IPO Report: Luxoft Holding

Francis Gaskins |

Based in Moscow, RU, Luxoft Holding (LXFT) scheduled a $70 million IPO with a market capitalization of $554 million, at a price range mid-point of $17 for Wednesday, June 26, 2013.
10 POs are scheduled for the week of June 24th. The full IPO calendar is at IPOpremium. Trial and paid & trial subscribers get early, complete financial analysis.

LXFT F-1A filed June 12, 2013

Manager, Joint Managers: UBS; Credit Suisse; J.P. Morgan
Co-Managers: VTB Capital; Cowen

Recommendation

LXFT appears to be priced within range and the rating is neutral.

Summary

LXFT is a leading provider of software development services and innovative IT solutions

Although based in Moscow, during Q1 ’13 LXFT derived 45.6% of sales from clients located in Europe, 42.0% from clients in North America, and 12.4% from clients in other geographies.

Revenue increased 16% to $315 million for fiscal 2013 (ended March) vs fiscal 2013. Net income increased only 3%.

Valuation

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

12 mos ended March 31, ’13

Cap (mm)

Sls

Erngs

BkVlue

TanBV

in IPO

Luxoft Holding (LXFT)

$554

1.8

15.4

5.8

8.9

13%

Glossary:

Price-to-sales: LXFT is for the lowest
Price-to-earnings: LXFT is in range
Price-to-book: LXFT is at the higher end
Gross margins: LXFT is the lowest
Price-to-tangible book: BMC and LXFT have negative ratios

Corporate taxes: LXFT pays 9%, about the same as CA, lower than BMC & EPAM

 

COMPARE

           

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

Profit

12 mos ended March 31, ’13

Cap (mm)

Sls

Erngs

BkVlue

TanBV

Margin %

CA, Inc. (CA)

$12,780

2.8

13.4

2.3

-8.2

21%

Luxoft Holding (LXFT)

$554

1.8

15.4

5.8

8.9

11%

EPAM Systems (EPAM)

$1,200

2.7

17.9

4.0

4.6

15%

BMC Software (BMC)

$6,500

3.0

19.6

7.9

-4.8

15%

 

Conclusion

LXFT appears to be priced within range and the rating is neutral.

Business

LXFT is a leading provider of software development services and innovative IT solutions to a global client base consisting primarily of large multinational corporations.

LXFT focuses on six industry verticals that have significant and growing demand for IT services:   financial services; travel and aviation; technology; telecom; automotive and transport; and energy.

Customer base

LXFT serves large multinational corporations primarily in Western Europe and North America that rely on LXFT’s IT solutions and software development capabilities for many of their mission critical systems. The scope of services ranges from handling standard outsourcing client-directed engagements to engaging in managed delivery and transformational engagements, in which we assume full control of the project team and manage all facets of the execution.

For the year ended March 31, 2013, a significant portion of sales was to Fortune Global 500 companies, including Deutsche Bank, UBS, Boeing, Harman, Avaya and AMD.

During the same period, LXFT derived 45.6% of sales from clients located in Europe, 42.0% from clients in North America, and 12.4% from clients in other geographies.

Seven out of the top ten clients have been with LXFT for five or more years and, in the three fiscal years ended March 31, 2013, the majority of new clients were referred to LXFT.

Customer concentration

In the year ended March 31, 2013, 54.7% of sales were derived from clients in the financial services industry.

LXFT’s top five clients represented an aggregate of 69.7% of sales in the year ended March 31, 2013.

Competition

Competition includes offshore technology service providers in outsourcing destinations with low wage costs such as India, as well as competition from large global consulting and outsourcing firms and in-house IT departments of large corporations.

Once LXFT begins introducing new products for commercial resale and licensing, it will face competition from software product companies, such as QlikView and Red Hat.

Clients may prefer application and software engineering outsourcing services that have more locations or that are based in countries that are more cost-competitive or more politically and economically stable than the countries in which LXFT operate.

Dual classes of voting stock – always a bad sign

LXFT will have dual classes of voting stock indicates that management and owners do not want to be accountable to public shareholders.

Class A ordinary shares have one vote each.
Class B ordinary shares have 10 votes each.    

5% shareholders pre-IPO

IBS Group Holding Limited, 84%

Rus Lux Limited, 10%

Use of proceeds

50% of the expected IPO proceeds will go the company, the rest to the selling shareholder.

LXFT expects to net $31 million from its IPO. Proceeds are allocated to for working capital and other general corporate purposes.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
LXFT Luxoft Holding Inc. Class A 55.75 0.69 1.25 346,942
STI.WS.B SunTrust Banks Inc. Class B Warrant (Expiring Nove 5.50 0.00 0.00 0

Comments

Emerging Growth

New Age Farm Inc.

New Age Farm Inc is engaged in the development of the agriculture based business in Langley, British Columbia.

Private Markets

Cloudera

Cloudera offers enterprises a new data platform built on the Apache Hadoop open-source software package. Hadoop is a data-management platform that can consolidate data in a single repository for comprehensive…

Snapwire

A peer-to-Peer authentic photo marketplace disrupting the $10B commercial photography industry.