FLASH 7 June 2023

SWORD
ADD
IT Services
SW
OR

EPS 12/23e Unchanged • EPS 12/24e Unchanged

D -
AD
D -
Pres
s
rele
ase
+
Con Press releas e +
f. Conf. call

PRICE* TP
call

POTENTIAL
€ 40.50
*closing 06/06/23
€ 50.0 +23.5% Disposal of the AAA subsidiary prior to
the unveiling of the AI strategy
Press release + Conf. call
In anticipation of the upheavals linked to the rise of AI, the group has
announced its intention to sell its recruitment and staffing business,
Bloomberg SWP FP which represents around 10% of sales, albeit without adjusting its 2023
Market cap. €m 387
Free Float €m 233
EBITDA guidance. A strategic plan around AI will be unveiled in H2 23.
Volume (3M) €m 0.21/day

AAA subsidiary put up for sale

Price CAC M&S EPS (GD)
55.0 2.50
Sword has announced its intention to sell its subsidiary AAA, a specialist recruitment and
50.0 2.00
staffing company based in Aberdeen, Scotland, which mainly works for the oil industry on
45.0
1.50
a fee-for-service basis. Sword acquired AAA in October 2015, at which time the firm
40.0
1.00
presented itself as a specialist in the outsourcing of IT projects. The CEO fears that, in the
35.0
30.0 0.50 future, technical support activities will be replaced by intelligent marketplaces based on
25.0 0.00 AI.
Jun-21 Dec-21 Jun-22 Dec-22 Jun-23
AAA’s profitability profile beneath Sword’s standards
In 2022, the firm generated sales of €26m, accompanied by an EBIT margin of around 4%
PERFORMANCE 1M 6M 12M
and therefore probably around 5% of EBITDA, well below the group's norm (12% to 13%
Absolute -5.2% +3.8% +2.3%
of EBITDA).
Rel. / CAC M&S -3.1% +0.6% +8.9%
A valuation that is likely to be undemanding
AGENDA Given the firm’s small size and low profitability, we believe that the valuation multiples
20/07/23: H1 sales are likely to be undemanding (probably a P/Sales ratio of around 0.2x).
2023 EBITDA guidance nonetheless maintained
FINANCIAL ANALYST(S) Prior to the proposed sale of AAA, the group was forecasting sales growth of 15% in 2023
(i.e. sales of around €305m) accompanied by an EBITDA margin of 12%. Despite this
Emmanuel Parot deconsolidation (reduction in EBITDA of around €1.3m), the group is maintaining its
+33 (0) 1 40 22 41 38
EBITDA target of €36m, which implicitly suggests a +100bps increase in its EBITDA
emmanuel.parot@socgen.com
guidance to 13%.
Document completed on 07/06/2023 - 09:08 AI strategic plan to be unveiled in H2 23
Document published on 07/06/2023 - 09:08
In tandem with the announcement of this disposal, the CEO announced that a strategic
plan aimed at responding to the growing importance of AI will be presented in H2 23. We
understand that a number of initiatives will be taken, bearing in mind that, according to
the management, AI is likely to have a major impact on coding in the years ahead (reduced
need for developers but greater demand for designers). The group has signalled its desire
to strengthen its position in cybersecurity (an activity related to AI), although no target
has been identified at this stage. The group’s aim is to position itself as a cybersecurity
integrator or consultant.

STOCK RATIOS 12/22 12/23e 12/24e 12/25e FINANCIAL DATA 12/22 12/23e 12/24e 12/25e
P/E 32.8x 15.0x 13.3x 11.6x Sales (€m) 272.3 305.6 342.2 383.3
PEG ns 0.1x 1.0x 0.8x C. EBIT (€m) 27.2 29.6 34.1 39.2
P/CF 18.3x 13.2x 11.7x 10.3x C. EBIT/Sales 10.0% 9.7% 10.0% 10.2%
EV/Sales 1.4x 1.2x 1.1x 1.0x EBIT (€m) 117.6 29.6 34.1 39.2
EV/EBITDA 10.9x 9.9x 8.7x 7.6x Net attributable profit (€m) 109.8 23.5 27.2 31.2
EV/C. EBIT 14.0x 12.8x 11.0x 9.4x Adjusted EPS (€) 1.20 2.70 3.05 3.48
EV/EBIT 3.2x 12.8x 11.0x 9.4x Chg. -39.1% 124.8% 13.0% 14.0%
EV/Capital employed 4.0x 3.5x 3.1x 2.8x FCF (€m) 5.4 14.6 18.2 21.1
P/BV 3.7x 3.4x 3.0x 2.6x Net fin. debt (€m) 6.1 5.2 1.2 -5.8
FCF yield 1.4% 3.8% 4.7% 5.5% Gearing 6.0% 4.6% 0.9% -3.9%
Yield 3.0% 3.0% 3.0% 3.0% ROCE 70.6% 16.1% 16.9% 17.6%

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 7 June 2023

SWORD ADD Emmanuel Parot +33 (0) 1 40 22 41 38

PRICE* TP POTENTIAL PROFIT LOSS STATEMENT (€m) 12/20 12/21 12/22 12/23e 12/24e 12/25e
Sales 212.5 214.6 272.3 305.6 342.2 383.3
€ 40.50 € 50.0 +23.5% Chg. -0.3% 1.0% 26.9% 12.2% 12.0% 12.0%
*closing 06/06/23 Chg. lfl 9.2% 21.5% 19.0% 13.8% 12.0% 12.0%
EBITDA 29.5 29.3 35.1 38.1 42.8 48.1
C. EBIT 20.1 22.6 27.2 29.6 34.1 39.2
EBIT 68.8 19.1 117.6 29.6 34.1 39.2
Net interest income -11.7 2.4 -5.4 -0.2 -0.2 -0.1
Tax 3.7 3.7 2.4 5.9 6.8 7.8
Income from associates 0.0 0.0 0.0 0.0 0.0 0.0
Activity Net earnings from discontinued operations 0.0 0.0 0.0 0.0 0.0 0.0
Sword is a specialised IT group, involved in Minority interests 0.1 0.2 0.0 0.0 0.0 0.0
Net attributable profit 53.3 17.6 109.8 23.5 27.2 31.2
consulting and the engineering/integration Adjusted net attr. profit 11.6 18.7 11.4 25.7 29.0 33.1
of communicating systems.
CASH FLOW STATEMENT (€m) 12/20 12/21 12/22 12/23e 12/24e 12/25e
Cash Flow 23.8 8.9 20.4 28.9 32.7 37.1
- Chg. in WCR 14.9 -5.1 9.6 6.4 6.6 7.9
- Capex 4.2 10.3 5.4 8.0 8.0 8.0
= Free Cash Flow 4.6 3.7 5.4 14.6 18.2 21.1
- Net financial investment 29.7 8.4 38.6 0.0 0.0 0.0
- Dividends 22.9 45.8 95.4 11.3 11.3 11.3
Market data + Capital increase/Share buybacks 0.0 0.0 0.0 0.0 0.0 0.0
12M Low/High € 35.50/€ 48.90 + Others -16.3 -4.7 11.3 -2.4 -2.8 -2.8
Volume (3M) 4,931 shares/day = Chg. net financial debt 1.1 55.2 3.5 -0.9 -4.0 -7.0
Number of shares 9,544,965
BALANCE SHEET (€m) 12/20 12/21 12/22 12/23e 12/24e 12/25e
Market cap. €m 387 Goodwill 52.1 66.5 71.6 71.6 71.6 71.6
Free Float €m 233 Other intangible assets 16.9 26.9 19.7 19.7 19.7 19.7
Market Euronext B Tangible assets 1.7 3.2 4.7 9.9 15.0 19.8
Sector IT Services Financial assets 11.6 4.5 1.7 1.7 1.7 1.7
WCR 1.5 -3.6 10.5 16.9 23.5 31.4
Bloomberg SWP FP Shareholders' equity (group share) 134.2 92.9 100.8 113.0 128.9 148.8
Isin FR0004180578 Minorities 1.8 1.4 0.7 0.7 0.7 0.8
Index CAC SMALL Equity + minorities 135.9 94.3 101.5 113.8 129.6 149.5
Cash and equivalent 105.8 55.3 57.1 61.0 65.0 72.0
Shareholders on 31/12/22 Net financial debt -52.6 2.6 6.1 5.2 1.2 -5.8
Free Float 60.3% Capital employed 77.6 89.6 95.9 107.5 119.1 131.9
Eximium 20.2%
Financière Sémaphore 17.9% PER SHARE DATA (€) 12/20 12/21 12/22 12/23e 12/24e 12/25e
Employes 1.6% Number of shares (000) 9,545 9,545 9,545 9,545 9,545 9,545
Number of diluted shares (000) 9,545 9,545 9,545 9,545 9,545 9,545
Employees on 31/12/22 2,723 Adjusted EPS 1.23 1.97 1.20 2.70 3.05 3.48
Reported EPS 5.58 1.85 11.50 2.47 2.85 3.27
Sales 2021 by activity CF per share 2.52 0.94 2.16 3.06 3.47 3.93
Services 91% Book value per share 14.40 9.99 10.76 12.05 13.73 15.84
Dividend 7.20 10.00 1.20 1.20 1.20 1.20
Solutions 9% Payout 587% 507% 100% 44% 39% 35%
Sales and EBIT 2021 by division
RATIOS 12/20 12/21 12/22 12/23e 12/24e 12/25e
Sales Gross margin/Sales 95.6% 94.4% 90.3% 90.3% 90.3% 90.3%
EBITDA/Sales 13.9% 13.6% 12.9% 12.5% 12.5% 12.6%
11% C. EBIT/Sales 9.5% 10.5% 10.0% 9.7% 10.0% 10.2%
EBIT/Sales 32.4% 8.9% 43.2% 9.7% 10.0% 10.2%
EBIT Corp. tax rate nd 0.0% 0.0% 0.0% 0.0% 0.0%
Adjusted NR/Sales 5.5% 8.8% 4.2% 8.4% 8.5% 8.6%
17% Capex/Sales 2.0% 4.8% 2.0% 2.6% 2.3% 2.1%
Capex/D&A 0.5x 2.0x 1.0x 1.4x 1.3x 1.3x
FCF/Sales 2.2% 1.7% 2.0% 4.8% 5.3% 5.5%
FCF/EBITDA 15.6% 12.6% 15.3% 38.2% 42.4% 43.9%
83% Goodwill/Equity + minorities 38.3% 70.5% 70.5% 63.0% 55.3% 47.9%
WCR/Sales 0.7% -1.7% 3.9% 5.5% 6.9% 8.2%
Gearing -38.7% 2.7% 6.0% 4.6% 0.9% -3.9%
Net financial debt/EBITDA -1.8x 0.1x 0.2x 0.1x 0.0x -0.1x
89% EBITDA/Financial charges 2.5x ns 6.5x ns ns ns
ROCE 53.3% 12.8% 70.6% 16.1% 16.9% 17.6%
ROE 8.6% 20.1% 11.2% 22.6% 22.4% 22.1%
IT Services Softwares
STOCK MARKET DATA 12/20 12/21 12/22 12/23e 12/24e 12/25e
Share price performance -8.1% 39.2% -9.7% 2.8% - -
Share price performance vs. CAC M&S -6.9% 19.5% 4.8% -0.8% - -
Sales and C. EBIT Margin
Share price High (€) 36.35 45.35 53.50 48.90 - -
Sales (€m) C. EBIT Margin Share price Low (€) 21.00 30.70 35.50 39.00 - -
Enterprise value (€m) 221.6 366.1 381.3 378.7 374.7 367.7
500 20% = Market cap. 291.5 375.1 388.3 386.6 386.6 386.6
+ Net financial debt -52.6 2.6 6.1 5.2 1.2 -5.8
+ Minorities 1.8 1.4 0.7 0.7 0.7 0.8
+ Provisions & others -7.5 -8.4 -12.2 -12.2 -12.2 -12.2
0 0% - Financial assets 11.6 4.5 1.7 1.7 1.7 1.7
12/17 12/18 12/19 12/20 12/21 12/22
VALUATION 12/20 12/21 12/22 12/23e 12/24e 12/25e
P/E 25.6x 22.2x 32.8x 15.0x 13.3x 11.6x
PEG ns 0.4x ns 0.1x 1.0x 0.8x
P/CF 12.5x 46.4x 18.3x 13.2x 11.7x 10.3x
EV/Sales 1.0x 1.7x 1.4x 1.2x 1.1x 1.0x
EV/EBITDA 7.5x 12.5x 10.9x 9.9x 8.7x 7.6x
EV/C. EBIT 11.0x 16.2x 14.0x 12.8x 11.0x 9.4x
EV/EBIT 3.2x 19.1x 3.2x 12.8x 11.0x 9.4x
EV/Capital employed 2.9x 4.1x 4.0x 3.5x 3.1x 2.8x
P/BV 2.2x 4.4x 3.7x 3.4x 3.0x 2.6x
FCF yield 1.6% 1.0% 1.4% 3.8% 4.7% 5.5%
Yield 23.0% 22.9% 3.0% 3.0% 3.0% 3.0%

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