At a glance
In a week of thin news flow, our large-cap UK software index jumped by 7.8%, with double-digit gains recorded by Blue Prism, Micro Focus and FDM. Small-cap software stocks also outpaced, as our index rose by 2.7% over the week, compared with a 2.3% gain in the FTSE 100.
Small-cap tech news roundup
Last week saw full-year results from Filtronic PLC (LON:FTC) and trading updates from Seeing Machines Limited (LON:SEE), Crossword Cybersecurity PLC (LON:CSS), Beeks Financial Cloud Group PLC (LON:BKS) and D4t4 Solutions PLC (LON:D4T4). There was also a fund-raising from Pelatro PLC (LON:PTRO).
- Filtronic, which designs and manufactures products for the critical communications and wireless telecoms and defence and aerospace markets, announced an 8% growth in revenue to £17.2mln in the year to May as adjusted underlying earnings (EBITDA) increased by 70% to £1.2mln. The company also announced the appointment of Richard Gibbs as the chief executive officer (CEO). The group finished the year with cash of £2.0mln and net cash, excluding all leases, of £1.7mln. This falls to £0.4mln net cash after taking into account the right-of-use property leases. The sale of the Filtronic Telecoms Antenna Operation for an initial consideration of US$5.5mln was completed in January.
- Seeing Machines, which provides AI-powered operator monitoring systems to improve transport safety, released a fiscal year 2020 (FY20) consensus beating trading update ahead of final results in late October. The company says it continues to deliver driver monitoring system (DMS) technology across the Automotive, Fleet/Offroad and Aviation industries globally in spite of the difficult COVID-19 backdrop. FY20 total income is expected to be A$42.6mln, representing a 30% increase on the previous period while FY20 revenue is expected to be A$39.7mln, c 8.5% ahead of the A$36.6mln consensus.·Cash at 30 June 2020 was A$38.7mln, which is 22% above the A$31.8m consensus guidance. Total connected Guardian units as at June 30 was 23,415, an increase of more than 46% over the year. In the automotive segment, the company awaits the launch in the coming months of two production vehicles featuring its DMS technology.
- Crossword Cybersecurity, which is focused solely on cybersecurity and risk, said in a trading update that it expects to report total first-half (H1) revenues of £674k, 18% ahead of the comparative period in 2019. As anticipated, revenues from consulting and product sales were 43% higher than the comparative period, with a planned reduction in revenues from software development. While there is a high degree of uncertainty due to the current economic climate, the company is cautiously optimistic of reporting FY20 results in line with market expectations. This is subject to the outcome of a few major product-led bids over the coming months and continued conversion of the pipeline of opportunities. The group’s cash position stood at £1.6mln as at the end of June, which reflects the £1mln equity fund-raising completed in early May.
- Beeks Financial, a cloud computing and connectivity provider for financial markets, released an in-line update for the year ended June 30, and expects to announce results within the range of market expectations. It says the integration of the Velocimetrics acquisition has progressed well and all existing Tier 1 institutional customer implementations are continuing to plan. COVID-19 has had a relatively small impact on Beeks’ overall trading. While the lockdown has affected some customers’ decision-making processes, contract discussions with prospective Tier 1 clients remain in advanced form, and the group has a continually growing sales pipeline.
- D4T4, the data solutions provider, released a brief in-line annual general meeting (AGM) trading update, noting “strong levels of both existing and new client activity”. The company continues to progress towards a transition to a recurring revenue model, with a focus on securing new recurring revenue contracts and shifting existing customers from perpetual to term licences. The latest release of the group’s Customer Data Platform (CDP), version 9.2, introduced machine learning and natural language processing capabilities and further new releases are due in the autumn. The group’s Celebrus family of products now incorporates the hybrid cloud Customer Data Management (CDM) platform.
Small-cap software & services market roundup
Large-cap software stocks put on a strong performance last week, in spite of thin news flow, with our index surging 7.8%, with a number of stocks trading at or near record highs. Stand out performances included Blue Prism (which rose 16% over the week), Micro Focus (up 13%) rebounding from recent sharp declines and FDM (up 12%). Aviva, Softcat (at record highs) and GB Group also outpaced the index, while Computacenter is trading at record highs.
The strength in large caps spilt over to small caps. Our small-cap software index rose 2.7% over the week, led by Tribal (up 16%), Dotdigital (up 12%), First Derivatives (up 9%), NCC (up 9%), OMG (up 9%), Wandisco (up 9%) and Sopheon (up 9%).
Source: Indices are unweighted, with number of constituent’s in brackets
Recent UK tech sector fundraisings
Pelatro, the telecom customer engagement software specialist, announced a placing and subscription to raise £2.1mln gross (c £1.9mln net of expenses) through the conditional issue of 4.5mln shares at 47p each. The proceeds will be used to strengthen the sales team in both existing emerging and new developed markets and also fund marketing at various industry conferences and events. The money will also fund working capital for managed services, which will put the company in a stronger position to tender for larger contracts.
|Estimated gross amount||Announced||Method||Price||Discount/ (premium) to prior day – %||Estimated % of new capital||Comment|
|Pelatro||£2.1mln||04-Aug||Placing/subsc||49p||12.1||12.2||Strenthen sales and marketing|
|TERN||£1.5mln||20-Jul||Subscription||8.5p||19.0||5.9||To expand the portfolio|
|Nanoco||£3.4mln||16-Jul||Placing||17.5p||2.8||6.4||Address commercial opportunities, while maintain balance sheet during lawsuit|
|Ethernity Networks||£0.78mln||13-Jul||Placing/subsc||12p||37.0||16.6||To support engagements for its 5G offering|
|Deepmatter||£2.1mln||13-Jul||Placing/subsc||1.5p||18.9||16.2||Invest in sales, marketing, distribution, support|
|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||$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||£1.145mln||14-May||Placing||30p||-9.1||15.4||Strengthen working capital, accelerate growth|
Source: Data from regulatory news and company websites
Interim results season picks up this week in the UK small cap space and runs through September. There is also a scatter of final results from companies with periods ending March, May and June.
Across the pond, in a relatively quiet week for tech earnings, tech-related companies expected to report earnings this week include Cornerstone OnDemand, Broadridge Financial Solutions, Cisco Systems.
Source: Data from regulatory news and company websites
Small-cap software & services valuations
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. Last week saw earnings upgrades for SDL and IMImobile
|Share Price||Market Cap||Net debt/(cash)||Enterprise||EV/sales||Price/earnings|
|Pence||£mln||£m||Value||Year 1||Year 2||Year 1||Year 2|
|Aptitude Software Group||430||242||(30.9)||211.1||3.7||3.8||33.5||36.2|
|Alfa Financial Software Holdings||77.6||233||(58.5)||174.5||2.9||2.8||86.2||49.4|
|Alpha Financial Markets Consulting||196||198||(14.1)||183.9||2.0||1.8||14.3||13.0|
|Blancco Technology Group||191.5||144||(6.7)||137.3||4.1||3.7||47.1||39.9|
|Accesso Technology Group||240||99||(24.5)||74.5||2.3||1.1||(4.3)||(46.3)|
Source: Data from regulatory news and market sources
Published at Mon, 10 Aug 2020 13:05:00 +0000-UK tech stocks continue to outpace