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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
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
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
A concerted move into managed services is improving the quality of revenues. Management is targeting the growth in recurring revenues to cover the cash cost base of the company by 2022. This event will mark a material derisking of the investment case and is the pathway to the share price doubling or more over the next 2-3 years. Buy.
Redcentric has agreed a settlement with the FCA whereby net purchasers of stock between November 2015 and November 2016 will be compensated at the equivalent of approximately 17p per share, payable as preferred as part shares/part cash, all shares, or all cash. To assist in funding the compensation in the event of an all cash settlement, the group has agreed a provisional placing for £5.8m at 110p, in addition to use of treasury shares and existing cash resources. The relief from the shadow of the FCA investigation will be a welcome fillip to business prospects, re-opening opportunities with the private sector and confirming no further action, which would have adversely affected public sector bid prospects, and M&A. With the accompanying trading update, 1Q21 performance in recurring revenue sales orders is mildly ahead of 1Q20, and further cost savings lead us to nudge March FY21 EBITDA expectations from £23.6m to £24.0m (+1%) despite trimming revenue 3% due to a COVID-based slowdown in lower-margin non-recurring revenue. With relief from the uncertainty of the FCA investigation, we lift our target price to 160p, as the group can finally return to business as usual.
FY20 results: inline with guidance
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
If there’s one key takeaway from COVID-19, it’s that the pandemic has accelerated ‘cloud’ adoption, and focused C-suite attention on cost savings, productivity & supply chain optimisation. All of these secular trends are right in the sweetspot of Rosslyn’s Big Data & Spend Analytics SaaS platform, RAPid. The company today announcing that it had extended 3 contracts, worth a combined £0.9m of ARR (annualised recurring revenues) and £1.5m in total value.
Companies: Rosslyn Data Technologies
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.
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
OMG has today announced a “significant multi-year” Alloy contract win with South Gloucestershire Council, this being the company’s cloud-based asset management solution. A differentiating feature of Alloy is the range (or variety) of assets it can handle, and consequently, Alloy will able to provide a single view from which all relevant public infrastructure can be managed and maintained. No numbers are given, but we remind (as at prelims) OMG had a pipeline consistent with adding £1m of ARR in FY20. We therefore assume that this contract contributes to this figure, and so make no changes to either divisional or group forecasts. Similarly, we note that following FY19 (which saw some delayed ‘go-lives’) it is pleasing to see a major contract win announced relatively early in this financial year.
Expert System has unveiled an ambitious five-year plan to become the market leader in natural language artificial intelligence (AI) and to achieve annual revenues of €100m by FY24 (CAGR 24%). Investment in R&D and sales & marketing to develop and drive awareness of the SaaS platform is expected to be funded through a capital raise of c €25m in the next few months. Successful execution of the plan could see the stock valued at €5.4 per share, although it is likely to take some time to reach proof points which show that investment is driving a revenue inflection.
Companies: Expert System
The FY19A results show both very strong growth in recurring revenues. These recurring revenues now form a substantial majority of Group sales. This transition in the business model reduces reliance on lumpy hardware sales and helps de-risk the investment. The macro environment lends caution but Corero is in its best shape for years.
Companies: Corero Network Security
The YE trading update reveals that management has actioned its proposed switch from a perpetual licence to a SaaS business during FY 2020. We therefore adjust our forecasts as moving customers from one-off perpetual licence contracts to recurring revenue contracts takes longer to implement and revenue is recognised over a longer period. Despite COVID-19, D4t4 made good progress in Q4 since the January update (with its own raft of contract wins), and several more contracts have been secured on a multi-year ‘as-a-service’ basis, providing additional recurring revenue visibility (now 46% of total sales) over the next three years. Management does not expect any significant interruptions in customer service or its distribution channels. However, actions taken to mitigate the impact of the virus include home working; preserving cash; and securing additional liquidity from the bank if required. The final dividend and FY 2021 forecasts are under review, however the £0.5m share buyback programme continues.