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.
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 FUTR ULS
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
In January we screened for companies with estimates that had been declining consistently since a year previously, but which had risen in the immediately preceding three months (see our note dated 22 January 2016). We have reviewed the performance of those companies and, given the overall strength of this selection, we have re-run the screen. In the c.3 months since selection, the unweighted average rise was c.34% against a c.11% rise in the main All-Share index. From the same universe as before (some 900 companies) we find 38 companies selected by the screen. We note a number of stocks in the list where we have a supportive stance including: Devro (DVO LN, Buy), James Fisher (FSJ LN, Corporate), Mattioli Woods (MTW LN, Buy) and Spirent Communications (SPT LN, Buy).
Companies: CAML PAF STCM TCM TTG ULE BNK IAE SEPL SEPL SOU LWB MPE PURE VLS AGY CIR SUMM BEG TAP ACSO FDSA JPR LAD QRT FLYB GOG BGEO BRK FBD HLCL ACA APF CEY FDI GEMD HOC KAZ KMR PDL SHI TYMN ACL SPT ELA AGL VER GCC DVO CHOO CMS MTW UTW ECM DTC FXI NETD SOG SPI AO/ FSJ CLIG HSD HSS IPX IPF AVN LMI GKP
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|
With its exposure to a structural growth market, a highly recurring business model, consistent strong execution, healthy balance sheet and potential new avenues for growth, we believe dotdigital remains a core holding in the sector. It offers investors an attractive compounding growth stock with the potential for accelerated growth as it expands internationally and increasing prospects for M&A. The FY results (19% sales growth, 27% EBITDA growth and 32% EPS growth) showed another year of strong execution, with the H2 growth acceleration particularly pleasing. We remain confident of the group’s prospects.
Companies: Dotdigital Group
Further evidence that the shrewder investor prefers a smaller company, the Nobel Prize in Economics was awarded to Professor Thaler, an avowed fan of the smaller brethren. Back down to earth, all markets continue to make headway, with the smaller company indices continuing to lead the way. Despite the apparent deadlock in the Brexit process, life appears to carry on. The MPC meeting on 2 November and the Budget on 22 November may offer greater insight. In Share News & Views, we comment on recent updates from Cropper*, Halstead, Norcros, Tricorn* Walker Greenbank and Wincanton.
Companies: APC BMS CRPR ECSC EUSP FDM GETB PCF PPIX SNX SPRP SQS TCN W7L
Augean (AUG LN) Board changes and reduction in expectations | First Derivatives (FDP LN) Agreement with European Space Agency | Futura Medical (FUM LN) Market research supports the commercial potential of Eroxon® | Low & Bonar (LWB LN) Civil Engineering struggling | Sinclair Pharma (SPH LN) Forecast update; profitability inflection and strong growth ahead
Companies: AUG SPH LWB FUM FDP
HomeSend, eServGlobal’s JV with Mastercard and BICS of Belgium, has always represented a very exciting prospect. With the backing of the giant credit-card agency, it stood a good chance of securing a significant share of the US$600bn global remittance market. With a relatively minimal cost base, the transaction volumes from even a tiny share would have delivered US$100m in earnings for eServGlobal’s 35% stake – and Mastercard’s 26% of the global credit-card market suggested a far greater share was possible. Now, after recent announcements, we realise: firstly, that the applicable market size was woefully underestimated; secondly, that its share will not be tiny but significant; and thirdly, that success for HomeSend is becoming a certainty. On the contracts already signed, HomeSend will generate revenue and profits of hundreds of millions of dollars; it is now simply a matter of when its transaction corridors go live and the commission streams ramp up. We understand that that, too, will be faster than thought.
The trading update notes an A$200m pipeline of opportunities; however, prudent resource constraints have forced a slowdown in spending on the Fleet business roll-out with a knock-on impact to this year’s revenue and losses. Since the sale of the Off-Road business to Caterpillar, Fleet is the main revenue-driving division. On the back of this update, we are easing our Fleet - and therefore group - revenue and earnings forecasts for FY 2018 and FY 2019. Nevertheless, Seeing Machines is still demonstrating extremely strong sales growth, issuing guidance that it expects to more than treble revenue this year from A$13m to around A$40m, and then double this again in the year to June 2019 at c.A$80m. By then, OEM Automotive, Rail and Aerospace divisions should all be making strong sales contributions to augment the Fleet division growth.
Companies: Seeing Machines
The Company has provided an update for H1. Revenues ($112-114m guidance) are tracking slightly lower than we had been looking for with gross margin higher by 1% point (at 38%) and OPEX lower resulting in EBITDA being not far adrift from our expectation ($1.5m to $2.0m guidance). The Company is guiding to meeting our full year $16m EBITDA expectation, in part because OPEX is expected to continue to be materially lower (US$87m for the full year). In order to meet our forecast the Company will need to still achieve our revenue objective although we flag there is still some scope for OPEX to surprise given the continuing consolidation of the operations and acquisitions. More cash has had to be invested in working capital (an issue in the industry at the moment) and there are some YUME acquisition related expenses (we estimate c$3m) also impacting cash (guidance of $37m rising to $50m at year end). The Company expects some recovery in working capital in H2. The shares have been drifting off during the YUME acquisition process. We expect the shares to recover as the process nears completion (due early 2018) and investors get confirmation the Company is tracking towards the delivery of the critical leap in profitability this year.
Flowtech Fluidpower* (FLO): Q3 trading update confirms good organic growth (CORP) | President Energy* (PPC): Puesto Flores – first oil delivery and revenue (CORP) | dotDigital* (DOTD): 2H acceleration: progress on every front (CORP) | Orchard Funding* (ORCH): Insuretech winning (CORP)
Companies: FLO PPC DOTD ORCH
Oxford Metrics’ year end trading update highlights another strong period of delivery for the group, with FY’17 revenue and adjusted PBT both expected to be slightly ahead of expectations. Net cash at the year end of £9.8m is also ahead of our £9.4m forecast. FY’17 is the first year of the group’s five-year growth plan and both Vicon and Yotta are beginning to see the benefit of the increased investment in the year. Oxford Metrics continues to provide investors with an attractive mix of IP led, market leading technology and cash generation, with recent investments placing the group on an enhanced growth trajectory. Our Dec’18 SOTP calculation results in an intrinsic value of 72p, with further outperformance potential as the group utilises its strong balance sheet.
Companies: Oxford Metrics
RhythmOne has issued a trading statement for H1 2018. Performance is in line with management expectations and revenues are expected to be $112-114m vs H12017 of $67m. These numbers are not LFL as they include Perk for the half and RadiumOne for a quarter. Gross profit margin was 38% which is up from last year and in line with my FY2018 expectations. The gross margins at Perk and RadiumOne are higher than old R1. Adj EBITDA is expected to be a profit of $1.5m -$2m.
Two new product integrations with Microsoft Azure, together with the recently released Amazon AWS hybrid solution, add up to a meaningful strengthening of WANdisco’s credentials and platform for growth. We see scope for a significant acceleration in operationally geared growth, especially if the company can progress one or two of its tier one relationships into a strategic relationship akin to the one with IBM.
IQE has announced that during the course of a routine US tax filing exercise, unexpected prior year taxes due of c.£4.2m have been discovered. The identified taxes date back to 2013, when the group acquired the epitaxy business of Kopin. As a result of the September ’16 group re-organisation, it is believed that no similar tax liability arises in 2017. Alongside this announcement the group has confirmed that the VCSEL ramp up in Q3 is on track, giving us confidence in our full year forecasts. We do not expect to make any material changes to estimates and remain positive on the stock, with multiple programs expected to drive significant upgrades to our FY’18 estimates and beyond.
While iomart’s share price is roughly where it was in 2013, it has since then doubled revenue and profits through a combination of organic growth and bolt-on acquisitions. Including potential future acquisitions (not in forecasts), we think it should maintain mid-teens growth in revenue and EBITDA consistent with the past few years making the shares attractively priced at 9.4x FY’18 EBITDA. This compares to other UK Technology midcaps at 16.0x on the same expectation of 15% EBITDA growth p.a. We initiate with a buy rating and price target of 430p.
Companies: Iomart Group
Strong results from text book execution derive from delivery of the three strategic routes to growth: more partners, doubling the addressable market; increasing reach of successful operational territories, delivering 48% revenue growth outside the UK; and broader product functionality – leading to +24% spend per customer, from a growing stable of c4,000 active customers. FY17 revenue is in line with expectations, while EBITDA of £10.2m (vs £9.7mE) is 5% ahead; adj EPS is 9% ahead. Cash of £20.4m (£19.3mE) highlights 2H free cash flow of 108% of adjusted PBT, and a balance sheet with options open for further growth – increased investment through opex and capex; a well-covered dividend; and potential M&A to accelerate product development, or enhance organic growth in new territories through acquiring local presence. We lift our 12-month target price to 92p (80p), in line with the Megabuyte accounting and enterprise software peer group.
Companies: Dotdigital Group
Totally (TLY) - Sch 1 for £11m RTO of Vocare, a provider of integrated urgent care services to the NHS throughout the UK. £76.8 million rev in the year ended 31 March 2017. Totally to address Care Quality Commission concerns. Due 24 Oct. Central Asia Metals (CAML) -RTO of Lynx Resources. Anticipated market capitalisation at Admission: £404.8m. Raising £113m at 230p. Acquiring the SASA zinc-lead mine in Macedonia from Solway Industries. Due 15 Dec. OnTheMarket—Intention to float on AIM to raise c.£50m which will be used to fund the growth of the OnTheMarket.com portal, already the third biggest UK residential property portal provider. Expected valuation £200m to £250m. Orogen plc, to be renamed Sosandar plc on Admission. Sosander is an online womenswear brand specifically targeted at a generation of women who have graduated from younger online and high street brands, and are looking for affordable clothing with a premium, trend-led aesthetic. Offer to raise £5.3m with market cap of £16.1m, expected 2 November 2017 OG Graphite, brownfield development-stage graphite company focused on the reactivation of its wholly-owned Kearney natural flake graphite mine and mill located 280 km north of Toronto, Canada. Offer TBA, expected late October .
Companies: PPC BMK HCM IHC KCR DOTD STI TIDE
First Derivatives has announced that Kx has been selected by Scientific Revenue as its real-time analytics platform for dynamic pricing. While this deal has no immediate impact on our estimates, we believe the revenue potential is significant. Moreover, it further highlights the ultra-high performance capabilities of Kx and its attractions to technology leaders addressing analytical challenges in environments characterised by large volumes of fast-moving data. We will revisit our forecasts and target price when interim results are released on 7 November.
Companies: First Derivatives