Beta Systems, a software provider for data centre intelligence (DCI) and identity access management (IAM), has reported both strong organic and inorganic growth in its H120 revenues to April. As one of few companies in the sector, the company has raised its FY20 guidance, driven by a strong order intake especially in the DCI unit. As a smaller player in the sector, Beta Systems trades at a discount of c 45% compared to international peers on an EV/EBITDA basis for 2020e.
Companies: Beta Systems Software
Beta Systems delivered full year results at the upper end of company guidance (upgraded in April 2019), underpinned by the solid performance of its core DCI division in the DACH region. The group continues to develop the product portfolio organically, supported by M&A activity. This includes the recent acquisitions of HABEL/Akzentum Group and infinIT Codelab. FY20e EV/EBITDA is 7.4x, underpinned by strong cash generation and high level of total recurring revenues (well in excess of 80% currently).
Beta Systems has been performing well, largely due to a strong performance from its core DCI mainframe software business. Consequently, in April, management upgraded FY19 guidance (revenue was upgraded by 4% and EBITDA by 27% at the mid-points) ahead of the interim results. While there has been a surprisingly strong level of orders in the group’s core DCI business in Germany, the IAM business has been performing in line. In our view, the shares are attractive, noting the potential sub 6x FY20 EV/EBITDA ratio, given the strong cash generation and high level of recurring revenues (we estimate 80%+).
Beta’s H118 results reflect the anticipated lull in the DCI licence renewal cycle, with EBITDA down 54% y-o-y. Despite the decrease, management believes it is on track to deliver to the top end of its guided range for the full year. With an anticipated pick-up in performance over the next two years, combined with the recent uptick in M&A activity, we feel that the FY18 EV/EBITDA premium to peers is justified.
H117 revenues increased 28% and EBIT almost tripled, benefiting from the ongoing strong renewals cycle and upsell in its core mainframe customer base. Taking into account the seasonality bias to H1, management raised its guidance for the year. The shares have justifiably performed strongly and on EV/EBITDA multiples, now trade in line with peers.
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LoopUp recently unveiled a major extension to its ambitions – the group is aiming to become a leading global provider of telephony “inside” Microsoft’s Teams product. The opportunity is clear and growing, as enterprise customers look to use Teams for “normal” external phone calls, and LoopUp seems well placed to deliver a differentiated offering using its existing infrastructure and knowhow. In this document we provide an overview of the new platform and explain its strategic significance.
Companies: LoopUp Group plc
Amino has reported reassuring interims in line with the June trading update, confirming 10% revenue growth to $38.0m, including 24% organic growth in software and services, now 26% of group revenue. The July 2019 acquisition of 24i Media accelerated delivery of the January 2019 strategic shift towards software, delivering improved earnings quality from diversification as gross margins from integrated devices hold steady. With 24i moving to a positive contribution of $0.2m (1H19: $-0.2m), the group is positioned well to benefit as visibility of orders and sales pipeline supports FY20 (November y/e) expectations. Management is understandably cautious around the impact of potential COVID delays to customers and the supply chain, but the group remains well supported by a strong balance sheet with net cash of $2.1m, including gross cash of $4.3m and headroom of $13m of undrawn banking facilities. Forecasts are unchanged save for adjustment to FCF expectations to accommodate changes in credit terms, still leaving FY20 net cash of $8m. With the long-term prospects for Amino shining brightly as demand for both platform and content provider solutions is accelerated by COVID, we reiterate our 215p target.
Companies: Amino Technologies Plc
Following on from Capita’s announcement earlier this week, Eckoh announces it has secured a 6-year £4m contract renewal with Capita for the provision of Congestion Charge Services to TfL. Such contracts typically consist of minimum guarantees and volume related elements. Given the far greater reach of the LEZ and ULEZ and their 24/7 operating times, we imagine volume related elements could mean the contract ends up significantly in excess of the £4m mooted today over time. The high repeat revenue element of Eckoh’s UK business has helped it weather lockdown headwinds, with revenues and profit in April/May at comparable levels to the prior year. Today’s announcement is further validation of both repeatability and the ability to upsell in its highly cash generative UK business.
Companies: Eckoh Plc
We believe Amino’s H1 20A results demonstrate the resilience of the business and the benefits of the ongoing move towards a software-led business model. 24i continues to perform strongly, supported by stable profits (EBITDA) in the Amino segment. Both recorded a number of new contract wins during the period. The group also reported a significant improvement in revenue quality and the business remains underpinned by a solid financial position. We leave underlying forecasts unchanged following the announcement, however with the global COVID-19 pandemic ongoing, uncertainty on the H2 20E outlook clearly remains.
SDL delivered a better than forecast H1, outperforming sales and AOP estimates. Revenues moderated by just 1% to £180.7m, with AOP up 1% to £16.3m. Increased demand from strongly performing verticals (Online Retail, Technology) has offset declining volumes from CV19 impacted sectors (Leisure, Travel, Automotive). KPIs continue to move in the right direction, with ARCV rising 7% y/y, and Linguistic Productive Utilisation stable at 67%. The Group delivered 60 new technology customer wins in H1, and we remain excited by the new SLATE solution launch, enabling the Group to target the $10bn ‘ad-hoc’ market with a market-leading, highly-automated solution. Sales, AOP and Adj FCF were ahead of N1Se estimates by 1%, 9% and 15% respectively supported by strong cost control and cash management. We upgrade our FY’20E AOP forecasts by 23%, with FY’20E adj FCF rising 41% to £24.7m. Adj FCF (pre IFRS16) of £31.5m represents an 8% FCF yield at current valuation.
Companies: SDL Plc
Gamesys Group’s interim results reporting pro forma adjusted EBITDA growth of 17% exceeded consensus expectations, demonstrating the strength of its strategy of growing the player base responsibly, while aiming for a high player retention rate. The improving financial position has resulted in the introduction of a new dividend (company commentary implies 36p/share for FY20) earlier than anticipated by us and consensus. We have increased our FY20 EBITDA forecast by 7.8%.
Companies: Gamesys Group Plc
This morning's update from PEN reflects (1) good progress with the order book standing at £36m (up 9% vs. the year-end number cited in PEN's May 22nd business update, (2) a very creditable figure of £1m annualised cost savings, and (3) net cash at £2m, reflecting positive working capital movements and strong disciplines. In terms of net cash, this represents a £4m turnaround, which we view as an extremely positive result. This morning's news follows on from last month's conversion of the first tranche of the contract towards which PEN received a Statement of Intent back in February. Encouragingly, despite the difficult general situation, the company expects to make a profit in the second half, and sees a good flow of opportunities across both the training simulation / emulation equipment and the pure software sides of its business.
Companies: Pennant International Group Plc
In June we wrote that ACT was approaching a “turning point” and we believe today’s announcement marks that turning point. Having pivoted to offering an “audit” product sold via Professional Services early in the year, and having been name-checked in BCG and Verizon’s White Paper addressing the need for a robust remote working ecosystem, today’s contract means that Verizon can begin actually selling. We anticipate sales cycles reduced from >24 months to just 1-2 months and suspect the substantial Verizon sales force and customer base means that this contract is capable of generating several million $ revenues p.a. for ACT in due course.
Companies: Actual Experience Plc
With today’s sale of Enterprise software for £5m cash, SmartSpace completes its transition to a fast growing SaaS business focused on meeting room and visitor management for the SME market. The new focused business has modest burn and is amply funded for many years to come (pro forma net cash c. £5.7m). SMRT also updates today that strong (c. 80% yoy) SwipedOn growth has continued in July and that the first SoftCat reseller Space Connect deals are coming through. We detail below our long standing belief that the constituent businesses could be worth well in excess of the current market capitalisation of £17m. We see a long runway ahead for SMRT which presents an opportunity for a stock that is still largely off the market’s radar.
Companies: Smartspace Software Plc
The group is another winner of the pandemic. The industry’s faster transformation from offline to online has helped the group to gain 2.7m additional customers in the last three quarters (vs. +1.9m in FY2019), thus, the strong customer acquisition has resulted in an impressive 17% top-line growth for the 10-months to 30 June (+10% yoy in Q3 20).
However, the increased costs related to the pandemic have weighed on the group’s margin, and we believe this will continue in the near term.
Companies: ASOS Plc
Sopheon has this morning announced a major win for Accolade – the global snack food giant, Mondelez. The deal is good evidence that Sopheon continues to win material deals despite the pressures of COVID-19, and that its innovation management platform is genuinely market-leading. We continue to believe that the group will see a return to strength as the market slowly recovers, and see today’s announcement as a useful signal.
Companies: Sopheon Plc
What’s new: Rightmove interims show 6.0% YoY fall in agent branches to 15,727 (June 2019: 16,768; June 2018: 17,585): 3.5% fall YTD. Over the past two years while Rightmove lost 1,858 branches, OnTheMarket gained 1,619 exclusive branches, many of which are encouraging others to leave Rightmove.
Companies: OnTheMarket Plc
Following PTY's announcement on July 20th of a £30m revenue outcome to H1-20E, coupled with a modest profit and net cash on the balance sheet, we view this week's REACH announcement of a new win for a strategic partnership that the company has entered with CyberGym as encouraging. The group has succeeded in placing its partnership venture in the vanguard of defence training by winning a place on the Norther Ireland Co-operation Overseas (NI.CO) Cyber Security Training Services Framework (NI.CO CSTSF). This is part of the overall NI.CO (Northern Ireland Co-operation Overseas) framework which is valued at £2bn-plus.
Companies: Parity Group Plc
Gaming Realms is a creator and licensor of innovative games for mobile, with operations in the UK, U.S. and Canada. Through its unique IP and brands, Gaming Realms brings together media, entertainment and gaming assets in new game formats.
Companies: Gaming Realms Plc
FY19 revenue increased 16.9% to £19.4m following a strong H2/19, c9% ahead of forecast. New products released included Concurrent's first AI board, aimed at the military market. Order intake was strong, especially during H2/19, continuing into 2020. Inevitably COVID-19 has caused uncertainty about H2/20 activity levels and potential delays from customers, though there has been no immediate slow-down. Concurrent is a supplier to some of the world's most prominent defence companies in the UK and US and continues to supply these customers uninterrupted. Given COVID-19 related uncertainty we have taken a prudent view and trimmed our FY20 revenue (and consequently PBT forecasts). With over £10.5m cash and no debt, a strong order book and top tier customers, Concurrent is continuing to invest in R&D and progress its plans to add new software and hardware product ranges and enter new markets.
Companies: Concurrent Technologies Plc