Proactis Holdings Plc (LON:PHD) is a provider of software for Spend Control and eProcurement, systems which are used by most large organisations to manage the way they transact with their supplier base. In recent years Proactis Holdings Plc (LON:PHD) has been gaining market share, within a growing market, delivering a 35% CAGR in revenues, and 62% in EPS. The trading update (Aug 22nd) confirms that progress remains positive. Meanwhile the shareprice has gained 10.4% in the last 6 months, and 664% over the last 4 years. So, is there further headroom for growth from here? In this report we argue that the acquisition of Perfect Commerce (announced July 7th) is a transformative move which takes Proactis Holdings Plc (LON:PHD) to a new level – comprehensive solution set, truly global footprint, and sufficient scale to make Proactis relevant for the ‘Tier 1’ client base. In the coming years we believe the company can sustain or even exceed its previous level of progress.
The market place for spend management software remains fragmented. We believe that the giants in the space, Oracle and SAP, account for around 60% of the market by revenues, followed by a long tail of specialists. The role of Proactis as a consolidator in the mid-market has been a key driver of value creation in recent years, in our view.
In this report we look at where Proactis now sits within the market (after the Perfect Commerce deal), and we argue that the company is positioned for continued growth, supporting a case for a re-rating in terms of stock multiples. Details on p2.
We find that comparable peers are valued at between 3.0x and 8.3x forward revenues (table on p2), with larger more broadly based players attracting the higher multiples. Proactis currently trades on 3.1x EV/Revenues on our July 2018e forecasts, at the low end of the comps table. This seems to us an attractive valuation for investors, given the company compares favourably to peers on revenue growth and EBITDA margins.
If the shares were to re-rate to 5.0x EV/Revenues, this would equate to 65% upside from the current level. We believe that valuation could come into sharper focus as the market begins to understand the full scope of the combined Proactis/Perfect.