Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on NetDimensions. We currently have 40 research reports from 3 professional analysts.
In our third edition of Trend spotting we stick with our suggestion at the end of March to up European exposure and we review the recent market moves and macro trends. We comment on the recent strong performance of our growth, quality and momentum styles which we expect to continue and we examine what happened to sectors around the last general election period in 2015, adding some new colour.
Companies: AUG GNS IQE NTG SDL SPH SDY TRI VEC XAR GHT BOY CRW EMIS VCT ECK GLE GHH DATA AVON CHH DPH HILS SDM ZYT MUR RPS LWB EKF SUN UDG SYNT CINE DOTD MPM FUM CLIN RENE ATQT SERV ERGO BCA BUR DRV SCS JUP FDP GBG GTLY HW/ EAH SFR PHD CXENSE KNOS NETD G4M GFIN ULS RHL RAT FEN LOOP MYSL FUTR
We have refreshed our momentum style screen for the first time since inception on 26 July 2016. As before, the screen selects the 25 stocks exhibiting the most extreme momentum characteristics, according to our measurement method. From these we have selected 10 to focus on. Since inception the screen has underperformed both the main small-cap and micro-cap indices against a background of generally rising momentum. We have noted a subset of the basket, where decelerating momentum at the time of measurement appears correlated with significant share price falls since selection. We shall monitor this factor with the new screen, albeit there are only two such stocks showing this pattern, namely Lamprell (not rated) and Gear4music (not rated).
Companies: IQE SDY SUN ERGO NETD G4M GFIN ULS FUTR
In a brief trading update, NetDimensions has said that both revenue and invoiced sales for Q316 were slightly ahead of Q315. This is after the group reported a 1% decline in revenue in H1. We are maintaining our forecasts, which imply a 9% revenue growth in H2 and hence a strong performance in the traditionally busy Q4. In early October, NetDimensions said it has had an unsolicited approach that “may or may not lead to an offer being made for the entire issued share capital of the company”. We note the group has a healthy net cash positon ($11.2m as at 30 June or c 16.5p per share), attractive growth profile, a cash-generative business model and, despite the recent gains, the shares trade on an FY17e EV/sales rating at just 0.9x.
While NetDimensions (AIM: NETD, OTCQX: NETDY) announced a modest reduction in H1 revenue due to a decline in services and support, this masked an 8% improvement in high-margin licence revenues to $6.8m. Costs fell dramatically, enabling a sharp reduction in the EBITDA loss. New business is increasingly lumpy as the group targets large enterprises in high-consequence industries and we have conservatively eased our numbers. Nevertheless, the quality of business continues to improve with the emphasis on recurring software rental revenue. Following the recent decline, the shares look attractive, given the $11.2m cash position (c 16.5p per share), an attractive growth profile, the cash-generative business model and an EV/sales rating at just 0.4x.
H1 results came in slightly ahead of forecast, but were affected by contract rollout delays as previously flagged. Despite the contract delays, underlying demand for HCM software remains good, and NETD looks well positioned in this market given its global spread, focus on high-consequence sectors, and growing base of recurring revenues (70% of total revenues in H1, including 51% from SaaS). Valuation at 0.5x EV/sales is a substantial discount to larger peers. This points to strong long term upside potential as the group moves towards its $50m revenue target (end-FY18E) and into profitability.
So replied the violinist Fritz Kreisler to the lady who said “your violin makes such beautiful music.” And so we learn that the instrument (ie the hardware) is of no use whatsoever without the human element. This week we saw Sage debut a rack of new products at SageSummit, there was the US$9.3bn Netsuite acquisition by Oracle, which in the wake of ARM plc acquisition pushed share prices up as M&A thoughts drove thinking. We frame all of these moves relative to our SMAC stack scenario. However our Compliance Officer David Langshaw (off to read for an MSc in History of Science, Medicine and Technology at Kellogg College, Oxford - whatever) tells me that I have missed the essential truth – namely Kranzberg’s Six Laws of Technology. Kranzberg’s core message is, ‘Technology merely presents an opportunity: the choice of what to do with it remains ours’ – and so the thing is the intercourse of people with the product. ‘People’ have pushed equity values higher and people will throw up some lucrative opportunities as the economy struggles to generate growth and so looks to technology to be the growth driver. Furthermore the rash of new products show us that technical developments have environmental, social, and human consequences that go far beyond the immediate purposes of the technical devices and practices themselves – note the seemingly sudden burst of interest in IoT and in PokemonGo this month – and this reminds us that “software is eating the world”. As always tech bounces up and down through the Summer months – July was an ‘up’ month. It is still too early to know the operational ramifications of Brexit. But so far the mood music has been more positive than expected, even if I am playing second fiddle to Mr Langshaw. Enjoy the Summer break.
Companies: AVV ESCH CCC FDSA FTC TUNE FXI MCRO NETD OSI SGE SND SDL SPT SOG
H1 news is positive on profit, but revenue growth was dented by large contract roll-outs. We think that the delay reflects a large order – indeed the largest that NetDimensions ever inked – rather than being symptomatic of any general pause in buying. While the H1 outturn dents our FY2016E revenue outlook, NetDimensions’ on-going focus on cost and business efficiency means that we increase our 2016E Adj EBITDA forecast and move from loss to profit. Our investment view is unchanged: There are strong secular drivers in favour of HCM software usage as modern companies; (i) appreciate the trade-off between a tighter economy giving fewer opportunities to ‘bankroll’ staff loyalty, (ii) want to engage and ‘discover’ their top performers, and generally keep staff satisfied and motivated, (iii) understand that this is the first time that companies have to cope with a four generation workforce and manage so many different employee expectations. We think that NetDimensions stands tall in this new world – the company has a differentiated product, ‘cloud’, segment leadership, expanding TAM, is ‘born global’ and recognised sales traction (ie it is not just TAM, but the ability to execute on TAM which is important). Our continued positive recommendation is underpinned by the share’s strong valuation support; note 2016E EV/Sales 1.1x. Buy.
In a short trading update, NetDimensions (AIM: NETD, OTCQX: NETDY) has said that H1 revenues were lower than expected due to delays in deal rollouts. The delays are expected to continue into H2; hence we have cut our FY16 revenue forecast by $1.2m to $27.0m. Nevertheless, the adjusted EBITDA loss has significantly improved and we now forecast the group to trade at breakeven in FY16 (previously a $0.6m loss). We are maintaining our FY17 forecasts, but note that if the deal rollouts do materialise in the period, they could potentially result in FY17 upgrades. NETD’s larger US peers continue to trade at significant EV/sales premiums and therefore we continue to believe NETD shares could warrant a significant re-rating.
History tells us that the way to make money from shares is to “sell when others are greedy and to buy when others are fearful”. Yet for many investors the current market is less Churchill, less Buffet and more ‘Texas hold 'em’. Our soundings through the industry in the wake of the UK decision to Brexit are mixed; there are currency translation winners, there are whispers of projects being iced, there are concerns about the UK being a less attractive destination for staff and some EU tech workers (a third of IT staff in London) unsure of whether to stay or go. There is a vacuum of leadership – regular compass points don’t seem to work right now. This should throw up some lucrative opportunities as the economy struggles to generate growth and should be a positive as the stock market appetite for tech – the growth guys - will then be whetted. Whilst the retreat in valuations is partly healthy – too high for too long (see table), in truth we find the latest ‘spring back’ a surprise. As always tech bounces up and down through the Summer months – and in that respect there is some ‘continuity’. To reprise – Sell in May usually works.
Companies: AVV CCC ESCH FDSA FTC TUNE FXI MCRO NETD OSI SGE SND SDL SPT SOG
We note from the trade press that Omega Performance, a TwentyEighty company, has implemented NetDimensions Analytics. News of this contract dovetails nicely with our ‘times they are a-changin’ viewpoint which argues that there are strong secular drivers in favour of HCM software usage as modern companies; (i) appreciate the trade-off between a tighter economy giving fewer opportunities to bankroll staff loyalty, (ii) want to engage and ‘discover’ their top performers, and generally keep staff satisfied and motivated, (iii) understand that this is the first time that companies have to cope with a fourgeneration workforce and businesses have to manage so many different expectations on the part of employees. We think that NetDimensions stands tall in this new world – the company has a differentiated product, ‘cloud’, segment leadership, expanding TAM, is ‘born global’ and recognised sales traction (ie it is not just TAM, but the ability to execute on TAM which is important). Our positive recommendation is underpinned by the share’s strong valuation support; note 2015A PEG 0.6x, EV/Sales 1.2x. Buy.
The latest contract win, 3,500 seats at Keepmoat, is proof positive of the strong competitive offer with a client right in the sweet spot - ie a high consequence industry. Also for LSE investors this is a UK client. As the contract value was not disclosed we have elected to leave our estimates unchanged. Note Keepmoat gives some detailed disclosure on the use case and NetDimensions’ competitive position. The shares enjoy strong valuation support, EV/Sales 1.0. We retain our Buy and 196p target price.
The sector valuation was weak through May. Our average FY1 EV/EBITDA faded from 10.8x to 10.4x in the past month. However, despite soggy share prices we are encouraged on several fronts. Yes, there is 'weeping and gnashing of teeth' by some, Brexit concerns have stifled corporate activity, quarterly results have been mixed, there is the usual 'Sell in May' feeling, outlook statements have a defensive tone and there is a general 'risk-off' attitude. However; (i) our 'growth beats returns' investment play is working well (see table), (ii) our 'walking around' research, meeting private and public companies and trips (IPExpo, Accountex, Salesforce World tour) showed us lots of exciting growth companies, and, (iii) there is evidence of tech demand and usage from many fervent millennials. As the wider economy struggles to generate growth, the stock market appetite for tech will be whetted once more. The retreat in valuations is healthy - they have been high for too long (see table). While we retain a generally cautious stance (seasonal factors) we remind that in tech sentiment often beats fundamentals and when we get out of the office cubicle we are encouraged as we "look around; Y' ken can see it on the trees; Y'ken can smell it in the breeze; June is bustin' out all over".
Companies: AVV CCC EYE ESCH FDSA FTC TUNE FXI MCRO NETD OSI SGE SGE SGE SND SDL SPT SOG
As the daffodils fade so too does the sector valuation. In May investors get fidgety and thoughts turn to selling and going away. The sector valuation has been wilting – our average EV/EBITDA faded from 13.7x to 10.8x in the past month. But we acknowledge that the individual company, geographical and industrial segment pattern is very mixed. The pressure has been on the ‘EV’ moreso than EBITDA as corporate news and results are of the ‘some up/some down’ variety. That said there is an absence of earnings upgrades, the IT spending backdrop is less favourable and outlook commentary has taken on a more downbeat tone. While this has given rise to a general ‘risk-off’ attitude, nonetheless there is still some appetite for ‘growth’ as headline ‘macro’ worries seem to be not as bad as feared, and there is more support for the ‘software is taking over the world’ view. However, as our stats illustrate (see below), seasonal behaviour is well engrained. We retain a generally cautious (neutral) view even though techs “early-rising sun has not attain'd his noon”.
Companies: AVV CCC EYE ESCH FDSA TUNE FXI LRM FTC MCRO NETD SGE SND SDL SPT SOG
Research Tree provides access to ongoing research coverage, media content and regulatory news on NetDimensions. We currently have 40 research reports from 3 professional analysts.
|29Mar17 17:34||RNS||Holding(s) in Company|
|29Mar17 17:22||RNS||Directorate Change|
|20Mar17 09:08||RNS||Intention to delist|
|20Mar17 08:25||RNS||Offer declared unconditional in all respects|
|20Mar17 07:00||RNS||Offer declared unconditional save for admission|
|15Mar17 07:00||RNS||Offer declared unconditional as to acceptances|
|13Mar17 08:31||RNS||Director/PDMR Shareholding|
Apple announced yesterday that US optical components manufacturer Finisar (NASDAQ: FNSR) will receive $390m from its Advanced Manufacturing Fund. The award will be used to increase Finisar’s R&D spending and high-volume production of VCSELs. We had always expected Apple to dual source VCSEL components when possible, so we see the fundamental IQE investment case as unchanged on the back of the investment, however we are highly encouraged by the accompanying commentary on Apple’s Q4’17 VCSEL volumes. We believe that IQE is the only volume source of VCSEL wafers currently available. IQE was one of our key picks for 2017 and has served us well (+325%). With a recently strengthened balance sheet and further positive newsflow expected, we remain highly positive on the stock and retain our Buy recommendation.
On the back of the recent extremely positive newsflow, the group has raised an additional A$61m from equity to accelerate the development of the technology product and platform, expand global infrastructure and provide working capital headroom. Crucially, the contract award from a second OEM demonstrated that Seeing Machines (SM) has a credible DMS solution for the global automotive industry and is likely to win a significant share of a huge global market. Equity investors are now beginning to appreciate the scale of the opportunity and the true value of this business. To date, enthusiasm and valuation have been tempered by a relatively heavy investment programme for AIM and an obvious funding gap with likely dilution. We adjust our forecasts to reflect the post-placing investment; however, it clears that final hurdle and opens a path for SM to achieve its remarkable potential. We also highlight upside from a potential re-rating.
Companies: Seeing Machines
Since April, our growth style screen has performed very strongly, outperforming the main small-cap index by 20pp and 24pp on an unweighted and weighted basis respectively, also comfortably outpacing microcap. In this note we provide more detail on the constituent and basket performance in the period and present the new screen constituents. As usual we focus on 10 of the current constituents, providing brief summaries and financials for clients to consider. We will refresh again in 5-6 months time and report back on performance.
Companies: SUN DOTD ERGO TEF AVG SOG COR FEN LOOP YU/
SDL’s trading update confirmed that whilst its sales pipeline is in line with expectations, it remains reliant on the closure of certain software deals by year end without which 2017 adjusted EBITA will be below expectations. In addition, the greater automation in the business is allowing the group to reduce the cost base in 2017 (£3.5m exceptional costs) but the group will reinvest the savings in 2018 in premium solutions in fast growing verticals in order to maximise its opportunity. The net result is an underlying downgrade of 18%/23%/20% in 2017/18/19 in adjusted EBITA on a like for like basis. The group is now required to capitalise a small proportion of its R&D spend so the adjustments to forecasts are 7%/10%/13% if we include the benefit of capitalisation. Whilst these downgrades are disappointing, we believe the technology investments the group is making will lead to a highly optimised platform that will be industry- leading in what is a multi-billion dollar market. The group reiterated its commitment to deliver double digit revenue growth and mid to high teens margins over the medium to long term.
Idox has identified a small number of revenue items which it does not consider should be recognised in 2017 and now expect 2017 EBITDA to be c. £20m vs. the c. £23m it indicated at the time of its trading update in mid-November. These issues were identified internally and brought to the attention of its auditors by the company. This is clearly disappointing and we put our forecasts under review awaiting further details. The Board also announces that Andrew Riley is on sick leave due to illness and former CEO Richard Kellett-Clarke, has agreed to stand in as Interim CEO pending Andrew’s return. The group will need to rebuild investor confidence but we believe Idox has a valuable portfolio of products and services and a broad customer base generating good levels of recurring/repeating revenues. FY results are now expected to be announced in February 2018.
In the October edition of the Hardman Monthly newsletter, Chief Executive, Keith Hiscock analyses the much misunderstood – but highly important – issue of stock liquidity. In particular, he focuses on the lower echelons of the Main Market and of AIM.
Companies: OPM ABZA AVO AGY APH ARBB AVCT BUR CMH CLIG COS DNL EVG GTLY MCL MUR NSF OBT ODX OXB NIPT PHP PURP RE/ RGD SCLP SPH SCE TRX VAL
PRSM has released a trading update this morning and the strong momentum of H1 has actually increased. We are upgrading our revenue forecasts substantially and we are increasing our PT to 1750p from 1250p.
Companies: Blue Prism Group
RhythmOne has delivered a better result at the revenue, EBITDA and cash levels than indicated at the last trading update. This is encouraging given trading appeared slightly below our expectations. The core business is trading well with RhythmMax growing very fast (+25%). Perk also traded well (ahead) and the first two months of Q3 have been good and now there is just the largest month of the year to go. The only fly in the ointment is RadiumOne where the costs program is slightly behind. This means a c$2m hit to FY18 EBITDA estimates, reducing it to c$14m. However from a big picture perspective the step change in profitability this year is still on track and the Company is happy that RadiumOne will be on plan in FY19 meaning that our FY19 EBITDA expectation should hold up. With the drift on the share price this makes the valuation look obscenely low. The Company indicates that the YUME acquisition remains on track to close in Q1 2018, although we note this is not key to getting an attractive return on the stock. We maintain our Buy rating.
First Derivatives has announced that it has acquired Telconomics, a Madrid-based provider of telco analytics software, for a total consideration of up to €2.5m. This looks a sensible bolt-on acquisition that brings valuable domain expertise and complementary product in a target vertical. We have made no changes to our current year expectations, but increase FY 2019E revenue/EBITDA by £0.9m/£0.25m and FY 2020E revenue/EBITDA by £1.0m/£0.3m. This delivers EPS enhancement of c1% in both years and increases our target price from 4190p to 4222p.
Companies: First Derivatives
SQS has reached agreement on a recommended cash offer at 825 per share, which values the company at c£281m (c1.0x FY2017E sales and c10x FY2017E EBITDA). Indications of acceptance have been provided by 66% of the shareholder base. The acquirer is a bidco set up by Assystem Technologies, a European leader in outsourced research and development. The combined group will provide its customers with more automated processes to boost operational efficiency, meet evolving regulatory standards and remain competitive. We believe this is a sensible combination that leverages the two companies’ respective development strengths.
Companies: SQS Software Quality Systems
accesso unveiled a solid H1 last week, with 40 new customer wins across the group delivering 17% (10% organic est.) growth in revenue. Challenging weather conditions did limit accesso LoQueue revenue growth to an estimated 5%, but this was in line with our relatively cautious expectations ahead of the key (weather-influenced) summer trading period. Now that this period has been successfully exited, we have revisited forecasts and valuation. While we make no changes to our headline revenue and profit estimates, we do increase current year EPS to reflect a lower effective tax rate (20% vs 23%). The major driver to our target price increasing from 1747p to 2151p is the roll-forward of our base valuation year to reflect a full year contribution from the Ingresso and TE2 acquisitions. This increase, together with the expectation of improving earnings momentum, drives our upgrade from Hold to Buy.
Companies: Accesso Technology Group
We have refreshed our quality style screen for the first time since its inception in February this year. As before, the screen selects the 25 stocks exhibiting the highest quality characteristics according to our criteria from our universe of approx. 500 stocks and we have chosen 10 stocks to focus on. Since inception the screen has significantly outperformed the main small-cap index and marginally outperformed the microcap index. There was notable volatility around the UK general election, which is interesting as quality would usually be seen as a defensive style in large-caps. As expected, turnover of constituents is modest with only 9 leavers and joiners despite the extended time-scale since inception. We will refresh again in five to six months’ time.
Companies: WIL GHT AVON CHH ZYT DOTD MAB1 GTLY FCRM VANL
This quarter we use finnCap’s Slide Rule to provide both top-down and bottom-up analysis of the UK’s Technology and Telecoms sectors. Our findings are very reassuring: the Tech sector scores the best (across all sectors) when considering Growth and Quality – Taptica*, Frontier Developments* and dotDigital* in particular stand out on these metrics. Given these attractive characteristics and growth prospects, the Tech sector is unsurprisingly one of the most expensive – currently trading at 17.2x FY1 EV/EBIT and 23.8x FY1 P/E, versus 15.0x and 18.5x respectively for the wider market. Despite valuations appearing high, we believe there are value opportunities. For example, Proactis* features in finnCap’s QVGM+ portfolio (ranked 17/462) – the company offers attractive organic and inorganic growth, with earnings forecast to grow by 26% CAGR over the next two years, but despite this, only trades on 15x FY1 earnings and offers 8% FCF yield in FY2.
Companies: 7DIG ALT AMO ARTA BOTB BLTG CTP CFHL CYAN ISL DTC DOTD ELCO ESV FDEV GBG IDEA IDOX IMTK IGP IOM KBT KCOM KWS LRM MAI MMX NASA NET ONEV PHD QTX QXT RCN 932 SSY SEE SIM SPE SRT STR TAP TAX TEP TPOP TRAK UNG VIP ZOO
Bango has announced what is, in our view, a significant new payment route in Nigeria, giving 9mobile’s 17.2m subscribers the ability to charge purchases of digital content from the Google Play store to their 9mobile 9pay mobile wallet. The release follows the recent announcement with Victory Link in Egypt, but contains no details on the contract terms and we make no revisions to forecasts at this stage. With a growing mobile subscriber base, high Android penetration and low banking/credit card adoption, we continue to believe that Africa represents an attractive growth opportunity.
RhythmOne has announced H1 revenues of $114.5M (H12017: $66.8M), up 72% year-on-year, slightly ahead of the range given in the trading statement of $112-114m. Adjusted EBITDA of $3.1M, an improvement of $5.7M (H12017: $2.6M Loss), is ahead of the $1.5-2m range given in the recent trading statement. RhythmOne on-platform revenues of $44.4M (H12017: $35.5M), were up 25% year-on-year. The company closed the period with $39.3M in cash. We are reducing our revenue forecasts to reflect the decline in non platform programmatic revenues, and our EBITDA to reflect slower cost turnaround at RadiumOne, and we now expect a small loss at RadiumOne vs small profit in year to March 2018. We retain our Buy and PT770p.