UK tech stocks drifted over the week, as the market seeks more clues on the pace of economic recovery, and awaits the interim results season.
While the FTSE 100 was up 3% over the week, UK small caps tech stocks were mostly lower while UK larger-cap techs continued to be held back by a weak Micro Focus.
News roundup
Last week saw final results from ZOO Digital Group PLC (LON:ZOO) and AdEPT Technology Group PLC (LON:ADT) along with trading updates from Bango PLC (LON: BGO), Alfa Financial Software Holdings PLC (LON: ALFA), Tracsis PLC (LON: TRCS), EMIS Group plc (EMIS), Netcall PLC (LON:NET), LoopUp Group PLC (LON:LOOP) and Pennant International Group PLC (LON:PEN).
ZOO Digital, which provides cloud-based localisation and digital distribution services for the global entertainment industry, reported fiscal 2020 (FY20) results that were marginally below the guidance given in the May trading update. Group revenue rose by 3% to US$29.8mln while adjusted underlying earnings (EBITDA) surged to US$2.1mln, generating a margin of 7.0% compared with 1.4% in FY19. The group ended the period with net cash of US$0.7mln. Additionally, there are convertible loan notes of £2.6mln that have been extended by one year to October 31, 2021. The company does not pay a dividend. The management said that first quarter trading was strong, with sales expected to be 15% above the corresponding period in FY20, and on the results call, said that this growth rate was a good indication for the current overall year.
AdEPT, which provides managed services for information technology (IT), unified communications, connectivity and voice solutions, reported a 20% jump in annual revenues to £61.7mln as underlying EBITDA rose by 9% to £11.7mln. Net senior debt was £27.9mln at year-end and there are also £6.3mln of subordinated convertibles. There are no dividends in respect of the FY20 period due to the pandemic; however, management says that new order volumes in the first quarter have proven to be significantly more resilient than it had previously anticipated in respect of both recurring services and one-off projects. Nevertheless, as anticipated, project revenues have declined given the inability to visit many customer sites for project-related work. Consequently, it has been difficult to turn new orders into revenue in the first quarter of the fiscal year, a situation compounded by the fact that Openreach ceased installing any circuits except those for critical infrastructure. This backlog of work in progress is expected to be temporary and unwind as the lockdown eases, although it will have a short-term impact. This shortfall in on-site project work has been counterbalanced, in part, by cloud migrations in Education.
Bango, the mobile commerce company, said that first-half revenue jumped by around 51% to £4.8mln while adjusted EBITDA is expected to exceed the £0.45mln achieved in FY19. End-user spend (EUS) grew strongly to more than £740mln and is expected to reach £2bn in the full year. The group finished the period with cash of £4.2mln (it has no bank debt) compared with £2.7mln in December. This improvement was achieved after paying roughly £1.8m in an earnout payment in January for Audiens along with the NHN deal cash inflows and related and associated internal costs. In April, NHN acquired a 4.7% stake in Bango for £3.2mln and paid a further £6.5mln for a 60% shareholding in Bango Deep, which owns Bango’s Audiens Customer Data Platform business.
Alfa Financial Software, which provides mission-critical software for the asset finance industry said in a short update that demand had been largely resilient during the pandemic and that first-half trading had been better than expected. Cash flow was strong with net cash increasing in the period. While the company is cautiously optimistic, it noted that there remains some weakness in the early-stage pipeline due to a reduction in clients initiating projects as a result of the pandemic, which could also have an impact on the business in 2021.
EMIS, which provides connected healthcare software and systems, said that first-half trading was in line with expectations despite the coronavirus (COVID-19) crisis, “albeit revenue was marginally behind the comparative period last year”. While there continues to be some uncertainty regarding the timing of new sales delivery, the board's expectations for the FY20 remain unchanged. The net cash position improved to £44.1mln from £31.3mln in December. Further, the group has no debt and banking facilities available of up to £60mln.
Netcall, which provides low-code and customer engagement solutions, said it expects FY20 revenue to have grown by 10% to £25.1mln. Adjusted EBITDA jumped by 29% to £4.4mln, which was in line with market expectations. Cloud annual contract value (ACV) jumped by 25% to £7.5mln as the total ACV rose by 7% to £16.8mln. The normalised net cash position at end June was £3.8mln, after adjusting for £2.2mln of deferred VAT payments. Management is optimistic that disruptions caused by the pandemic will accelerate organisations' digital transformation initiatives, providing a strong growth driver for the business.
Eagle Eye, which enables companies to offer digital loyalty schemes, surged by around 24% on an inspiring update. The company said that revenue had jumped by 21% to £20.4mln in the year to June as adjusted EBITDA surged by 359% to £3.3mln. Recurring revenue rose by 24% to £14.9mln, representing 73% of the total. The group ended the period with net cash of £1.5mln, an improvement of £2.7mln over the year. In addition, it has a £5mln banking facility. The company says that the COVID-19 pandemic continues to have an impact on mainly non-grocery clients, which represent about 10% of group revenues, although Eagle Eye is starting to see a recovery in food and beverage issuances as the UK lockdown lifts. While new business decision-making is likely to continue to be delayed during this period of uncertainty, the sales pipeline continues to grow.
LoopUp, which offers remote meetings, jumped after it said that first-half revenues had jumped by 43% to £31.9mln. The gross margin improved by four percentage points bps to 71% and hence adjusted EBITDA surged by 249% to £12.2mln, as the EBITDA margin expanded to 38% from 16%. Net debt shrank to £5.4mln from £11.5mln. The company says that it is difficult to predict near term developments in working practices and business climate, and also noted that seasonal usage is first-half-weighted, but it nevertheless predicted it would exceed market expectations for the current financial year in terms of revenue, EBITDA and cash generation
Pennant, which provides technology-based maintainer training and integrated product support solutions, soared 22% after it announced the award of a new contract with an initial order value of £1.5mln. In February, the company received a statement of intent for the purchase of training aids worth up to £5mln from the long-standing customer in the Middle East and this represents the initial contract. The majority of revenue on the order expected to be recognised in 2021 as the training aids are completed and delivered and this new award takes the group's contracted order book for 2021 to just under £13.5mln. The company anticipates that the customer will make further purchases in line with the statement of intent and expects an additional order to be placed later this year or in early 2021.
Crossword Cybersecurity, which is focused on cybersecurity and risk, has launched Rizikon Pro to address the small and medium enterprises (SME) market. Rizikon Pro is an out-of-the-box, online software as a service (SaaS) solution, offered on a pay-as-you-go basis, giving smaller organisations access to a set of core easy-to-use supplier assurance platform features, at a lower cost.
Small cap software & services market roundup
Tech stocks continue to drift with broader equity markets last week in relatively quiet summer trading. Our small caps software index eased 0.6% over the week, while the large caps index edged up by 0.1%. Among the small caps, Alfa Financial jumped 27% after releasing a positive trading update. However this was outweighed by losses at Wandisco, Tribal, Bango and Seeing Machines Among large caps Avast, Computer Centre and Kainos were all up by more than 5% while Micro Focus and Blue Prism were weaker.
Recent UK tech sector fundraisings
In the software space, Deepmatter, which is focused on digitising chemistry, has raised gross proceeds of £2.1mln in a placing and subscription. The proceeds will help the group to accelerate its growth strategy and capitalise on the opportunity for DigitalGlassware. DigitalGlassware is a cloud-based software, proprietary hardware and machine learning-enabled platform that allows scientists to collaborate effectively, sharing details of their experiments from anywhere and in real-time.
Elsewhere in tech, there were fundraisings from Ethernity Networks, which supplies ethernet adapter cards, and Nanoco, which manufactures nanomaterials including cadmium-free quantum dots.
Nanoco is raising gross proceeds of £3.4mln (increased from £2.2mln) via a PrimaryBid offer. The company says the money will address new commercial opportunities, while also maintaining the group’s balance sheet during the lawsuit against Samsung. It says the proceeds will secure the company's operational cash runway until the end of 2022.
Ethernity is raising gross proceeds £0.78mln in a placing and subscription. There is an option to increase the offering by a further £0.1mln. In addition, investors will receive warrants on a 1 for 1 basis. The company says the funds will strengthen the balance sheet, to allow it to support the growing number of engagements for its 5G offering, and for general working capital purposes.
Estimated gross amount · Announced · Method · Price · Discount/ (prem) to prior day (%) · Estimated % of new capital · Comment
Nanoco · £3.4m · 16-Jul · Placing · 17.5p · 2.8 · 6.4 · Address commercial opportunities, while maintain balance sheet during lawsuit
Ethernity Networks · £0.78m · 13-Jul · Placing/subsc · 12p · 37.0 · 16.6 · To support engagements for its 5G offering
Deepmatter · £2.1m · 13-Jul · Placing/subsc · 1.5p · 18.9 · 16.2 · Invest in sales, marketing, distribution, support
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 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 · £0.135m · 14-May · Subscription · 30p · 1.8 · Management subscription
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
Calendar
March year results are anticipated over the next few weeks from Redcentric, IMImobile and Aptitude and April- year end from Ideagen. June interims results season begins this week with Gresham.
Across the pond, IBM and Cadence report Q2 earnings after the close today while Texas Instruments reports Q2 earnings after the close tomorrow, Microsoft reports annual results after the close on Wednesday and Intel and Verisign report Q2 earnings after the close on Thursday.
Further indications on how the UK economic recovery is progressing will be evidenced by CBI Survey on Thursday and retail sales data on Friday.
Date Company Event
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
29-Jul Aptitude Software Final results
29-Jul FDM Interim results
July Ideagen Final results
Late July Quartix Interim results
Late July Shearwater Final results
05-Aug Seeing Machines Trading update
11-Aug SDP Interim results
13-Aug Tribal Interim results
13-Aug Pennant Trading update
03-Sep NCC Final results
07-Sep SRT Martine Systems Final results
Early Sept Craneware Final results
15 Sept Bango Interim results
Mid-Sept Accesso Interim results
30-Oct Seeing Machines Final results
Source: Data from regulatory news and company websites
Valuation table
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.
Share Price (p) · Market Cap (£m) · Net debt/(cash) £m · Enterprise Value (EV) · EV/sales · Price/earnings
Year 1 · Year 2 · Year 1 · Year 2
First Derivatives · 2600 · 714 · 49.4 · 763.4 · 3.3 · 3.0 · 43.5 · 33.3
EMIS Group · 1060 · 666 · (44.1) · 621.9 · 3.9 · 3.8 · 22.2 · 20.5
NCC Group · 175.8 · 490 · 5.0 · 495.0 · 2.0 · 2.0 · 25.8 · 29.7
SDL · 512 · 466 · (26.3) · 439.7 · 1.3 · 1.2 · 24.6 · 17.5
Ideagen · 173.5 · 393 · 16.8 · 409.8 · 7.3 · 6.8 · 32.9 · 27.7
Iomart Group · 332.5 · 363 · 37.3 · 400.3 · 3.4 · 3.3 · 20.2 · 19.1
Kape Technologies · 200 · 317 · 24.2 · 341.2 · 3.6 · 3.2 · 18.8 · 16.4
DotDigital Group · 106.5 · 317 · (22.0) · 295.0 · 6.3 · 5.8 · 26.8 · 27.8
WANdisco · 554 · 284 · (17.6) · 244.4 · 14.6 · 10.3 · (20.2) · (29.2)
IMImobile · 292.5 · 240 · (2.0) · 238.0 · 1.4 · 1.4 · 19.8 · 25.0
Alfa Financial Software · 80 · 240 · (58.5) · 181.5 · 3.0 · 2.9 · 88.9 · 51.0
Aptitude Software Group · 410 · 231 · (30.9) · 200.1 · 3.5 · 3.6 · 32.0 · 34.5
IDOX · 49.6 · 220 · 14.0 · 234.0 · 3.5 · 3.3 · 23.6 · 19.5
Redcentric · 127 · 196 · 13.5 · 209.5 · 2.4 · 2.3 · 24.4 · 18.7
Tracsis · 590 · 172 · (16.0) · 156.0 · N/A · N/A · N/A · N/A
Eckoh · 63 · 160 · (11.6) · 148.4 · 4.1 · 3.8 · 37.3 · 29.9
Centralnic Group · 83.5 · 158 · 56.6 · 214.6 · 1.3 · 1.2 · 17.5 · 15.2
Blancco Technology Group · 195 · 147 · (5.4) · 141.6 · 4.3 · 3.8 · 66.1 · 35.5
Quartix Holdings · 305 · 146 · (6.8) · 139.2 · 5.4 · N/A · N/A · N/A
Accesso Technology Group · 267.5 · 110 · (24.5) · 85.5 · 2.3 · 1.0 · (4.2) · (39.2)
Bango · 147 · 109 · (4.2) · 104.8 · 8.8 · N/A · 86.5 · N/A
Tribal Group · 53 · 109 · (16.5) · 92.5 · 1.3 · 1.3 · 14.3 · 13.2
Seeing Machines · 2.8 · 94 · (25.0) · 69.0 · 3.3 · 2.4 · (5.8) · (12.7)
Oxford Metrics · 74 · 93 · (14.2) · 78.8 · 2.1 · 1.9 · 17.1 · 12.6
Instem · 454 · 93 · (20.9) · 72.1 · 2.5 · 2.3 · 21.1 · 20.3
D4t4 Solutions · 227 · 91 · (12.8) · 78.2 · 3.6 · 3.2 · 33.3 · 28.2
Cerillion · 293 · 86 · (4.8) · 81.2 · 4.0 · 3.7 · 28.1 · 24.9
Gresham Technologies · 126 · 86 · (7.4) · 78.6 · 2.9 · 2.7 · 54.1 · 38.8
Essensys · 150 · 79 · (8.7) · 70.3 · N/A · N/A · N/A · N/A
Sopheon · 775 · 79 · (17.3) · 61.7 · N/A · N/A · N/A · N/A
Averages · 2.8 · 2.4 · 64.1 · 29.6
Source: Data from regulatory news and market sources