Vislink

www.vislink.com
Ticker: VLK Exchange: AIM

Vislink plc is a global business. The group sells secure communications solutions into the broadcast and the surveillance markets, specialising in wireless, video and IP (Internet Protocol) technologies.

Latest Reports

Opening a new chapter

Published: 21st October 2016
A lot can happen in 1 ½ weeks. Firstly on the 12th October, Vislink announced that its broadcast software arm, Pebble Beach Systems (PBS), had traded strongly – reporting H1 order intake up 53% LFL. Then the following day, Finance Director (Ian Davies) resigned with immediate effect due to personal health-related reasons, with the shares hitting an all-time low of 8p.

Finally the stock has almost doubled to 15.5p over the past 2 days, on the back of positive news that the Board has conditionally agreed to dispose of its hardware division, Vislink Communication Systems (VCS), to xG Technology Inc (Nasdaq: XGTI) for $16m (or c. £13m gross, representing 0.4x 2016 sales). 

The transaction is subject to shareholder approval (date to be confirmed), and if authorised as anticipated, should close by the end of 2016. Proceeds (say £12m net) have been ear-marked to pay back the vast majority of the company’s £15m revolving credit facility with Santander - thus leaving the business “substantially debt-free”.

On this basis we have upgraded our adjusted PBT forecasts for next year from £1.7m to £2.8m - delivering EPS of 1.8p on top of a re-introduced 0.4p dividend. Likewise our price target increases from 20p to 23p per share – equating to a 2017 sales multiple for PBS of 2.3x, and within the typical range of 2x-3x for smallcap software stocks. 
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Decisive action being taken

Published: 29th September 2016
Given July’s profit warning, Vislink’s interims this morning were never going to be pretty. H1’16 orders and turnover fell 21% and 15% respectively to £22.3m and £22.6m, reflecting ongoing difficulties at VSC (where sales dropped -18.5% to £17.2m) as broadcasters continued to divert budgets from infrastructure to content and transition to IP technologies (re delayed orders). Accordingly this pushed group adjusted EBIT to a loss of -£1.1m (vs £2.2m LY) - excluding £2.2m of forex gains which were credited to reserves - with net debt rising to £8.8m from £5.75m as at December. £1.9m of R&D was capitalised vs £1.6m of amortisation charged to the P&L. 

This was largely as anticipated, albeit since June, cashflow has remained tight with the business now fully utilising (vs 80% in June) its £15m RCF facility with Santander after paying a £1.8m dividend on 18th July, and is expected to breach covenants as the end of this month. That said the company is in constructive discussions with its bankers, and management are already lowering working capital levels (% revenues), capex, overheads and non-discretionary spend. A number of self-help measures have been kicked off, involving: a “root and branch review” of VCS with the aim of delivering annualised savings of £2-3m and returning the division to profitability next year by focusing more on newer IP related technology, cessation of future dividends until net debt falls below 1x EBITDA, re-examination of the Board and Group structure and moving the VCS finance function to Head Office to improve debt collection and overall cashflow. We think this strategy makes sense, and suspect too that it could include asset disposals and/or securing other “sources of finance” in order to temporarily shore up the balance sheet.

With regards to the numbers, although we have cut our forecasts, we estimate the software division on its own is worth a minimum of £34m (vs VLK mrk cap of £10.6m) - equating to a modest 2017 EBIT contribution multiple of 8.5x. Additionally, if we put VCS on a rating of circa 0.4x next year’s turnover – adjusting for net debt, forex and central costs – then the revised sum-of-the-parts price target for the entire group comes out at 20p/share (see below) vs 23p previously. 

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2016 to be 'materially below estimates'

Published: 7th July 2016

Vislink is a market leading, video capture and playout provider to the broadcast industry. Its cutting edge technology enables the collection of high quality live video, wirelessly, from the "scene to the screen". 

Unfortunately it appears our views earlier this year were too optimistic, after news yesterday that Vislink's hardware division (VCS) had traded materially below forecasts in H1'16, due to much tougher conditions across the patch, coupled with delays in launching some new products.

As a result, management are now implementing a "major root and branch" restructuring exercise - including product/brand rationalisation and the consolidation of VCS' engineering and manufacturing operations - with the intention of delivering annualised savings of £1-2m. 

Elsewhere, Pebble Beach's long term prospects "remain strong" - however even here a limited number of software orders (say £0.5m worth) have "slipped" from Q2 into H2. Our FY EBITA estimate for the division is unchanged at £3.55m on revenues of £11.5m. 

Assuming the 2015 dividend of 1.5p/share (worth £1.8m) is paid as scheduled on 18th July, then we believe overall net debt (sterling denominated) will close December 2016 at circa £8.0m, representing 2.0x trailing EBITDA (post R&D amortisation). Going forward this should settle back to <2x in 2017 - based on a worst case scenario of the 2016 dividend being passed; but then re-instated 12 months later, offering a 5.6% yield with an earnings cover of 3x.

We have therefore cut our 2016 adjusted EPS by 52% from 3.6p to 1.7p, but believe the software division on its own is worth £34m (vs group market cap of <£15m) - equating to 2017 revenue and EBITA multiples of 2.8x and 10x respectively  (discounted back at 12%). 

Additionally, if we put VCS on a rating of 0.5x sales - adjusting too for net debt, forex and central costs - then we arrive at a revised sum-of-the-parts price target for the entire group of 23p/share, vs 54p previously. At 12p the stock currently trades on a modest forward PER of 6.9 times. 


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2016 diluted EPS set to jump 20.7% to 3.6p

Published: 22nd March 2016


Vislink is a market leading, video capture and playout provider to the broadcast industry. Its cutting edge technology enables the collection of high quality live video, wirelessly, from the "scene to the screen". Its 3 core markets are broadcast hardware (68% of 2015 sales; news, sport and entertainment), surveillance equipment (13%; law enforcement, armed forces and public safety), and studio broadcast software (19%, or Pebble Beach Systems).

Given the recent bounce in equities since mid-February, it is somewhat surprising to still find the shares languishing at 27.5p, equivalent to adjusted 2016 EV/EBITA and PER multiples of 6.3x and 7.6x, along with paying a 5.5% dividend yield.

Today's results did show that 2015 revenues and adjusted EPS fell to £57.8m (-6.7%) and 3.0p (-26%) respectively, but this was partly down to the one-off nature of a large UK public safety contract where profits were recognised mostly in 2014.

Looking ahead, we believe that the Board is investing in the right areas, which should help lift adjusted diluted EPS by 20.7% to 3.6p this year and to 4.5p by 2018 - underpinned by continued strong results from Pebble Beach Systems (54% of 2015 EBITA), steady growth at Vislink Communication Systems ('VCS') and a healthy closing order book of £11.0m (vs £8.8m LY) after reporting a 2015 Book:Bill of 1.04x.

In spite of the ongoing difficulties in VCS, the broader fundamentals for the group as a whole remain supportive for double digit earnings expansion for this year and beyond. The client base includes many blue-chip names such as Al Jazeera and the Metropolitan Police - to which heavyweights like GoPro, Harmonic and BT Sport have been added over the past 2 years.

Vislink shares at 27.5p appear far too lowly rated, particularly compared to the sector and our unchanged price target of 54p/share.
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