SMS Management (SMX) is an IT consulting company that has had several profit warnings in the last twelve months which culminated in the CEO departing the business in early May. Whilst a swift turnaround is unlikely, we think the business is materially under earning. In FY10, SMX generated an EBIT margin of 15%. This has now collapsed to around 4% in FY16. The issues have been to some extent a reflection of a competitive environment but we believe it is substantially a management issue which can be rectified. Positively, SMX has over $300m in revenue (more than in FY10), very little debt and in the last four years, its free cash flow conversion is 110% of EBIT. On rebased earnings forecasts, we believe SMX is currently trading on 7x EBIT. If management cannot resurrect SMX, we believe it will be swallowed by a global player similar to OKN and UXC before it. For full report: (VIEW LINK)
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