, said: "Our company has, as expected and in a favourable environment, enjoyed sustained business and recorded a good third quarter, both in France and abroad. Most of the growth comes from acquisitions.”
Based on annualised 2018 figures:
For: Very good revenue generation, positive interest cover (2.4x)
Against: low EPS (€0.22), poor dividend yield, current ratio at the lower boundary of safety, massive goodwill and intangibles resulting in massive negative equity and negative tangible book value, high price:BV (over 2x), very high gearing (over 100% of equity), poor RoE (2.1%), very high PE ratio (47x), share price almost at its 52W high, slow debtor collection
Conclusion: GFI’s meagre return to shareholders is just not commensurate with the risk they face.
Disclosure:
I have no positions in any of the securities referenced in the contribution
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To the best of my knowledge, the views expressed in this contribution comply with UK law
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This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.
Permjit S.
