If you are working from home, earning the same salary as last year, and not commuting, holidaying abroad or eating out, then you’ve probably saved a great deal of disposable income since the COVID-19 lockdowns began in March. The same is true for corporates, especially those who haven’t been materially impacted by the pandemic, or incurred significant extra costs (eg social distancing, cleaning, PPE). Take BuildTech software developer Elecosoft, who said today that although revenues declined 3% April YTD (2% constant currency: ED Est split -14% month vs +2% Q1’20). PBT had jumped an impressive 25% YoY – as tradeshows were postponed and less money was spent on travel, hotels, marketing & other discretionary items. Altogether lifting YTD EBIT margins to circa 20% (ED Est) vs 16.8% H1’19, and closing April with net cash of £3.1m vs £1.1m in Dec’19.
Elecosoft (ELCO): Corp An impressive first four months despite lockdown | Oncimmune Holdings (ONC): Corp Trading update underlines improved momentum | Open Orphan (ORPH.L): Corp COVID-19 antibody test now launched | President Energy (PPC): Corp Trafigura taking a strategic stake
Companies: ELCO PPC ONC ORPH
COVID-19 has proved to be a watershed for many reasons. Not least because of the untold human & economic damage, but also how it will transform daily life forever. In fact the construction industry, which traditionally has been slow to embrace new technology, is now accelerating its adoption of ‘everything digital’. A trend that will drive sales at BuildTech software developer Elecosoft for years ahead.
Avacta (AVCT): Corp | Elecosoft (ELCO): Corp | KRM22 (KRM): Corp
Companies: AVCT ELCO KRM
As confirmed in the last month’s update, FY 2019 showed good growth in turnover, profit and cash generation. The cashflow swung ELCO from opening net debt of £1.8m to net cash of £1.1m at the December YE, despite paying an interim dividend. Sensibly, there will be no final dividend in order to conserve cash. FY 2020 is an unknown; ELCO traded well in Q1 but is seeing disruption from Q2. Management has swiftly taken mitigating steps (WFH and providing services online) and costs are being reviewed and controlled. Given the obvious uncertainty, management withdrew guidance and we placed forecasts under review. However, with a large existing user-base paying substantial recurring support & maintenance, a portfolio of offerings diversified by recent acquisitions, and cash in the bank, ELCO is in good shape to manage the COVID-19 issues.
Given today’s uncharted waters, it is nice to own resilient, profitable and cash generative stocks. Especially those like BuildTech software developer Elecosoft - sporting a robust balance sheet and generating high recurring revenues (ED 56%). Traits which should not only provide investors shelter from the worst of the COVID-19 storm, but also thrive once this CAT 5 hurricane subsides.
Amino Technologies (AMO): Corp | Elecosoft (ELCO): Corp | Gooch & Housego (GHH): Corp | Ideagen (IDEA): Corp | Intercede (IGP): Corp
Companies: AMO ELCO GHH IDEA IGP
Software stocks that enable corporates to sell more, improve quality, cut costs, save employees time and/or reduce their ‘carbon footprints’ are ideally placed in today’s tech/ESG world. Cue Elecosoft, who said this morning that 2019 PBT would be “ahead of LY” (£3.67m) and “in line with expectations” (consensus £4.1m) - despite being impacted by forex (ED est -2%, weaker SEK vs £) and macro uncertainties (eg Brexit, General Election and subdued Eurozone). We think this is a creditable outcome. Not least because it underlines the resilience of the business - while the results are actually a touch better than our previous (bottom of the range) profit & cashflow estimates, albeit with revenues a smidgeon shy.
dotDigital (DOTD): Corp Interim trading update | Elecosoft (ELCO): Corp FY 2019 earnings on track for growth forecast | eve Sleep (EVE): Corp FY19 pre-close; EBITDA loss/cash burn materially reduced | Hardide (HDD): Corp Placing proceeds to further upgrade equipment | LPA Group (LPA): Corp LED lighting contract win and trading update
Companies: DOTD ELCO HDD LPA EVE
Elecosoft has reported a solid set of H1 2019 results in a challenging market environment. In light of the H1 results, we have reduced our FY 2019 forecasts but maintain our FY 2020 EBIT and EPS expectations. In H1 2019, revenue grew +20% to £12.7m (+22% at constant currencies), adj. EBIT grew +17% to £2.2m, and FCF was flat at £2.1m. Operationally, ELCO has made good progress in H1 with the latest release of core solution Powerproject XV; a UK government listing on the G-Cloud 11 framework; and evidence of increased cross-selling including by the recently acquired Active Online. We continue to expect that ELCO can benefit from the growing adoption of Building Information Modelling (BIM) within the construction industry, as ELCO is already established with excellent brands and has the opportunity to increase the cross-selling of its products. In light of the limited changes to our FY 2020 EPS forecast, we maintain our TP, and look for enhanced delivery by ELCO in H2. At 76p and on FY 2020 estimates, ELCO trades at a PE of 16x and 1% dividend yield.
In the 1999 sci-fi hit ‘The Matrix’, the movie portrays a world when humans live in a computer generated universe. Two decades on, a similar virtual reality is being created across the infrastructure, construction & real estate industries – facilitated by innovative new BuildTech software.
DX (DX): Corp Well on the road to recovery | Elecosoft (ELCO): Corp Strong H1 growth in a challenging environment | Europa Oil & Gas (EOG): Corp Irish exploration to be phased out? | Flowtech Fluidpower (FLO): Corp Interim results, weaker H2 trading expected | InnovaDerma (IDP): Corp FY 2019 finals – a solid base for future growth
Companies: ELCO EOG FLO IDP DX/
Elecosoft (ELCO): Corp First half meets expectation | Europa Oil & Gas (EOG): Corp Frontier Exploration Licence award | Evgen Pharma (EVG): Corp Patent update – European grant |Kazera Global (KZG): Corp Update for NTI tantalite mine | Shield Therapeutics (STX): Corp Interim results – looking to the US and full H2H data
Companies: ELCO EOG STX KZG EVG
GARP investing is all about buying quality secular growth companies at reasonable prices. Hence investors should be able to own them for long periods, and (hopefully) enjoy years of healthy returns thanks to strong EPS and multiple expansion. Enter BuildTech software developer Elecosoft, who said this morning that trading is “in line expectations” - with H1 revenues jumping 22% in constant currency terms (20% reported) to £12.7m (ED est), EBIT margins similar to H1’18 (ie 16.6%) and net debt closing June at a modest £0.6m (or 0.1x EBITDA) vs £2.1m in Dec’18.
Byotrol (BYOT): Corp FY trading update | Chariot Oil & Gas (CHAR): Corp Anchois satellites CPR | Elecosoft (ELCO): Corp A good first quarter in line with expectations | Robinson (RBN): Corp Positive AGM trading statement | Velocity Composites (VEL): Corp Encouraging trading update, resumption of forecasts
Companies: BYOT CHAR ELCO RBN VEL
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The FY 2020 results are in line with our expectations and reflect the impact of the previously announced switch from large perpetual licences to recurring annual term licences during the year. Despite the COVID strictures, with its large global partnerships, D4t4 continues to close numerous lucrative data gathering and data management contracts with major blue-chips around the world. It is successfully converting a high proportion of its new sales to recurring revenue contracts, but this will sacrifice growth and earnings in FY 2020 and FY 2021. Nevertheless, with growing recurring revenue base, an exciting pipeline and a very strong balance sheet, D4t4 is very well positioned for continued long-term growth and security.
Companies: D4T4 Solutions
CentralNic's CMD gave us new positive insights into the company's investment case. CentralNic's organic growth is stronger than we thought, the Direct division generates high ROI, the monetisation market was shown to be critical to the domain name market, Team Internet's market leadership was further reinforced and acquisition opportunities were shown to be larger than anticipated. These investment views are not reflected in CentralNic's low valuation multiples, in our view.
Companies: Centralnic Group
GB Group reported strong performance in FY20 and started taking measures to preserve cash in Q420. Trading in Q121 has been mixed and while management is unwilling to provide guidance for FY21, it has confidence that in the longer term it is well positioned to benefit from the acceleration in digital transformation that should drive demand for its identity data intelligence services. We have upgraded our EPS forecasts by 5% in FY21 and 3% in FY22.
Companies: GB Group
CentralNic’s capital markets day (CMD) on 24 June 2020 introduced the divisional management team and provided insight on each of the three key segments as they will report in FY20: Indirect (Wholesale, Registry); Monetisation (Team Internet); and Direct (Retail, Corporate). We have picked out what we believe are the four key themes from the CMD: FY20 performance, COVID-19 and seasonality; organic growth; M&A; and, pulling it all together, the benefit of scale. CentralNic continues to trade on an FY20 EV/EBITDA of 9.1x and a P/E of 15.8x, a material discount to its peer group, with our DCF indicating further share price upside. M&A could bring CentralNic’s multiples down further.
Blackbird plc* (BIRD.L, 19.25p/£64.7m) | Mirada plc* (MIRA.L, 92.5p/£8.2m) | Tern plc* (TERN.L, 10.75p/£29.0m) | Checkit plc (CKT.L, 39.5p/£24.5m)
Companies: BIRD MIRA MIRA TERN CKT
Touchstar is a supplier of mobile data computing solutions and managed services to a variety of industrial sectors. This morning, the group has provided a trading update to coincide with its AGM.
Encouragingly, the business continues to perform in line with the trends seen at the time of the full year results in May and the Board anticipates Touchstar will be profitable in the six months to 30 June. Cash generation is again reported to have been good, with ‘significantly higher cash balances' expected to be reported than at the beginning of the year (FY 2019A £850k). The group has drawdown a CBIL of £150,000, which provides additional liquidity alongside its undrawn banking facilities of £300,000. Looking ahead, the order book is a more normal level than last reported at over £500,000 at the end of June, which compares to an exceptionally strong £1.2m at the beginning of the year.
FY20 results: inline with guidance
LoopUp has provided an update on trading to coincide with today’s AGM…in essence, the group continues to see activity “materially” above pre-COVID levels, and is confident of exceeding expectations for 2020. We choose to leave our forecasts (that we believe to be roughly in line with consensus estimates) unchanged for now, in advance of further detail likely with a fuller H1 update in early July.
Companies: Loopup Group
ECSC Group plc* (ECSC.L, 71.5p/£7.2m) | Trackwise Designs plc (TWD.L, 90.5p/£20.0m) | Transense Technologies plc (TRT.L, 59.5p/£9.7m)
Companies: ECSC Group Trackwise Designs
Oxford Metrics has delivered solid 1HMar20 results, with sales of £15.0m (PY: £16.1m) and adj. PBT £0.3m (PY: £1.7). Within this, Yotta demonstrated continued ARR progression (up +15% to £6.8m) while at Vicon, the division added additional bluechip customers, further validating its industry leading position. Progress was, however, held back by lockdown restrictions. £1.1m of expected orders slipped to post period, but have now largely been fulfilled. Had they occurred as expected group sales would have been flat y/y. Looking ahead, CV19 related uncertainty leads us to withdraw forecasts. At this stage we expect disruption to be short-lived. As such – and considering OMG’s persuasive track record - we continue to view the company as a long-term winner in this growth industry.
Companies: Oxford Metrics
The Coronavirus pandemic is a human tragedy of vast proportions – as well as the terrible human toll, COVID-19 has led to economies across the globe going into physical lockdown and financial freefall. Entire populations are adapting to the “stay at home” edict, to safeguard the vulnerable – and some of these changes will lead to long-lasting or perhaps permanent changes in the way we live or work. This note describes some of our client companies whose business models are well adapted to these changes, or who might see a change in long-term structural demand.
Companies: AMO BGO FDM GAMA KAPE LOOP TERN ZOO
Today’s update is a positive one and acts as a reminder of DOTD’s solid and recurring business model. Such visibility, combined with excellent profitability (30% AOP margin) and strong cash resources (£22.6m net) means the company is strongly placed for a challenging macro environment, and worthy of attention in view of indiscriminate SP weakness. At a time, when many companies are seeing sales fall, DOTD has today revealed that demand continues to grow – evidencing DOTD’s secular growth drivers and omnichannel opportunity. New business is however taking longer to convert, as events and businesses have seen disruption. Offset against this, retention has improved, as customers’ digital transformation plans have slowed. Related to this, we also highlight that key customer risk is very low, as no customer represents >1.5%/sales, furthermore sector exposure is diversified. In view of today’s update, we therefore reduce FY20E sales by £2m to £46.8m, but flag that this still implies 6% growth in H2. DOTD has meanwhile identified savings (by reallocating its marketing budget) such that FY20E profit remains unchanged. Notwithstanding the company’s solid (90% recurring) business model, we view it conservative to withdraw FY21&22 estimates, given the potential for prolonged disruption. Despite this, much confidence can be taken from the company’s strong financial profile and growth opportunities, which (we view) will be unaffected longer term.
Companies: Dotdigital Group
Following the announcement of a business restructure and temporary cost reduction measures to reduce costs by A$12m, we have updated our forecasts for Seeing Machines. We believe that the significant measures taken by the management offset a weaker revenue outlook, as the impact of COVID-19 looks likely to continue for longer than anticipated. The net result is a similar to previous expectations in terms of cash, which we believe remains sufficient to see the company through FY22 ahead of profitability in FY23. The long-term effects of the business restructure is expected to be positive for shareholder value as demonstrated by our DCF based valuation which increases to 7.2p (from 7.0p).
Companies: Seeing Machines
Solid State is a manufacturer of computing, power and communications products, and value added distributor of electronic components. This morning, the group has provided a further update on trading in light of the present COVID-19 backdrop, ahead of full year results to 31 March 2020 due to be released on 30 June.
Cadence today provides and update on the Amapá iron ore project in Brazil. The Amapá JV (EV Mineração S.A.), in which Cadence can earn an initial 20% of the project, is understood to be on track to begin shipping stockpiled iron ore from late Q2 / early Q3 2020. Finalisation of the negotiation with the secured creditors still needs to be reached, but the Amapá JV partners are engaging constructively. In preparation for shipping, a trucking contractor has been hired to move key equipment to site and a shipping manager and shipping broker have been engaged.
This morning's update from CSSG confirms the positive direction of travel highlighted when the company published H1 results in March. With comparators still challenging (because of one-off work in the prior year), and “light” Covid-19 impacts in recent months, the expected £1.6m EBITDA flagged by the company seems a creditable number, still within touching distance of historical performance in both EBITDA and PBTA terms. Net cash, moreover, even after three months of the Covid-19 crisis, is reported to still be higher than the £2.4m which the company reports it had at the start (which in turn represents an increase on the £2.3m as at 31 December 2019). Not surprisingly, having suspended payment of the dividend a couple of months ago, the Board is now proposing to have another look at this question, at least in relation to the half year dividend.
PTY's announcement this morning flags a change in the CFO role with the new appointee benefiting from extensive experience in developing digital businesses to their full potential, both in overall and in financial leadership positions. His arrival follows on from highly proactive action led by the previous finance director, delivering a platform for growth once the current uncertain circumstances have abated.
Companies: KDNC CSSG PTY SOLI