SAI Global: Result 2013

SAI Global has bowed to the inevitable and written down the value of its Compliance division by $86m. On its own this wouldn’t be a worry because the problems were already well known (see, for example, in SAI’s post-binge indigestion on 11 Apr 13 (Hold – $3.59)). But the timing of the announcement – just a day before the company’s results – is a greater concern, suggesting it might have been more the auditor’s idea than management’s.

On an underlying basis, net profit fell 5% to $42.4m and earnings per share fell 8% to 24.4 cents, on revenue that rose 6% to $479m. The final dividend is unchanged at 8.2 cents (fully franked, ex date 20 Aug), giving an unchanged full-year payout of 15 cents.

Information Services performed well, increasing earnings before interest, tax, depreciation and amortisation by 10% to $54.6m on a 7% rise in revenue. Within that, the Property business grew EBITDA by 21% on 9% revenue growth, ‘and is now delivering the returns expected from the ANZ and CBA contracts’. Assurance Services was weak, with EBITDA falling 3% to $31.2m on a 4% rise in revenue, largely due to a disappointing performance from the Training business.

Compliance Services saw EBITDA rise 1% to $28.1m on a 9% increase in revenue. There was a lot of management speak about how they’re going to fix the problems, but we’re not inclined to take any of it on trust. Chief executive Tony Scotton will step down in December this year, and the company is currently looking for a replacement. Whoever he or she is, it will be interesting to hear what they have to say about the Compliance division at the interim result in February.

The stock is up 19% since our 11 April review, bringing it close to our Sell trigger of $4.50. For the time being, though, we recommend you HOLD.