Equity Research - Brady’s Initiation Report

Brady plc (“Brady” or “the company”) is a UK-headquartered technology company, listed on AIM (LSE) since 2004. The company operates in the energy and commodity trading and risk management (ECTRM) market
and provides software solutions and services to more than 250 customers worldwide, including producers, fabricators, brokers, traders, banks, and hedge funds.

Brady’s revenues have increased dramatically since 2007, when the company initiated a new growth strategy based on aggressive expansion through acquisitions. Brady has successfully assimilated its three most recent purchases (Viz, Navita and syseca), gaining a significant share in the European ETRM1 sector and becoming the largest publicly-held vendor engaged in the ETRM market2. Consequently, it is of no surprise that Brady’s stock price has performed very well in the last twelve months, increasing by more than 29%3, as investors appear to appreciate the company’s strategic direction. Given management’s solid track record and a strong cash position (with zero debt), we expect Brady to further extend its presence in the market by seeking new investment opportunities in the ECTRM sector, which in turn is driven by increasing regulatory requirements and technological advancements. Although the majority of Brady’s revenues are currently generated in one region (EMEA), the company plans to pursue opportunities in emerging markets, such as the APAC region, which is a less saturated market.

Our valuation, based on a combination of intrinsic DCF-based method and relative valuation techniques, and built on a set of relatively conservative assumptions, suggests that Brady’s shares are currently fairly priced. We therefore rate the company as Hold.

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