London-based stockbroker FinnCap described smartFOCUS (LON:STF) as a profitable and cash generative software vendor, with over 60% recurring revenues, and operating within the high-growth Multichannel marketing sector.
Yesterday the company released a strong trading update in its AGM address. Chairman Chris Gater told investors that strong demand for the company’s software services has led to the board’s increasing confidence and consequently, Gater expects to report H1 results ahead of previous expectations.
The stockbroker highlighted that the full-year results to December 31 2009 reflected a strong performance despite challenging market conditions, with revenue up 15% and a return to profitability, and the trading update also reflected a strong first half of the current financial year.
“SmartFOCUS is an early mover to SaaS (Software as a Service) within the sector and has already moved more than 50% of customers and 33% of total revenue onto the SaaS financial model. This has provided smartFOCUS with approximately 60% recurring revenues and over 90% retained revenue annually, which provides a robust platform for growth to FY10 and FY11,” FinnCap stated.
The company expects considerable growth in the market for multichannel marketing management, over the next couple of years as product and service vendors adopt ‘Web2.0’ whilst reducing their overall marketing overheads. “Furthermore, the software vendor industry remains highly fragmented with over a dozen niche vendors supplying solutions into the sector offering both acquisition and consolidation opportunities for smartFOCUS.”
FinnCap stated that, with revenue retention currently above 90%, it could confidently forecast strong earnings growth to FY10 and beyond, and its analysis suggests fair value for smartFOCUS of 21p.
SmartFOCUS is a specialist provider of multi-channel marketing software. Last year the company switched the focus of its business model in favour of SaaS. In April, in the company’s full year results to 31 December 2009, smartFOCUS reported that revenues in FY09 climbed 15% to £11.9m (FY08: £10.4m), 66% of the total revenues were generated from SaaS contracts (2008: 50%).The demand for SaaS software helped smartFOCUS swing to a full year pre-tax profit of £0.5 million from a loss of £1.2 million in 2008.
According to smartFOCUS, investment in the marketing software sector was being driven by a number of long term trends, including increased online competition, increased consumer sensitivity to invasive marketing and pressure on marketing budgets for increased return on investment (ROI).