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This is the first in what will be a weekly round-up by our tech guru Richard Jeans

The debate rages on whether we are in a bear market rally, or if the recovery will continue on the back of ongoing stimulus measures. This week investors will be looking for any clues to the shape of an economic recovery from economic data, with the focus on Monday’s UK CBI survey, US retail sales and industrial production data on Tuesday and Germany’s IFO index on Wednesday. Meanwhile, signs of a resurgence in Covid-19 cases in the US and Germany are a concern.

News roundup

Last week we saw annual results from Eckoh PLC (LON:ECK) and VR Education Holdings PLC (LON:VRE), and interims from Blue Prism Group PLC (LON:PRSM). Blue Prism is in our large cap index and IDOX. There was also an acquisition by Boku Inc (LON:BOKU) part-financed by a share placement.

  • Blue Prism reported interim results to 30/4, showing revenues up 70{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} to £68.5mln and with recurring revenues representing 98{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} of the total, up from 97{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}.  However, it still generates a sizeable loss with the EBITDA loss at £30mln. The company recently raised £100mln in a placement, has a net cash position of £140mln, and aims to be cash flow breakeven next year.  The company trades at a large discount to private-equity implied valuations of its peers, Automation Anywhere and UniPath.  Last week it was reported that UniPath is in fund raising talks that could value UniPath at $10bn, which compares with c $300mln of FY19 revenues.
  • VR Education offers a virtual reality suite called Engage that can be a substitute for Zoom. VRE reported FY19 revenue growth up 70{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} to €1.0mln, with a reduced loss of €1.9m. The company finished the year with €1.3mln of cash, which has since swelled to €3.4mln following the receipt of cash from HTC, a strategic partner. While HTC subscribed for shares in VRE at a modest price based on an earlier market value, VRE argues that this is balanced by favourable commercial terms of the partnership. The current cash burn rate is c €250k per month, which equates to c 14 months. However, the HTC’s commercialisation in China takes effect in September, and VRE is anticipating an acceleration in revenues. There will also be increased costs, with the company planning to open an office in China.  Nevertheless, management is confident it can get through this expansion phase without a fresh fund raising. While cash is tight, the outlook looks promising, with a number of key business drivers, including Covid-19 (home working) and 5G mobile telephones (mobile companies might incentivise upgrades by giving away VR headsets).
  • IDOX, the public sector software supplier, posted a strong set of interim results with revenue up 13{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} to £35.2mln and adjusted EBITDA rising 133{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} to £9.6mln. 53{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} of revenues are recurring in nature.  Net debt shrank by £12.1mln over the six months to £14.3mln.  The results reflect the success of the new strategy from the management team that joined the business in 2018.  As expected, there is no dividend, and the company expects to resume payments in respect of the current financial year.
  • Eckoh, which provides secure payment products and customer contact solutions, reported strong annual results, with revenues rising 16{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}, or 14{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} at constant exchange rates, to £33.1mln and adjusted operating profit surging 53{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} to £4.7mln. The company finished the year with net cash of £11.6mln.  While guidance remains withdrawn, and dividend deferred, the company says the new financial year trading is encouraging, with revenue and profit comparable to the previous year.

Small-cap software & services market roundup

The software sector, both small and large, have outperformed mega-caps by c20{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} since the March doldrums. Among the small caps, the notable gainers last week include Bango PLC (LON:BGO), up 21{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}, Kape Technologies PLC (LON:KAPE) up 9{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} and NCC Group PLC (LON:NCC) up 8{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}. Large caps were up between 1{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} and 8{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}, with Learning Technologies Group PLC (LON:LTG) at the top.

Recent UK software sector fundraisings

Last week Boku raised £20.1mln ($25.2mln) in a rare acquisition financing during the CV19 pandemic. Boku is acquiring Estonia-based Fortumo to strengthen its position in the direct carrier billing market.  The acquisition price is a maximum $45mln along with $4mln of working capital, which gives an enterprise value of $41m.  The balance is being financed by bank debt. The price values Fortumo at c 5.7x FY19 revenues and 17.5x EBITDA. Fortumo grew revenues at 25{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}+ in each of the last two years, but growth eased to 17{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} in Q1-2020.     


March year results are scheduled from Iomart Group PLC (LON:IOM), D4T4 Solution PLC (LON:D4T4), GB Group PLC (LON:GBG) and Redcentric PLC (LON:RCN). The latter has been delayed slightly due to the audit taking longer than expected. FDM begins the June interims results season in late July. Across the pond, in a relatively quiet week, Accenture and FactSet both report Q3 numbers before the market open on 25 June while Progress Software reports interims after the close on that day. This week’s economic data includes from the US retail sales, industrial production and capacity utilisation, all scheduled for Tuesday.

Valuation table

The sector retains its traditional premium to the UK 350 large caps, reflecting the significantly stronger growth potential, combined with the relatively strong balance sheets.


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