Spyrosoft (WSE: SPR) is a Polish software engineering company riding the secular tailwind of digital business transformations. Despite the explosive development since its founding in 2016, the company is still relatively small in size and has a significant runway for growth left to pursue. I believe the company offers an interesting investment case which can be summarized in the following points:
Hi Bastian, don't you think that in 2021 it would be better to correct the FCF by subtracting the leases from the D&A, as this increase in depreciation in 2021 is due to the new accounting rules for finance leases, where they are recorded as an increase in the D&A item.
If it were not subtracted from FCF, this actual cash outflow would be ignored.
Hi Andrew! Thank you for your comment. Your suggested approach of converting the leases to a more operational nature is absolutely a great approach to derive FCF and would normally be my preferred way of looking at it.
Nevertheless, I've instead followed the reported structure to save myself some headaches and instead classified the leases as net debt. Hence they're still accounted for in the valuation, especially since I utilize the EV/UFCF approach. This also means the cash outflows are not ignored, but considered debt-like in nature rather than operational.
Glad you to hear that you enjoy(ed) it! With regards to your questions:
1) Correct it seems I've mistaken Better Software Group for Norbsoft. The main point stands that M&A can become a meaningful value driver going forward.
2) Thanks for sharing the report! Seems like guidance is slightly above what I expected for the topline but a bit weaker with regards to margins. EBIT margin would make more sense to me but they also might be sandbagging and using EBITDA for safety instead (especially if they go on an acquisition spree).
All in all, I think my conclusion holds and the stock seems cheap in my eyes. For contact I would try: office@spyro-soft.com
I just wanted to update the theard FWIW. Maybe other readers find this useful.
1) Perfect. Let's see if these acquisitions become accretive.
2) I sent the query through the inbox in their webpage: https://spyro-soft.com/contact. It was received by office@spyro-soft.com and performance@spyro-soft.com. However, it was answered by NBS Communications Sp. z o.o. on behalf of the Spyrosoft's investor relations team. I won't disclosure the email of the person just to avoid GPRD problems, if any.
They replied, and I quote, <<the company is not planning to lower the EBITDA margin in the future. The EBITDA margin defined in the Strategy is a minimum the management board expects. The goal is to have a higher and satisfying margin in the Strategy horizon.>>
Thank you for the update and sharing Joaquin! Response feels like they do a classic under-promise and over-deliver approach, which I like. Now let's see if they can execute it.
Hello. Now that spyrosoft went too high... there is room to check a paralel company, same sector and same country? I would love to read thesis about SUNTECH if possible...
Hi Bastian, don't you think that in 2021 it would be better to correct the FCF by subtracting the leases from the D&A, as this increase in depreciation in 2021 is due to the new accounting rules for finance leases, where they are recorded as an increase in the D&A item.
If it were not subtracted from FCF, this actual cash outflow would be ignored.
Thank you very much for your Research
Hi Andrew! Thank you for your comment. Your suggested approach of converting the leases to a more operational nature is absolutely a great approach to derive FCF and would normally be my preferred way of looking at it.
Nevertheless, I've instead followed the reported structure to save myself some headaches and instead classified the leases as net debt. Hence they're still accounted for in the valuation, especially since I utilize the EV/UFCF approach. This also means the cash outflows are not ignored, but considered debt-like in nature rather than operational.
Hey, Bastian. I liked the article some time ago (still like it :D), but I now have a couple of comments/questions:
1) According to this article, it seems they didn't acquired Norbsoft but I may be wrong as I don't understand Polish: https://www.bankier.pl/wiadomosc/SPYROSOFT-S-A-Informacja-o-odstapieniu-od-zamiaru-nabycia-pakietu-udzialow-Norbsoft-Sp-z-o-o-i-informacja-o-podpisaniu-umowy-partnerskiej-8125531.html
2) On their strategic report for 2022-2026 they mention they've planned EBITDA marging ranging between 11%-14% (https://spyro-soft.com/wp-content/uploads/2022/05/Spyrosoft-Group-strategy-2022-2026-1.pdf - slide 19). As per their previous years, don't you think they're referring to EBIT marging? I can't find the email for investor enquiries...
Hi Joaquin!
Glad you to hear that you enjoy(ed) it! With regards to your questions:
1) Correct it seems I've mistaken Better Software Group for Norbsoft. The main point stands that M&A can become a meaningful value driver going forward.
2) Thanks for sharing the report! Seems like guidance is slightly above what I expected for the topline but a bit weaker with regards to margins. EBIT margin would make more sense to me but they also might be sandbagging and using EBITDA for safety instead (especially if they go on an acquisition spree).
All in all, I think my conclusion holds and the stock seems cheap in my eyes. For contact I would try: office@spyro-soft.com
Hey, Bastian!
I just wanted to update the theard FWIW. Maybe other readers find this useful.
1) Perfect. Let's see if these acquisitions become accretive.
2) I sent the query through the inbox in their webpage: https://spyro-soft.com/contact. It was received by office@spyro-soft.com and performance@spyro-soft.com. However, it was answered by NBS Communications Sp. z o.o. on behalf of the Spyrosoft's investor relations team. I won't disclosure the email of the person just to avoid GPRD problems, if any.
They replied, and I quote, <<the company is not planning to lower the EBITDA margin in the future. The EBITDA margin defined in the Strategy is a minimum the management board expects. The goal is to have a higher and satisfying margin in the Strategy horizon.>>
Thank you for the update and sharing Joaquin! Response feels like they do a classic under-promise and over-deliver approach, which I like. Now let's see if they can execute it.
Hello. Now that spyrosoft went too high... there is room to check a paralel company, same sector and same country? I would love to read thesis about SUNTECH if possible...
Hi! Spyrosoft has done very well since I've written about it.
Thanks for the suggestion! Suntech is also an interesting business but I currently have no ambition to write a thesis on them (for now...).