Equity Analysis /
Pakistan

Systems Ltd: NdcTech to develop synergies

  • SYS in a recent notice on 10th June disclosed its interest to acquire 100% stake in NdcTech

  • NdcTech implements core and digital banking transformation services in Pakistan, Asia Pacific, Middle East and Africa

  • New acquisition will increase the topline and profitability of SYS on consolidated basis

Intermarket Securities
22 June 2022

SYS is up for inorganic growth again

Systems Ltd (SYS) in a recent notice on 10th June disclosed its interest to acquire 100% stake in NdcTech (a leading core and digital banking implementation service provider) under an investment outlay of PKR7.1bn. The transaction will take place in two different forms (i) PKR5.0bn (this includes 11.82mn new SYS shares at PKR400/sh to three key proprietors of NdcTech) along with PKR346mn cash, and (ii) US$10mn. This is subject to BoD approval in annual general meeting scheduled on 1st July 2022. However, the actual outflow for the company will be PKR2.4bn.

NdcTech: Modernizing and transforming conventional banking

NdcTech implements core and digital banking transformation services in Pakistan, Asia Pacific, Middle East and Africa. The 22 year old company is partnered with Temenos to provide its SaaS based services. Temenos specializes in enterprise software for financial institutions, specially banks as it provides banking software to treasury, retail, and corporate as well as Microfinance institutions and Islamic banks. The major joint customers of NdcTech and Tememos are SBP, Meezan Bank, UBL, Soneri Bank, Al Khaliji, Amlak and many others. The services which NdcTech provides are digital banking services, core banking implementation and upgrades, innovation, data migration and cloud services. NdcTech strong brand presence can be witnessed from Temenos, which operates in 145 countries and provides services more than 3,000 financial institutions. It claims to be used by 41 out of top 50 banks worldwide.

Unleashing growth from acquisitions

SYS is the leading IT, software implementation, digital, cloud and BPO services provider in Pakistan, North America, Middle East and European regions. The company also provides services to Banking and Financial Services (BFS) sector and with the help of NdcTech, SYS will be able to further scale in its existing and new markets by providing additional software services on core and digital banking. Apart from these synergies, new acquisition will increase the topline and profitability of SYS on consolidated basis. Hence, the SOTP based valuation of SYS will also increase.

SYS is presently trading at P/S of 4.4x based on 1QFY22 annualized revenue. On the basis of possible P/S multiple, we have run multiple scenarios for revenue, profits and valuation of NdcTech. Excluding NdcTech, we currently have a BUY stance on SYS based on our Dec’22 TP of PKR490/share, offering 45% upside from last close. Please find the below tables for details: