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UPDATE - StatPro's transition to Cloud improves visibility

Last updated: 10:17 05 Aug 2015 BST, First published: 10:02 05 Aug 2015 BST

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You say you want a Revolution ...

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StatPro's (LON:SOG) future may be “cloudy” but, ironically perhaps, that just means visibility is improved.

The portfolio analytics provider hitched its wagon to the Cloud computing bandwagon in 2012, “sun-setting” its doughty StatPro Seven product and throwing its weight behind StatPro Revolution, its Cloud-based offering.

Results for the first half of 2015 showed its progression to Cloud services remained on track, though profitability has, as expected, been dampened during this period of heavy investment in the product line.

The dividend was maintained even though pre-tax profit fell by almost a quarter to £0.8mln from £1.08mln a year earlier, while underlying earnings (EBITDA) fell 15% to £1.73mln.

Half year revenues at the software firm fell by 2% to £15.4mln, though on an annualised basis there was a 4% rise to £28.6mln.

It is not uncommon for companies switching to a software-as-a-service (SaaS) to experience a slowdown in sales momentum as revenues from a contract are spread out over the life of a contract rather than paid up-front.

Recurring sales, described by chief executive Justin Wheatley in an interview with Proactive Investors as “the big headline” in the results, now make up 93% of the total while repeat orders of its Cloud-based product Revolution jumped by almost two-thirds.

StatPro now provides less than half of the company's revenue but still chipped in with £12.1mln of sales.

Wheatley told Proactive: “There will always be die-hards sticking with the product with which they are familiar, and in fact I am grateful that some of them are, as it makes the transition to the Cloud-based model easier to manage for us.

“We just regard the die-hards as clients we can sell to in the future.”

The recurring sales give the company “great forward visibility”, backed up by the company's typical 94% renewal rate, as does the strong order book.

Orders are worth £37mln over the next few years with £11.75mln coming from StatPro Revolution.

Wheatley was also encouraged by the increase in the average contract size. Average annualised revenue for StatPro Revolution clients increased 73% to £21,400 from £12,400 in the same period of last year.

Wheatley,told investors: "With our forward order book of contracted revenue continuing to grow and the momentum that StatPro Revolution is developing, we remain on course to establish the group as a lower cost, higher margin pure cloud-based business."

House broker Panmure Gordon said the numbers were in line with its expectations.

“With each set of results we look for evidence that the Cloud transition strategy is going by the play-book, and the latest set of KPIs [key performance indicators] clearly indicate considerable progress,” said Panmure analyst Adam Lawson.

Lawson pointed to a valuation gap that exists between StatPro and other Cloud-based businesses and remains convinced that a re-rating is inevitable, but concedes this is only like to occur once acceleration in customer migration and news sales restores top-line growth.

For those prepared to dig in for the long game, Lawson believes the upside potential could be potential, and sticks with his 103p price target, versus the current market price of 76.25p, down 2.75p on the day.

Research house Progressive Equity, meanwhile, said: “The group continues to move forward with revenue sourced from Cloud services rising again as the business continues its transition to a purely cloud-based provider of analytics services.”

StatPro also put in place a £20mln five-year financing agreement with Wells Fargo to “add flexibility” and “support growth” Wheatley said.

“The covenants are appropriate for a business of our kind,” Wheatley told Proactive Investors.

“We've not drawn on the facility but it is useful to have it there,” he said.

The funds give the company the fire-power to possibly make acquisitions or buy-back shares, and strengthen the group's long-term structure.

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