KBC Advanced Technologies

www.kbcat.com TICKER: KBC     EXCHANGE: L

KBC Advanced Technologies plc (KBC) is a leading independent consulting, process engineering and software group. They focus on optimising operating efficiency and maximising the return on capital investments in the oil refining, petrochemical, and other process industries worldwide. With a global client base, the firm is drawing an increasing proportion of its revenues from its proprietary software which helps clients optimise their refining process. Combined with their consulting business, the company helps their clients to navigate a path around industry problems.

LATEST REPORTS

 
Strong H2 expected after $4.36m contract win
Published: Oct 23 2015

KBC is a leading independent provider of simulation software and consultancy to the oil/gas sector. Its sophisticated technology enables customers to optimise their capital and operational spend.
This morning KBC has announced the signing of a new 5 year $4.36m software agreement and a non-exclusive strategic partnership with Advisian (3,000 consultants and part of ASX listed WorleyParsons Ltd). We think this an important break-through given WorleyParsons (Mrk Cap of A$1.7bn with LY revenues of A$7.2bn) is KBC's first major PMC (Project Management Consultant) and EPC (Engineering, Procurement and Construction) contractor to buy all of its software - including Maximus, Multiflash and Petro-SIM. The vast majority of the $4.36m relates to new upstream licenses (reservoir PVT, production and process facilities) with roughly 50% (or >$2.0m) of the total value being recognised this year as turnover.
What's more the joint collaboration agreement should be able to open more doors for both parties, as we believe that ultimately by combining resources, the end customer proposition will be more compelling, price competitive and comprehensive in terms of operational coverage. 
With regards to the numbers, we make no change to our projections or 169p/share price target, as the deal underpins our existing 2015 PBT forecast of £10.47m. However coming hot on the heels of 2 other major contract wins in September (Middle East and FSU), we think momentum is building and expect a strong second half, delivering PBT of £6.3m, versus £4.2m in H1.
 
Benefiting from healthy refinery margins
Published: Sep 22 2015

KBC's H1 sales of £36.2m (+5.4%) and adjusted PBT of £4.2m (+3%) were in line with our estimates, albeit impacted by £0.46m of forex losses. KBC's robust orderbook, strength in refineries and early restructuring measures (which have produced savings of £3.5m pa thanks to a 10% headcount reduction and office consolidation in North America), helped mitigate the worst effects of the lower crude price.
From a divisional perspective, Consultancy revenues and adjusted EBIT came in at £27.3m (+5.1%) and £1.7m respectively - improving margins sequentially to 6.2% from 2.9% in H2'14, thanks to lower headcount and better staff utilisation. In Technology, turnover was "solid" up 6.2% to £8.9m including key contract wins in Australia, Oman and the US, delivering adjusted EBIT of £2.5m and margins of 28.3%. Recurring revenues from royalties, maintenance, support and upgrades jumped 23% to £5.3m. The upstream focused FEESA unit (acquired in July 2014 for £11.2m), continues to perform well against a challenging backdrop, and offers the group a "unique selling point".
H2 2015 has started well, showing good momentum, as evidenced by the recent contract wins and "good Technology opportunities". As such we make no change to our full year 2015 turnover and adjusted PBT forecasts of £73m and £10.5m respectively - underpinned by the healthy June backlog of £74m and a seasonally stronger 2nd half for Technology.
At 110p, KBC appears cheap trading on forward EV/EBITA and PE multiples of 7.4x and 13.7x respectively (falling to 12.1x if the £10.6m cash pile is stripped out), verses 10.0x and 13.8x for the wider oil services sector (see full note). Our price target has increased to 169p/share (from 162p previously), primarily due to the 6 month roll-forward of our DCF modelling.
 
A rare oil/gas stock still increasing profits
Published: Sep 15 2015

KBC is a leading independent provider of simulation software (70% of FY14 profits) and consultancy (30%) to the oil/gas sector. Its sophisticated technology enables customers to optimise their capital and operational spend.
Over the past year the crude price has collapsed leading to a blood-bath across the entire sector. However what's particularly interesting here, is that despite the very challenging backdrop, KBC is still on track to increase its 2015 PBTA by 10% to £10.5m. 
A message repeated once again today after signing another multi $m contract - this time an 18 month deal with a major Russia energy group in the Former Soviet Union (FSU) to optimise the maintenance procedures and operational reliability at several of its refineries. This represents the largest engagement KBC has ever won in the FSU.
This agreement comes hot on the heels of Friday's $8.5m consultancy win (plus $2.4m option) in the Middle East, which together underscore the resilience of KBC's business model and the attraction of its proprietary technology. 
Results are due next Tuesday, 22nd September. We make no change to our forecasts, but note that the stock at 111p trades at wide discount to both our 162p/share price target and the broader oilfield services sector.
 
Substantial upside in the event of m&a
Published: Jul 23 2015

KBC is a leading independent provider of simulation software (70% of FY14 profits) and consultancy (30%) to the oil/gas sector. Its sophisticated technology enables customers to optimise their capital and operational spend - effectively allowing them to get more 'bang for their buck'. 
For investors in the energy sector the decline of the crude price has been a major irritation, triggering a slew of profit warnings. However, not all oil/gas companies are alike, with high-tech software consultant KBC bucking the trend. Indeed its shares have actually increased >30% YTD on the back of solid trading, even in the face of challenging conditions.
Given management's shrewd positioning, it came as no surprise this morning when the company said that its H1'15 results were on track. Meaning that with good pipeline visibility too, the Board are confident of hitting consensus PBTA of £10.5m for 2015. Consequently we retain our forecasts and  thus reiterate our target price of 162p/share, compared to the current 120p level.
We also note that Schneider Electric is set to acquire a 53.5% stake in Aveva (worth £1,665m at £22.50/share) in return for making a cash payment of £550m and injecting its Invensys software unit (ie rival to KBC's Petro-SIM) into the enlarged entity for an implied £1,115m - representing exit multiples of 3.3x sales and 15.7x EBITA. This deal highlights that there is considerable upside in the event of future sector consolidation, which if enacted could attract bids for KBC of >200p.
 
Steady as she goes
Published: Jun 17 2015

KBC is a leading independent provider of simulation software (70% of FY14 profits) and consultancy (30%) to the oil/gas sector. Its sophisticated technology enables customers to optimise their capital and operational spend - effectively allowing them to get more 'bang for their buck'. 
Oil and gas is a tough place to be at the moment, but there are still pockets of strength which are helping KBC to not only keep its head well above water, but also deliver 10% growth in adjusted PBTA this year. 
In the Middle East the company has already secured £9m+ of contracts in 2015, including major awards to support NOCs. In downstream refining (~90% of 2014 sales) US Gulf Coast crack spreads (ie indicating gross margins) are bumping up towards their 5 year highs. And, whenever clients need to improve efficiency, KBC's proprietary technology enables them to materially reduce capital and operational spend.
At today's AGM the Chairman will say that market focus and proactive cost control 'give the Board confidence that KBC will meet its expectations for 2015.' 
We make no change to our forecasts and 162p/share price target. Currently, at 110p/share, the stock trades at an undeserved discount to other smallcap IT peers and the wider oilfield services sector. 
 
Beats expectations and starts 2015 well
Published: Mar 17 2015

KBC is a leading independent provider of simulation software (70% of FY14 profits) and consultancy (30%) to the oil/gas sector. Its sophisticated technology enables customers to optimise their capital and operational spend - effectively allowing them to get 'more bang for their buck'. 
It is common knowledge that energy stocks have had a tough time of late due to the crude price plummeting from $110/barrel in June 2014 to below $55 today. However, what's less well known is that within this bloodshed, the oil refiners have actually held up pretty well. Very importantly for KBC as around 90% of the firm's revenues are derived from downstream petrochemical plants, iinsulating KBC somewhat from the worst of the industry's belt tightening. 
In fact, demand for differentiated services was the message from this morning's prelims where KBC posted a 'blowout' second half: a record £88m order book (up 40% from £63m in June) and an H2 Book : Bill ratio of 1.25
Furthermore, £40.5m of the backlog is expected to flow-through into 2015 which, along with several consultancy wins since the period close, provides good earnings visibility for this year and beyond. 
Turnover jumped +16.7% to £76m with adjusted EBITA up 15.1% to £10.0m (13.2% margin), driven by a record year in Technology (or software), and augmented by a strong performance from Consulting. In turn the dividend was confidently increased 10% to 1.1p 
KBC has "started 2015 well" with a number of key consulting wins in the first two months and we maintain our 2015 adjusted PBTA of £10.5m which means KBC shares trade on a mean 10.7x 2015 PE (or just 8.3x if the cash is stripped out). Consequently we reiterate our target price of 162p/share versus the current 85p level.
 
Bucking the gloom across the oil & gas sector
Published: Jan 22 2015

KBC is a leading independent provider of simulation software (55% of H1'14 profits) and consultancy (45%) to the oil/gas sector. Reassuringly, it has today released a positive trading statement saying that it had delivered a "strong second half" with 2014 set to be "in line with management expectations".
Looking ahead, we believe the company is also on track for 2015. In fact being one of the few stocks in the sector not to reduce guidance. Our confidence is supported by a robust opening order book (at circa 2014 levels of £78m) - that is both underpinned by efficiency programs to help customers improve their own profitability, 
For investors trying to look beyond the current crude price decline, the challenge is to select those quality businesses that are bucking the trend, and have the financial ballast and forward visibility to withstand even the harshest of storms in the event the oil price remains lower for longer than anticipated.
At this time we make no changes to our KBC forecasts, but reiterate a target price of 162p per share. At 91p the stock trades on a 2015 EV/EBITA multiple of 5.6x, equivalent to less than half the oilfield services sector at 10.9x.

ARCHIVE

2014
Secures £3.3m upstream software deal
Published: Dec 23 2014

KBC is a leading independent provider of simulation software (55% of H1'14 profits) and consultancy (45%) to the oil/gas sector.
Consultants worry that the sector may have to cut capital expenditure by up to $250bn pa (or 25%) by 2018. However, a proven way of reducing E&P costs, along with improving capital efficiency, is to implement KBC's proprietary upstream technology. 
Indeed yesterday a major European oil field services group signed a 7 year, £3.3m landmark contract to license KBC's simulation software.
This is very encouraging as the upstream market is approx 10x larger than KBC's traditional roots in downstream refining and petro-chemical processing. Better still, we suspect the work is likely to generate strong double digit EBITA margins.
We make no changes to our forecasts, but reiterate the target price of 162p per share. At 83.5p the stock trades on an attractive EV/EBITA multiple of 5.7x, representing a 40% discount to the wider oilfield services sector on 10x.
Wins 3rd largest contract ever
Published: Dec 03 2014

KBC is a leading independent provider of simulation software and consultancy to the oil/gas sector where Its sophisticated technology enables customers to optimise their capital and operational spend.
Last Thursday saw crude oil tumble (now c. $70) after OPEC voted to maintain supply at current levels, rather than taking capacity offline. In turn triggering a dramatic fall in sector-wide valuations, which we think is an over-reaction.
In fact, the lower oil price might actually galvanise some refineries and upstream producers (eg US shale) to invest more in KBC's technology that helps improve efficiency and reduce costs.
Significant news came yesterday that the firm had won a 2 year, $48.6m contract with a South American oil/gas business. Another high-profile endorsement of KBC's capability, being a consequence of improved plant performance: apparently savings to date of c. $100m have already been delivered.
Although we make no changes to our forecasts, this contract win helps underpin estimates for 2015-16. At 88p, the stock trades on an EV/EBITA multiple of 6.1x, equivalent to a 20%-50% discount verses the oilfield services and software sectors. We reiterate our target price of 162p per share.
KBC Advanced Technologies ED Investor Forum 19th November 2014
Published: Nov 20 2014

Andy Howell, CEO, explains why he thinks their share price should be decoupled from the oil price and why they are well placed to grow their technology revenues into the bigger upstream oil & gas market.
KBC Advanced Technologies plc Half Year Results Webinar
Published: Sep 25 2014

Ian Godden, Executive Chairman, and Andy Howell, Managing Director, discuss their progress post the FEESA acquisition and the results for the half year to 30 June 2014.
Saving the oil and gas industry a fortune
Published: Sep 23 2014

Strong secular growth in spending on Oil & Gas infrastructure should underpin prospects at KBC Advanced Technologies (KBC), a specialist software developer and consultancy for the hydrocarbon industry. Its proprietary IT applications help maximise client profits and capital returns, by simulating complex processes across the whole gamut of operations from 'reservoir to refinery' often saving customers tens of $millions.
Today's H1 results show sales up 9% to £34.4m, driven by a rebound in Consultancy (+17% to £26m); partly offset by tough comparatives and contract timing in Technology (-13% to £8.4m). Adjusted EBITA fell -3% to £4.4m due largely to a -£0.7m forex hit (£ appreciation vs $), but was up an estimated 13% in constant currency terms.
With regards to the outlook, H2 has "started well", and the company is on track to hit FY14 expectations. Momentum continues with the award of a "number of significant software contracts" since June. 
We think that KBC trades at an unwarranted 15% to 40% discount to its peers in both the small cap software and oilfield services. Therefore we initiate coverage with a target price of 162p/share versus 106p yesterday.
2009
Thriving in turmoil
Published: Mar 24 2009

2008 proved a record year and laid a firm foundation for 2009

Strong balance sheet and no debt

Strong workload backlog

Range of services suited to current industry challenges

Current economic uncertainty expected to provide opportunities
Trading Update
Published: Jan 14 2009

KBC's pre-close trading update for the year to 31 December 2008 provides a very encouraging account of last year's performance and strikes a cautiously optimistic note for 2009.  KBC expects results to be in line with market expectations, and highlighted a significant increase in backlog to £37m - over 20% higher than at the beginning of the year. This increase stems from strong sales in the year and the strength of the US$ and the against Sterling.  The balance sheet has also been significantly strengthened with net cash of £5.4m (£1.3m at the beginning of the year and £1.2m at the halfway point).
2008
Interim Results - Upgrade
Published: Sep 09 2008

Excellent first half good H2 expected

Consultancy services selling strongly; overall demand increasing

Increased forecasts:

2008 PBT up to £5.2m (£4.1m)

2009 revenues up to £54.8m (£48.2m)

2009 PBT now seen at £6.2m (£4.9m)

Price target per share of 110p 120p maintained

Business exceeding expectations, forecasts upgraded
Published: Jun 12 2008

Demand and growth driven by China

Aggressive recruitment underway

Fair value / share now seen at 110-120p vs current 52.5p

Good 2007 results, earnings ahead of expectations
Published: Mar 18 2008

Strong growth in contract awards and workload backlog

Software sales increase by 23%

Dividend increased by 50%

Demand remains robust 2008 should be another good year
Positive trading update
Published: Jan 17 2008

The high level of activity in the global oil refining sector has sustained the strong trading seen by KBC in the first half of 2007 through the second half of the year ending 31 December 2007. Consequently the company expects final results in line with market expectations. With oil refining looking robust for the foreseeable future, strong demand for KBC's services and software is expected to see the company continue its growth trajectory in 2008, particularly as the company enters the year with a full first quarter order book.

2007
KBC - strong interims
Published: Sep 10 2007

Good Results:

Revenue growth of 6% over the same period last year, PBT increased by 260% as a result of successful implementation of cost controls. Contract awards increased by 60% to £19m, and the order backlog stood at 24% higher at £28m.

The company is clearly benefiting from the strength of the oil market, with crude prices remaining near nominal all time highs and strong refining margins expected to continue for the foreseeable future.

Right market, right time
Published: Jul 26 2007

Turnaround achieved, dividend resumed

Upbeat trading statement

Contract awards and backlog up sharply

Organic /acquisition growth

Strong global market

Fair value / share seen at 86-95p, versus 45p now