GSB was written up by andreas947 over one year ago. I will refer you to his excellent write-up for a more detailed description of the company. The stock has appreciated 40% since, but the company has transitioned from a sleepy software company trading at low multiples to one at a reasonable multiple but possible inflection point of sustainable revenue growth. Stock currently trades at 10x EV/trailing EBIT, which is still quite cheap given the recent momentum (27% topline growth last Q). If the momentum continues, I can get to a $5 PT pretty easily based on 10x 2016 EBIT/FCF. Downside should be partially protected by net cash/share approaching $1 by year end 2015, and a steadily growing maintenance revenue stream (3.2x trailing EV/maint rev).
Company Description: GlobalSCAPE (GSB) develops and distributes software, delivers managed and hosted solutions, and provides associated services for secure information exchange for consumers and enterprises worldwide. GSB’s core product is the Enhanced File Transfer or EFT which currently represents about 80% of total revenues.
What changed: James Bindseil became CEO of the company in late 2013, after passing of previous CEO. He laid out three pillars of strategy to reinvigorate growth – 1) improving marketing and demand generation, 2) developing channel/partner relationships in US, 3) reenergizing product innovation.
Admittedly I was somewhat skeptical of these initiatives when they were first announced as they seemed too mundane/obvious. But proof is in the numbers, and quarter by quarter, one could see the story play out. First, it was a roadmap of new product release, then it was “pipeline/leads growing 100%”, then it was steady increase in deferred revenue from $10.8m at end of ’13 to $14.8 at end of ’14. The company had record booking of $8m in Q3 and Q4 respectively, which resulted in record sales of $8m in Q4. Most encouraging is there is no significant customer accounting for this increase, and the channel/partners developed last year have yet to contribute meaningfully to topline. Maintenance revenue also grew nicely to $16m run-rate at 90% renewal rate. Mgmt expressed guarded optimism about the upcoming year.
FY 2009
FY 2010
FY 2011
FY 2012
FY 2013
Q1
Q2
Q3
Q4
FY 2014
FY 2015E
FY 2016E
Sales
16.5
18.6
20.9
23.4
24.3
5.7
6.7
6.5
7.9
26.8
31.4
34.5
yoy
4.2%
12.8%
12.5%
11.9%
4.1%
1.4%
3.6%
3.1%
26.9%
10.0%
17.2%
10.0%
License
9.2
1.5
2.5
2.3
4.0
10.3
12.9
14.0
Maint
11.3
13.7
3.6
3.7
3.8
3.9
15.0
17.0
18.0
Bookings (rev + change in deferred rev)
22.7
5.6
8.1
8.6
8.5
29.9
Cost of Goods Sold
0.3
0.6
1.7
1.3
1.0
0.2
0.2
0.3
0.3
1.0
1.2
1.4
Gross Profit
15.4
17.1
18.4
20.9
22.4
5.4
6.3
6.0
8.1
25.8
30.2
33.1
Op expenses
13.6
15.8
17.6
20.3
18.4
4.6
5.5
4.7
6.3
21.1
23.0
24.5
% of Sales
65.5%
69.0%
69.2%
71.7%
59.9%
79.9%
82.8%
72.2%
79.0%
73.3%
71.0%
R&D
3.8
0.5
0.7
0.5
0.4
2.2
3.0
3.5
SG&A
14.9
4.0
4.9
4.2
5.0
18.1
19.0
20.0
EBITDA
2.4
2.1
1.6
(0.1)
5.2
-
-
1.5
5.5
8.2
9.6
EBIT
1.7
1.3
0.8
(1.3)
4.0
0.8
0.8
1.3
1.8
4.6
7.2
8.6
EBIT Margin
10.5%
7.0%
4.0%
-5.5%
16.3%
-
-
19.3%
17.2%
22.8%
24.9%
Pretax Income
1.7
1.3
0.8
(1.6)
3.7
0.8
0.7
1.3
4.6
7.5
9.1
Net Income to Common Shareholders
1.4
0.9
0.6
(1.8)
3.8
0.5
0.5
0.8
1.2
3.0
4.9
6.0
EPS - Continuing Operations
-
$0.05
$0.03
-$0.10
$0.20
$0.03
$0.02
$0.04
$0.06
$0.15
$0.23
$0.29
# shares
19.082
20.693
21
21
Cash & ST Investments
8.2
11.1
8.9
8.1
9.5
10.7
11.7
9.3
14.5
19.9
26.4
Receivables (Net)
2.2
3.5
4.4
3.4
3.9
3.5
6.0
6.8
5.9
5.9
5.9
Current Assets - Total
10.7
15.8
14.5
12.0
13.9
14.6
18.2
16.5
18.1
18.1
18.1
Deferred Rev
9.8
10.8
10.7
12.1
14.2
14.8
14.8
14.8
14.8
Total Shareholders Equity
9.9
12.2
14.1
12.0
16.3
17.7
19.3
20.7
20.8
20.8
20.8
Net Income / Starting Line
1.4
0.9
-
-
3.8
0.5
1.0
1.8
3.8
4.9
6.0
Depreciation, Depletion & Amortization
0.7
0.9
-
-
0.9
0.1
0.3
0.6
0.9
1.0
1.0
Deferred Income Taxes & Investment Tax Credit
(0.4)
(0.7)
-
-
(0.9)
(0.9)
(0.9)
(0.9)
Net Cash Flow - Operating Activities
4.7
2.7
-
-
4.5
1.7
2.6
4.5
8.5
5.9
7.0
Capital Expenditures (Addition to Fixed Assets)
0.5
0.2
-
-
(0.1)
(0.1)
(0.1)
(0.2)
(0.4)
(0.5)
(0.5)
FCF
5.2
2.9
0.0
4.4
-
-
0.0
8.1
5.4
6.5
per share
$0.23
$0.39
$0.26
$0.31
I feel this is a pretty straight forward story. I will let you decide what kind of multiple to pay for a business like this, but suffice to say current multiple leaves plenty of room for upside.B/S is very clean with $14.5m cash/equivalents. FCF was especially strong last year due in part to the build up of deferred revenue. Mgmt initiated a regular dividend of 6c/year on top of a special dividend of 5c.
2014
2015
2016
Price
$3.0
$3.0
$5.0
# shares
21.0
21.0
21.0
Mkt Cap
$63.0
$63.0
$105.0
Net Cash
14.5
19.9
26.4
Cash/share
$0.7
$0.9
$1.3
EV
$48.5
$43.1
$78.6
EV/EBIT
10.5x
6.0x
9.1x
EV/Sales
1.8x
1.4x
2.3x
EV/FCF
8.9x
7.9x
12.1x
P/E
20.5x
EV/maint
3.2x
2.5x
4.4x
I do not hold a position with the issuer such as employment, directorship, or consultancy. I and/or others I advise do not hold a material investment in the issuer's securities.
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