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Brady buffing up as it waits for market upturn

The shares are up 22% year-to-date despite difficult market conditions

Brady trading screen
The trader's friend ... but also the friend of the miner, refiner etc

If you bought shares in trading and risk management solutions provider Brady Plc (LON:BRY) after its December 2015 profit warning, you’d be sitting pretty now.

The shares are up 22% year-to-date despite continued difficult market conditions. 

The first half of the year saw revenues rise by 6% year-on-year to £14.8mln, while underlying profits [EBITDA] rose to £2mln (2015: £1.2mln).

Costs were cut by £1.6mln and more measures are being taken to improve efficiency across the group while it waits for commodity markets to turn up again.

A review of the organisational structure has already begun, with sales, technology and support functions all set to be more closely integrated. 

Executive chairman Ian Jenks said the company is putting the building blocks in place “to fuel an efficient engine to facilitate growth and position the business to take advantage of any market upturn."

He might just as easily have referred to markets, plural, in his remark about an upturn, because the software firm offers trading and risk management solutions for multiple sectors: metals, recycling, energy and soft commodities.

It has established a track record of reliability in a market that is anything but, and, according to a vendor perception study, is the leading solutions provider across all metal products.

The company works both sides of the trading street; trading desks use it to work their trading books, while other clients, such as miners, refiners and producers, will look to Brady’s risk management and compliance software to mitigate the downside of declining commodity prices.

In common with other software platform providers, the company is putting increasing emphasis on cloud services – where the software is held remotely rather than installed on the customer’s own systems – and around 70% of new business is deployed in this way.

The ability to offer end-to-end cloud-deployed solutions, covering soft commodities, ores, concentrates, refined and precious metals and scrap is becoming a key differentiator from the competition, the company asserted in its interims.

“Our cloud solutions allow customers a cost efficient and quickly deployed alternative to traditional client installed models,” it said.

Clients like cloud-deployment because it removes a large part of the support burden – instead of updating umpteen PCs round the organisation whenever there is a software change, users who log on to the cloud via their browser will always be accessing the latest version of the software – while software providers enjoy the fact that it tends to increase recurring revenue, because users pay as they go, which is perceived as being easier than paying a huge lump sum for licence renewals every two years or so.

Proof of that particularly pudding is that Brady’s recurring revenue and service fees in the first half of 2016 increased to £8.9mln and £4.3mln from £7.8mln and £3.4mln respectively the year before. Recurring income now represents 60% of total sales (2015: 55%).

Old school software licence sales, at £1.51mln, are still a sizeable but diminishing source of revenue for the company; last year they clocked in at £2.87mln. In the 2015 period Brady signed nine licence deals, including two deals worth around a million quid each, whereas this time round, though it also signed nine deals, there were no corresponding large deals.

The group continues to enjoy a strong balance sheet with net cash balances at the end of June standing at £6.4 million, up from £6.2mln a year earlier.

N+1 Singer drew confidence from the interim update, nudging up its price target to 78p from 76p.

“The commodities sector appears to have seem some stabilisation of late with some strong share price recoveries not least Glencore,” the broker said.

“Stock is trading on PE [price/earnings] of 24.4x December 2016 [forecast] and 18.9x December 2017,” it added.

The shares currently trade at 66p.

Quick facts: Brady PLC

Price: 18.2 GBX

Market: AIM
Market Cap: £15.17 m

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