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Undemanding valuation for dependable tech firm Shares in software firm SCISYS fell with recent final results. However, a 10% dividend hike was delivered. This makes SCISYS one of only 55 AIM companies to have achieved five successive years of dividend increases. The company first listed on AIM 1997. CODA was acquired in 2000. SCISYS was demerged from the combined entity in 2006. CEO Klaus Heidrich arrived at SCISYS following the 2007 acquisition of German broadcast technology specialist VCS. Today, SCISYS describes itself as a developer of “bespoke software systems, IT based solutions and support services to the Media Broadcast, Space, Government and Defence and Environment sectors”.

expertise is uncommon By serving these industries, SCISYS can fulfil a critical role, enabling highvalue services. SCISYS’ role frequently requires the integration of software with sophisticated hardware. This dual expertise is uncommon and would require significant investment to replicate. Much of SCISYS’ work can be characterised as large scale projects for big customers, often over an extensive period. While such relationships are frequently contracted over a period of just one year, SCISYS’ ability to secure

large scale projects for big customers repeat contract wins has resulted in the company enjoying several longterm relationships. For example, the Flight Dynamics provision to the European Space Operating Centre (mission analysis, planning, software development) has been supported by SCISYS for almost 20 years. The nature of SCISYS’ customer base can be a double-edged sword for investors: while big customers are likely better payers and resistant to supplier churn, dependence on a small number of large contracts brings earnings risk. However, it appears that the operational importance of SCISYS’ work brings significant revenue security. In 2014, approximately 75% of revenues came from clients that had been with SCISYS for more than five years. Around half of all revenues came from clients that have enjoyed a relationship with SCISYS going back more than a decade. One example of what SCISYS does is its work in the weather forecasting industry. Here the company provides the expertise to control geostationary weather satellites, alongside the technology used in image transmission. Broadcast media is a key market for SCISYS. At the end of March, SCISYS announced a £6m contract win with the BBC, set to run “over the next 3-4 years”. Here, SCISYS will deliver the software used in the scheduling and editing of audio. Recent results showed adjusted

EPS slipped from 9.3p for 2013 to 8.2p for 2014. Currency movements and the risk of spending cuts in the public sector forced management to warn that 2015 profit would likely be flat compared to 2014. This news knocked 10% off the share price as the market re-rated the stock to reflect the lack of growth. Management’s primary goal is to increase operating margin to more than 10% by 2018. The last five years shows the clear progress already made toward this goal. According to consensus data, SCISYS is expected to deliver EPS of 8.75p for 2015. A 9% dividend increase is also forecast. SCISYS is one of AIM’s most successful companies, with a blue-chip customer base and a debt free balance sheet.

£6m contract win with the BBC SCISYS (LON:SSY) FOR Modest valuation Successful firm AGAINST Little growth expected Key-customer risk Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£24m 80p:85p 9.1 1.9% 76p:97p


May 2015 AIM Prospector  
May 2015 AIM Prospector  

Featuring nine AIM-quoted companies: Christie Group, EMIS, Fairpoint, H&T, Keywords Studios, Miton Group, NAHL, SCISYS and Universe Group.