UK tech stocks drifted over the week despite the tech-heavy NASDAQ pushing to fresh highs.
UK small caps tech stocks were mostly lower while UK large-cap techs were held back by Micro Focus International PLC (LON:MCRO), which tumbled 27% after announcing disappointing interim results that included a US$922mln goodwill write off due to the impacts of coronavirus (COVID-19). While the key numbers for Micro Focus were in line and cash generation was healthy, a 7.7% decline in recurring maintenance fees spooked some investors.
Last week saw trading updates for Gresham Technologies PLC (LON: GHT), IMImobile PLC (LON: IMO), Tracsis PLC (LON: TRCS), First Derivatives PLC (LON:FDP), Craneware PLC (LON:CRW), SRT Marine Systems PLC (LON:SRT) and PCI-PAL PLC (LON:PCIP).
First Derivatives (FD), the managed services, consulting and software provider, said in its annual general meeting (AGM) update that total revenue in the four months to June 30 was 6% ahead of the prior-year period. Managed services and consulting revenue was up 2% while software revenue increased by 8%. Separately, the company announced it had hired David Collins as managing director of managed services and consulting, reporting directly to chief executive Seamus Keating. Collins previously worked with FD’s financial consulting competitor GFT, where he was managing director of the UK, US and Canada and a member of the group executive board.
IMImobile, the cloud communications software and solutions provider, said in its first-quarter trading update that gross profit had risen about 20% year-on-year (you). The gross profit for cloud communications products, which represent about 90% of gross profit, grew by more than 30%, with the growth driven by the acquisition of 3Cinteractive. The group finished the period with net cash of £2mln, bolstered by the share placing in April, which raised around £22mln.
Tracsis, which provides software, hardware and services for the rail, traffic data and wider transport industries, said that it expects revenues of some £46mln in the year to July 31. The group estimates that the impact on current year revenue from coronavirus (COVID-19) will be in the region of £10mln, with the Traffic Data and Events business units most affected by project cancellations and postponements. The Rail Technology & Services businesses continued to trade very well as the performance of these segments is underpinned by high levels of recurring software revenue. The group currently has cash balances of around £16mlnln, after making tax and acquisition-related payments. A more detailed trading update will be provided next month.
Gresham Technologies, which provides solutions for data integrity and control, banking integration, payments and cash management, announced that its Clareti business's annualised recurring revenues (ARR) rose by 13% over the six months, and 18% over the twelve months, to stand at £10.7mln as at 30 June 2020. During the period Gresham secured two important Clareti licence commitments, including a £1.7mln licence contract with one of the world's largest banks. Recognised group revenues for the first half are expected to be 2% lower at £12.2mln, as Clareti revenues dipped by 11% to £7.4mlnln while non-Clareti revenues bounced by 15% to £4.7mln.
The group finished the period with net cash of £7.4mln. Effectively 88% of budgeted revenues for fiscal 2020 (FY20) are in the bag, after including business already won and renewals that have been contractually committed or are confidently expected. Consequently, management “confidently expects to achieve FY20 guidance for adjusted EBITDA [underlying earnings] and cash EBITDA.”
Craneware, which provides value cycle solutions for the US healthcare market, said it expects to report total revenue for the year to June 30 of roughly US$71.4mln (FY19: US$71.4mln) and adjusted EBITDA of around US$24.5mln (FY19: US$24.0mln). Trading in the first nine months of the year, which was before the COVID-19 outbreak, had been strong, with total sales tracking over 30% above the prior year; however, due to the impact of COVID-19, total sales for the year were only marginally ahead of the prior year at around US$65mln (FY19: US$63.1mln). Churn remains below 10%.
The group finished the period with cash of US$47.6mln and no debt, which is a similar position to a year earlier. Also, Craneware has undrawn debt facilities of US$50mln.
SRT Marine Systems, a provider of maritime surveillance, monitoring and management systems, saw its shares surge 27% after it announced its Philippines fisheries management system project has recommenced, with a significant cash payment having been received this week. Also, final contract negotiations have recommenced in the Middle East, and hence projects are expected to commence in the coming months. Furthermore, the transceivers business has performed better than expected, achieving gross sales during the first quarter 2% ahead of the same quarter for the previous financial year despite the COVID-19 lockdown.
PCI-PAL, the provider of secure payment solutions, said that trading for the year ended June 30 was in line with current market expectations. The company expects to report revenues in the region of £4.4mln, an increase of over 55% on the prior year (2019: £2.8mln). The total annual contract value of contracts signed to date rose by 68% to £6.7mln (2019: £4.0mln). In the period, the group signed new contracts with a recurring annual contract value (ACV) of £2.6mln (2019: £1.9mln).
PCI-PAL had a particularly strong second half, despite more than half of that period being during the height of the pandemic - the group signed £0.8mln ACV in the final quarter alone. Sales are predominantly in the US and the UK and more than 80% of new business is generated through channel partners. While the business is still burning cash, the group finished the year with net cash of £3.16mln and has a further £1.25mln of undrawn bank facilities.
PCI-PAL is one of three British companies, alongside Eckoh PLC (LON: ECK) and Semafone, a private company, that has carved out the niche market of secure payment solutions for contact centres. The market is growing quickly driven by regulations and the need to be PCI DSS compliant. PCI-PAL’s unique selling point is that it is the first to market with a “true-cloud” platform.
Seeing Machines, the advanced computer vision technology company that designs artificial intelligence-powered operator monitoring systems to improve transport safety, notes that the 'Moving Forward Act' has been passed in the US House of Representatives and is now set to move to the Senate. The bill, which is focused on advancing safety technologies proven to reduce crash and harm and to make sure strong safety standards are in place to save lives, seeks to mandate automatic braking, lane-keeping, blind-spot detection, event data recorders as well as driver monitoring systems in all cars and trucks sold in the US from 2024.
Separately, Euro NCAP has announced a delay to the 2022 and 2024 rating given the COVID-19 pandemic. These dates have been changed to give vehicle makers and Tier 1 suppliers more time to incorporate the necessary changes in light of the events of recent months. Despite these delays, Seeing Machines does not expect any material impact to its near-term forecast for automotive revenue. The company also said that in its view the ongoing work and projected timeframe for ongoing and potential new programmes will remain largely on target resulting in little or no impact to projected revenue for the next two to three years.
VR Education, the virtual reality technology company focused on the education and enterprise training space, has announced that it has signed a multi-year enterprise licence agreement with Tokyo Global Gateway (TGG) for use of the group's proprietary Engage platform. The agreement will see TGG use VR Education's Engage platform to teach Japanese students and corporate clients how to speak English in everyday travel situations - such as arriving at an airport, checking into a hotel or ordering food at a restaurant.
Small-cap software & services market roundup
Tech stocks drifted back with broader equity markets last week. Our small caps software index eased 1.2% over the week, while the large caps index slipped by 2.4%. Among the small caps, Aptitude gained a further 8% following its trading update the week before, while losses were recorded by Kape, Ideagen and Bango. Among large caps, Micro Focus tumbled 27% after it posted disappointing interim results on Tuesday.
Indices are unweighted with the number of constituents indicated in brackets
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||£5.755m||26-Jun||Placing/subsc||110p||(7.8)||3.3||Part funds settlement with the FCA|
|Instem||£15.75m||26-Jun||Placing||435p||4.4||17.7||Accelerate the acquisition strategy|
|Boku||£20.1m||17-Jun||Placing||85p||7.1||8.4||Part finances $41m acquisition of Fortumo|
|Wandisco||$25m||11-Jun||Placing||650p||12.2||6.0||Strengthen b/s and working capital|
|Learning Tech||£81.8m||29-May||Placing||127p||7.6||8.8||Accelerate growth and gain market share|
|accesso technology||£32.9m||22-May||Placing||290p||13.4||29.1||Strengthen the balance sheet as CV19 continues|
|accesso technology||£6.2m||22-May||Open offer||290p||1 for 13 ratio|
|VR Education||€3m||20-May||Subscription||5.47p||43.9||20.0||Subscription by strategic partner HTC|
|Keywords Studios||£100m||15-May||Placing||1450p||5.8||9.5||Acquisition strategy and strong balance sheet|
|KRM22||£1.145m||14-May||Placing||30p||(9.1)||15.4||Strengthen working capital, accelerate growth|
|Rosslyn Data||£7.3m||07-May||Placing||5p||(5.3)||43.1||Increase S&M, maintain product development|
|Mobile Streams||£1m||06-May||Placing||0.3p||25.0||33.2||To give potential clients confidence|
|Shearwater||£3.75m||24-Apr||Placing||240p||17.2||6.6||Capitalise on considerable growth opportunities|
|Blue Prism||£100m||21-Apr||Placing||1100p||4.4||9.8||Improved balance sheet resilience|
|Crossword Cyber||£1m||20-Apr||Placing||230p||34.3||21.8||Enable to continue to drive business growth|
|essensys||£7m||09-Apr||Placing||151p||4.1||8.8||Increase balance sheet liquidity and flexibility|
|IMImobile||£22.2m||09-Apr||Placing||300p||8.4||9.0||To provide maximum financial flexibility|
March year-end results are anticipated over the next few weeks from ZOO Digital, IMImobile, Redcentric and Aptitude and April year-end from Ideagen. The June interims results season begins in late July with FDM and Gresham.
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 May industrial production data for the US on Wednesday and for Japan and the UK on Tuesday.
Date - Company - Event
- 14-Jul ZOO Digital Final results
- July Ideagen Final results
- 21-Jul Redcentric Final results
- 21-Jul Gresham Technologies Interim results
- 22-Jul CloudCall Trading update
- 23-Jul GetBusy Interim results
- 28-Jul IMImobile Final results
- Late July Quartix Interim results
- Late July Shearwater Final results
- 29-Jul Aptitude Software Final results
- 29-Jul FDM Interim results
- 05-Aug Seeing Machines Trading update
- 11-Aug SDP Interim results
- 13-Aug Tribal Interim results
- 03-Sep NCC Final results
- 07-Sep SRT Martine Systems Final results
- Early Sept Craneware Final results
- Mid-Sept Accesso Interim results
- 30-Oct Seeing Machines Final results
Source: Data from regulatory news and company websites
The sector ratings look fair in comparison with the UK 350 large caps, given the significantly stronger growth potential, combined with the relatively strong balance sheets. Among individual shares, CentralNic has seen upgrades.
|Share Price (p)||Market Capitalisation (£mln)||Net debt/(cash) (£mln)||Enterprise Value (EV)||EV/sales||Price/earnings|
|Year 1||Year 2||Year 1||Year 2|
|Aptitude Software Group||412||232||(30.9)||201.1||3.5||3.7||32.1||34.7|
|Alfa Financial Software Holdings||63.1||189||(58.5)||130.5||2.2||2.1||70.1||40.2|
|Blancco Technology Group||195||147||(5.4)||141.6||4.3||3.8||66.1||35.5|
|Accesso Technology Group||262.5||108||(24.5)||83.5||2.2||1.0||(4.1)||(37.8)|
|Seeing Machines Ltd.||3.05||103||(25.0)||78.0||3.7||2.7||(6.2)||(13.9)|
Source: Data from regulatory news and market sources