At a glance
Our small-cap software index slipped 1.1% over the week, which compared with a 4.6% slide in the large-cap software index and a 2.8% fall in the FTSE-100.
Computacenter PLC (LON:CCC), the technology services group, was the only large-cap software gainer, surging after upgrading its outlook in a brief trading update ahead of interim results this Wednesday. Also among large caps, Kainos Group PLC (LON:KNOS), the provider of digital technology solutions, dipped 7% after posting an inline trading update, which follows the blow-out trading update in July.
Small-cap tech news roundup
Last week saw final results from NCC Group PLC (LON:NCC), interim results from CentralNic Group PLC (LON:CNIC) and a commercial announcement from Seeing Machines Ltd (LON:SEE). Meanwhile, Redcentric PLC (LON:RCN) has initiated a formal sale process and strategic review.
- CentralNic, the provider of internet domain names and related services, grew first-half (H1) revenues by 124% to US$111.3mln, which included 18% organic growth supplementing growth provided by acquisitions including Team Internet, which was acquired at the end of 2019. This compares with 15% organic growth for the first quarter (Q1), and hence indicating acceleration in Q2. The organic growth rate was boosted by the Monetisation division - substantially the Team Internet acquisition - which surged by 38%. Revenues from the Indirect sales division grew by 9% organically while Direct fell 1% on this basis. Adjusted underlying earnings (EBITDA) jumped by 64% to US$15.1mln or rose 16% on an organic basis to US$14.9mln. The change in the mix led to a decline in gross margin since Monetisation has lower margins than the other two divisions. Recurring revenues jumped to 96% of the total from 92% in H119 (first half of 2019) and cash conversion was 138% in Q2. The group ended the period with net debt of US$76.4mln, up slightly from US$75.0mln at end-FY19 (full-year 2019), which is after the completion of the earn-out for the Team Internet acquisition with a €2.7mln payment in Q2.
- Redcentric, the managed service provider, has announced a broad strategic review. This involves a formal sale process that could result in a sale of the company; however, the strategic review includes other potential options regarding organic growth and/or potential acquisitions.
- Seeing Machines, the computer vision technology company, has announced a three-pillar product strategy targeting the automotive original equipment manufacturers' (OEM) market. This involves the introduction of Seeing Machines' Occula Neural Processing Unit to its FOVIO chip, which will reduce the computational load by 50% while delivering the same level of functionality. Consequently, this provides OEMs with significant capacity to include additional features. The company can also provide its algorithms via its embedded Driver Monitoring Engine (e-DME) software product. Meanwhile, Occula is available for license, in ASIC form, to semiconductor companies for integration with automotive compute platforms.
- NCC Group, the cybersecurity and resilience adviser, reported a 5.2% increase in FY20 revenues on a like-for-like basis to £263.7mln. Assurance revenue rose by 6.3% while Software Resilience (Escrow) revenue dipped 1.3%. Adjusted EBITDA fell by 5.7% on the same basis to £41.2mln. The group ended the period with net debt of £4.2mln. The final dividend is maintained at 3.15p. The company says that Q1 trading is ahead of the prior year, though noting the soft prior year comparator.
Small-cap software & services market roundup
Small-cap software drifted back last week in sympathy with the US tech-led sell-off in the equity markets. Our small-cap software leaders index slipped by 1.1% over the week, which compared with a 4.6% decline in large-cap software and a 2.8% fall in the FTSE-100.
Redcentric led small-cap gainers, rising 11% after announcing a strategic review that could result in the sale of the company. Redcentric operates in an industry that has significant opportunities for consolidation. Alfa Financial Software Holdings PLC (LON:ALFA) continued higher (up 8%) in the wake of its strong update in the prior week. CentralNic dipped 10% amid concern over the change in revenue mix and consequent fall in margins. Despite the falls in the broader indices, 30% of our constituents posted gains.
Among large caps, Computacenter was the only gainer, rising 4% over the week. It said in a brief trading update that “the likely outturn for the year as a whole will be materially above the board's previous expectations”. Computacenter reports its interim results on Wednesday. Meanwhile, Kainos dipped 7% amid some disappointment after posting an inline trading update, following the blow-out trading update in July. Other large-cap software decliners included Blue Prism Group PLC (LON:PRSM), down 14% and AVEVA Group PLC (LON:AVV), down 7%.
Recent UK tech sector fundraisings
No significant new fundraisings in small-cap tech were announced last week.
|Est'd gross amount (mln's)||Announced||Method*||Price||Discount/ (prem) to prior day (%)||Est'd % of new capital||Comment|
|AVEVA||$3500||25-Aug||R||N/A||N/A||N/A||Proposed rights issue to part-finance acquisition|
|Pelatro||£2.10||04-Aug||P, S||49p||12.1||12.2||Strengthen sales and marketing|
|TERN||£1.50||20-Jul||S||8.5p||19.0||5.9||To expand the portfolio|
|Nanoco||£3.40||16-Jul||P||17.5p||2.8||6.4||Address opportunities, while maintaining b/s during a lawsuit|
|Ethernity||£0.78||13-Jul||P, S||12p||37.0||16.6||To support engagements for its 5G offering|
|Deepmatter||£2.10||13-Jul||P, S||1.5p||18.9||16.2||Invest in sales, marketing, distribution, support|
|Redcentric||£5.76||26-Jun||P, S||110p||(7.8)||3.3||Part funds settlement with the FCA|
|Instem||£15.75||26-Jun||P||435p||4.4||17.7||Accelerate the acquisition strategy|
|Boku||£20.10||17-Jun||P||85p||7.1||8.4||Part finances $41m acquisition of Fortumo|
|Wandisco||$25||11-Jun||P||650p||12.2||6.0||Strengthen b/s and working capital|
Source: Data from regulatory news and company websites.
* Key: P- placing, S-subscription, O- open offer, R- rights issue.
The interim results season in the UK small-cap space picks up this week. There is also a scatter of final results over the next few weeks from companies with periods ending March, April and June. Additionally, Aquis Exchange, the technology-driven exchange services group, reports interim results on Wednesday.
Across the pond, in a short week with the Labor Day holiday today, tech-related companies expected to report earnings include Coupa Software, Slack Technologies and zscaler.
|07-Sep||SRT Marine Systems||Final results||31-Mar|
|15-Sep||Kape Technologies||Interim results||30-Jun|
|15-Sep||Corero Network Security||Interim results||30-Jun|
|16-Sep||Eagle Eye Solutions||Final results||30-Jun|
|16-Sep||Accesso Technology||Interim results||30-Jun|
|Mid-Sep||Beeks Financial Cloud||Final results||30-Jun|
|Sep||Crossword Cybersecurity||Interim results||30-Jun|
|29-Sep||Alfa Financial Software||Interim results||30-Jun|
|29-Sep||Blancco Technology||Final results||30-Jun|
|30-Oct||Seeing Machines||Final results||30-Jun|
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.
|Shr Price Pence||Market Cap £m||Net debt/ (cash) £m||Enterprise Value £m||EV/sales Year 1||EV/sales Year 1||P/E Year 1||P/E Year 2|
|Alfa Financial Software Holdings||94||282||(68.0)||214.0||3.3||3.3||52.2||57.3|
|Aptitude Software Group||449.5||253||(30.9)||222.1||3.9||4.0||35.0||37.8|
|Alpha Financial Markets Consulting||209||211||(14.1)||196.9||2.1||1.9||15.2||13.9|
|Blancco Technology Group||204||154||(6.7)||147.3||4.4||4.0||50.1||42.5|
|Accesso Technology Group||275||113||(24.5)||88.5||2.8||1.3||(5.0)||(53.9)|
Source: Data from regulatory news and market sources