REALTECH posted a 27% increase in third-quarter revenues, while improving its profitability. Given the very tough conditions currently underlying the IT industry, a 27% increase in revenues is no mean feat. Our estimate of EUR 16.0 mn proved to be too ambitious, so we have scaled back our revenue forecast for 2001 from EUR 61.1 mn to EUR 56.2 mn and our EPS estimate from EUR 0.37 to EUR 0.24 for 2001. For fiscal 2002, we are reducing our revenue estimate from EUR 79.1 mn to EUR 70.2 mn and our EPS forecast from EUR 0.62 to EUR 0.54 for baseline reasons. REALTECH managed to raise its EBITDA margin from 10% in Q2/01 to 13.8% in Q3/01. In particular, it was able to trim its general administration expenses, which had reached 30% of revenues in 2000, to 19%. In absolute terms, administration expenditure was down 14%.
REALTECH has successfully tackled the main sources of strain that arose in 2000. Apart from heavy general administration costs, the U.S. branch in particular dragged down earnings in 2000. In the meantime, however, the branch is breaking even.
Valuation: We have upgraded the stock from “Underperform” to “Neutral” on account of its favorable EV/EBITDA multiple of 2.4 compared with the peer average of 4.8. This still gives the stock upside of 50% despite having almost doubled in price recently. Our DCF model shows that it is currently trading 20% below its fair value.
