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US tech stocks at records highs

The tech-heavy NASDAQ Composite index has been showing a clean pair of heels to the Dow Jones and the S&P 500 over the last week

Trakm8 Holdings PLC - Richard Jeans's week in technology: US tech stocks at records highs

US tech stocks pushed to fresh highs last week, leaving the wider market trailing – the S&P500 still needs to climb 8% while blue chips need to add more than 14% to record a new high. The market was underpinned by strong US jobs data on Thursday, and consequently, the VIX volatility index has resumed its drift downwards.

When evaluating UK small-cap tech stocks, we think examining year two forecasts for sub 20x earnings, or sub 2x enterprise value (EV)/sales for recovery plays, is a good place to start. Growth themes are also important, such as the trend to home working and the move to 5G telephony.

News roundup

Last week saw annual results from D4t4 Solutions PLC (LON:D4T4), GB Group PLC (LON:GBG), SysGroup PLC (LON:SYS), and Trakm8 Holdings PLC (LON:TRAK) and a trading update from Aptitude Software Group PLC (LON:APTD).

D4T4, the data solutions provider, recorded a 26.2% jump in annual recurring revenue (ARR) to £9.55mln over the 12 months; however, total group revenue slipped 14% to £21.8mln in the year to March, reflecting the move to a recurring revenue model. Recurring revenue represented 45% of the total revenue, up from 29% the prior year. Gross margin improved by 400 basis points (100 basis points equals one percentage point) to 60.7%, reflecting the change in mix, but this is expected to ease back in the near term and rise back above 60% in the longer term. The group finished the year with cash of £12.8mln, up £1.8mln over the year, and it has no debt. The proposed final dividend is 1.9p (FY19:2.3p) resulting in a total dividend 11% lower at 2.67p.

GB Group, the global identity data intelligence specialist, grew revenues by 39% to £199.1mln in the year to March as adjusted operating profit surged by 50% to £47.9mln. Net debt shrank by £31.3mln to £35.0mln. The company is not proposing a dividend due to the COVID-19 pandemic.

SysGroup, the managed information technology services and cloud hosting provider recorded a 53% jump in revenues to £19.5mln in the year to March, as adjusted underlying earnings (EBITDA) doubled to £2.8mln. The group ended the year with net cash of £0.45mln after acquiring Hub Network Services Limited for £1.45mln in cash during the period. There is no dividend.

VR Education, the virtual reality (VR) technology company focused on the education and enterprise training space, announced that it has signed a memorandum of understanding with Virtual College, a digital learning solutions provider, to provide and deliver technology-enhanced learning solutions in the UK and the Middle East. Separately, the company announced the launch of Engage Mobile, an Android phone and tablet supported version of the group's proprietary VR communications, events and training platform.

Trakm8, the telematics and data insight provider, grew revenues by 2% in the year to March, as the adjusted loss before tax shrank by 85% to £0.2mln. Headcount reduced by 15% over the year. The group finished the year with net debt unchanged at £5.6mln. There is no dividend. The stock jumped over 40% on Friday after the company announced it had agreed on the fleet optimisation contract with a major UK food retailer that had been expected in March but was delayed due to COVID-19. The contract is initially for two years and uses Trakm8's algorithm to optimise home deliveries.

Aptitude Software, a provider of financial management software, said trading for the first six months of fiscal 2020 (FY20) was in line with the board's expectations. Annual recurring revenue grew by 11% over the year on a constant currency basis to £30.9mln. The group finished the period with cash of £30.9mln and has no bank debt.

WANdisco PLC (LON:WAND), the big data company, announced that it has signed an initial deal worth up to US$1mln with a major British supermarket. In addition, 11 companies registered for the group's Azure Cloud product in the first month of public preview. This is in line with management’s expectation to sign 50 new customers within the first 12 months of operation.

Small cap software & services market roundup

Volatility abated last week, with stocks underpinned by solid US jobs data on Thursday and activity was subdued on Friday with the US closed. Our small caps software index eased 0.9% over the week, while the large caps index rose 1.2%. Among the small caps, Aptitude jumped 9% following its in-line trading update while losses were recorded by Alfa Financial Software, Iomart and Seeing Machines. Among large caps, gains of between 2% and 5% were recorded by Softcat, Kainos, Micro Focus, Learning Technologies and Blue Prism.

Small-caps vs mega-caps

 

Recent UK software sector fundraisings

No significant new fundraisings in small-cap tech were announced last week.

 

Estimated gross amount

Announced

Method

Price

Discount/(premium) to prior day

Estimated % of new capital

Comment

Redcentric

£5.755mln

26-Jun

Placing/subsc

110p

(7.8)

3.3

Part funds settlement with the FCA

Instem

£15.75mln

26-Jun

Placing

435p

4.4

17.7

Accelerate the acquisition strategy 

Boku

£20.1mln

17-Jun

Placing

85p

7.1

8.4

Part finances $41m acquisition of Fortumo

WANdisco

US$25mln

11-Jun

Placing

650p

12.2

6.0

Strengthen b/s and working capital

Learning Tech

£81.8mln

29-May

Placing

127p

7.6

8.8

Accelerate growth and gain market share

accesso technology

£32.9mln

22-May

Placing

290p

13.4

29.1

Strengthen balance sheet as CV19 continues

accesso technology

£6.2mln

22-May

Open offer

290p

 

 

1 for 13 ratio

VR Education

3mln

20-May

Subscription

5.47p

43.9

20.0

Subscription by strategic partner HTC

Keywords Studios

£100mln

15-May

Placing

1450p

5.8

9.5

Acquisition strategy and strong balance sheet

KRM22

£0.135mln

14-May

Subscription

30p

 

1.8

Management subscription

KRM22

£1.145mln

14-May

Placing

30p

(9.1)

15.4

Strengthen working capital, accelerate growth

Rosslyn Data

£7.3mln

07-May

Placing

5p

(5.3)

43.1

Increase S&M, maintain product development

Mobile Streams

£1mln

06-May

Placing

0.3p

25.0

33.2

To give potential clients confidence

Shearwater

£3.75mln

24-Apr

Placing

240p

17.2

6.6

Capitalise on considerable growth opportunities

Blue Prism

£100mln

21-Apr

Placing

1100p

4.4

9.8

Improved balance sheet resilience

Crossword Cyber

£1mln

20-Apr

Placing

230p

34.3

21.8

Enable to continue to drive business growth

essensys

£7mln

09-Apr

Placing

151p

4.1

8.8

Increase balance sheet liquidity and flexibility

IMImobile

£22.2mln

09-Apr

Placing

300p

8.4

9.0

To provide maximum financial flexibility

 

Calendar

March year results are anticipated over the next few weeks from IMImobile, Redcentric and Aptitude and April- year-end from Ideagen. June interims results season begins in late July with FDM and Gresham.

Large-cap Micro Focus reports its interims this Tuesday.

Across the pond, reporting is quiet for the next few weeks, until Microsoft reports annual results later in the month.

The main economic focus this week will be industrial production data for May in key European countries.

 

Date

Company

Event

 

 

 

July

IMImobile

Final results

 

 

 

14-Jul

ZOO Digital

Final results

Mid-July

Ideagen

Final results

 

 

 

21-Jul

Redcentric

Final results

21-Jul

Gresham Technologies

Interim results

 

 

 

23-Jul

GetBusy

Interim results

 

 

 

Late July

Quartix

Interim results

Late July

Shearwater

Final results

29-Jul

Aptitude Software

Final results

29-Jul

FDM

Interim results

 

 

 

13-Aug

Tribal

Interim results

 

 

 

03-Sep

NCC

Final results

 

 

 

Mid-Sept

Accesso

Interim results

 

Source: Data from regulatory news and company websites...

 

Valuation table

The sector ratings continue to look attractive in comparison with the UK 350 large caps, given the significantly stronger growth potential, combined with the relatively strong balance sheets. Among individual shares, NCC has seen upgrades.

 

 

Share Price

Market Cap

Net debt/(cash)

Enterprise

EV/sales

Price/earnings

 

Pence

£mln

£mln

Value

Year 1

Year 2

Year 1

Year 2

First Derivatives

2505

687

49.4

736.4

3.2

2.9

41.6

31.9

EMIS Group

1070

673

(31.1)

641.9

4.1

3.9

22.5

20.7

NCC Group

175.2

489

5.0

494.0

2.0

2.0

25.8

28.0

SDL

498

454

(26.3)

427.7

1.2

1.1

23.9

17.1

Ideagen

180

408

16.8

424.8

7.6

7.0

34.2

28.7

Kape Technologies

225

357

24.2

381.2

3.9

3.5

20.6

18.0

Iomart Group

325

355

37.3

392.3

3.4

3.2

19.7

18.6

WANdisco

620

318

(17.6)

244.4

15.1

N/A

(21.6)

N/A

DotDigital Group

101.5

302

(22.0)

280.0

6.0

5.5

25.5

26.5

IMImobile

297.5

245

0.1

245.1

1.5

1.4

20.2

25.4

IDOX

49

217

14.0

231.0

3.4

3.2

23.3

19.2

Aptitude Software Group

368

207

(30.9)

176.1

3.1

3.2

28.7

31.0

Redcentric

126.5

188

13.5

201.5

2.3

2.2

24.3

18.1

Alfa Financial Software

62.1

186

(58.5)

127.5

2.1

2.0

69.0

39.6

Tracsis

620

181

(26.0)

155.0

N/A

N/A

N/A

N/A

Centralnic Group

87.5

165

56.6

221.6

1.4

1.3

18.7

16.2

Eckoh

62.5

159

(11.6)

147.4

4.1

3.7

37.0

29.6

Quartix Holdings

313

150

(6.8)

143.2

5.5

N/A

N/A

N/A

Blancco Technology Group

196

148

(5.4)

142.6

4.3

3.8

66.4

35.6

Bango

181.5

135

(2.7)

132.3

11.2

N/A

106.8

N/A

Accesso Technology Group

277.5

114

(24.5)

89.5

2.3

1.1

(4.2)

(39.5)

Tribal Group

55

113

(16.5)

96.5

1.4

1.3

14.8

13.6

Seeing Machines

3.25

109

(25.0)

84.0

4.0

2.9

(6.6)

(14.8)

Oxford Metrics

80

101

(14.2)

86.8

2.3

2.1

18.5

13.7

D4t4 Solutions

230

93

(12.8)

80.2

N/A

N/A

N/A

N/A

Cerillion

306

90

(4.8)

85.2

4.2

3.9

29.4

26.0

Gresham Technologies

128.5

88

(9.6)

78.4

2.9

2.7

55.2

39.5

Essensys

150

79

(8.7)

70.3

N/A

N/A

N/A

N/A

Instem

457

76

(5.9)

70.1

2.4

2.3

21.2

20.4

Sopheon

745

76

(17.3)

58.7

2.0

N/A

42.9

N/A

 

 

 

 

 

 

 

 

 

Median

 

 

 

 

3.2

2.9

24.1

20.7

Average

 

 

 

 

4.0

2.9

29.1

20.1

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