v2 Report
FSG.ul Fronde Systems Group Limited

Commentary: Fronde Systems Group (FSG) is a specialist IT services company that focuses on business transaction systems. Their product and service offering encompasses mobile and online channels e.g. mobile banking, software development, CRM, multifactor authentication, message direct, etc. For a full range see their website (link below). Fronde is active in a range of industries including Banking & Finance (e.g. ASB, KiwiBank), Energy & Utilities, ICT, Transport and Logistics, and the Public Sector.

Of most interest in recent times is the following: (see FY announcement) FSG acquired full ownership of its British subsidiary, invested $2m in mobile banking and security subsidiary Fronde Anywhere, and in February this year Fronde changed its name to Fronde from Synergy as part of a re-branding and international growth drive.

In terms of financial performance revenue levels have remained fairly consistent, with slight variations in costs causing some volatility in NPAT. Reflecting this ROE and net profit margin figures have fluctuated over the pasts 4 years, however ROE has not fallen below 8%. Dividend payments have fluctuated also - with no obvious payout ratio policy -dividends have been paid in each of the 4 years covered. Financial strength and liquidity ratios show the firm quite able to meet short term obligations and interest payments. At current pricing the PE ratio is more or less in line with the industry, and a dividend yield of 3.8% (if maintained) provides a base line return.

Looking forward FSG has made a number of investments domestically and internationally, and has successfully re-branded itself. The things to watch for are whether the international marketing proves successful, emerging products such as multifactor authentication and mobile banking, and ongoing earnings volatility.

by Callum Thomas
1-September-2007

Website:  http://www.fronde.com

Recent announcements: click here

IPOs and Investment Opportunities

Financials 
 

Statement of Financial Performance
	2007	2006	2005	2004
Revenue
Sales	33,660,884	32,972,453	32,896,836	32,575,065
Interest received	-	-	-	-
Other	-	-	-	-
Total Revenue	33,660,884	32,972,453	32,896,836	32,575,065
Expenses
Cost of sales	32,286,204	31,507,765	31,169,452	30,649,608
Other expenses	-	-	-	-
EBITDA	1,374,680	1,464,688	1,727,384	1,925,457
Depreciation	-	-	-	-
Amortisation	848,202	683,782	794,566	1,068,270
EBIT	526,478	780,906	932,818	857,187
Interest expense	42,958	3,913	9,672	39,949
Taxation	120,423	160,064	114,411	391,083
NPAT	363,097	616,929	808,735	426,155
Statement of Financial Position
	2007	2006	2005	2004
Assets
Current Assets
Bank and cash	-	1,153,328	2,331,417	3,464,372
Receivables	7,324,287	8,369,531	6,196,986	4,643,062
Inventory	-	-	-	-
Other	586,098	287,403	-	-
Total Current Assets	7,910,385	9,810,262	8,528,403	8,107,434
Non Current Assets
Property Plant & Equipment	1,947,714	2,071,261	1,839,659	1,693,396
Investments	-	-	-	196,416
Goodwill & Intangibles	290,828	-	-	-
Other	731,158	-	64,586	102,702
Total Non Current Assets	2,969,700	2,071,261	1,904,245	1,992,514
Total Assets	10,880,085	11,881,523	10,432,648	10,099,948
Liabilities
Current Liabilities
Payables	5,202,745	7,505,307	6,189,249	4,874,556
Short term borrowings	1,462,510	-	-	401,333
Other	-	-	58,559	59,811
Total Current Liabilities	6,665,255	7,505,307	6,247,808	5,335,700
Non Current Liabilities
Long-term Borrowings	-	-	-	-
Other	-	-	-	16,328
Total Non Current Liabilities	-	-	-	16,328
Total Liabilities	6,665,255	7,505,307	6,247,808	5,352,028
Net Assets	4,214,830	4,376,216	4,184,840	4,747,920
Statement of Cashflows
	2007	2006	2005	2004
Cash flows from operating activities
Operating revenues	32,591,307	32,521,751	31,938,064	32,693,471
Operating expenses	32,689,250	32,684,532	30,432,341	30,805,017
	(97,943)	(162,781)	1,505,723	1,888,454
Cash flows from investing activities
Inflows	2,155	50,289	73,660	51,565
Outflows	2,101,243	760,382	933,567	550,255
	(2,099,088)	(710,093)	(859,907)	(498,690)
Cash flows from financing activities
Inflows	-	-	-	9,259
Outflows	427,183	495,014	1,699,463	403,594
	(427,183)	(495,014)	(1,699,463)	(394,335)
Net Increase (decrease)	(2,624,214)	(1,367,888)	(1,053,647)	995,429
Opening cash	1,161,704	2,521,216	3,385,064	2,468,943
Closing cash	(1,462,510)	1,153,328	2,331,417	3,464,372
	Analysis
Per share figures
Dividend/shares	0.06	0.07	0.19	0.03
NPAT/shares (EPS)	0.05	0.09	0.12	0.06
EBITDA/shares	0.20	0.21	0.25	0.27
Net Assets/shares	0.60	0.62	0.60	0.68
Profitability
ROA	3.34%	5.19%	7.75%	4.22%
Equity multiplier	2.6	2.7	2.5	2.1
ROE	8.61%	14.10%	19.33%	8.98%
ROavgE	8.45%	14.41%	18.11%	-
Net profit margin	1.08%	1.87%	2.46%	1.31%
Liquidity
Net working capital	1,245,130	2,304,955	2,280,595	2,771,734
Current ratio	1.19	1.31	1.37	1.52
Quick ratio	1.19	1.31	1.37	1.52
Working capital ratio	0.11	0.19	0.22	0.27
Capital structure
Debt to equity	1.58	1.72	1.49	1.13
Interest coverage	12.26	199.57	96.45	21.46
Shares	7,008,225	7,008,225	7,008,225	7,008,225
Dividends paid	427,183	495,014	1,314,043	208,301
Dividend payout ratio	118%	80%	162%	49%
Growth rates
Revenue	2.09%	0.23%	0.99%
EBITDA	-6.15%	-15.21%	-10.29%
NPAT	-41.14%	-23.72%	89.77%
Total assets	-8.43%	13.89%	3.29%
Net assets	-3.69%	4.57%	-11.86%
g = (ROE*(1-DPR))	-1.52%	2.79%	-12.07%	4.59%
Other
Share price (14-August-07)	$            1.60	Avg 4 yr growth rate (NPAT)		8.30%
Market cap	$  11,213,160	Cmpdg 4 yr growth rate (NPAT)		-3.92%
Enterprise value (EV)	$  17,878,415	Avg 4 yr growth rate (NA)		-3.66%
EV/EBITDA	13.01	Cmpdg 4 yr growth rate (NA)		-2.93%
P/E Ratio	30.88
P/NA ratio	2.66
Dividend yield	3.81%
Earnings yield (E/P)	3%

Company balance date: 31 March

Supplementary Information

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