Tribal margins hit by tough software implementation

Andrew Hore
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Tribal margins hit by tough software implementation

Education software and services provider Tribal Group (LON: TRB) continues to add to its annualised recurring revenues through additional deployments of its cloud-based software. Short-term profitability is being held back by a difficult implementation, but the longer-term outlook is positive.  

The main part of the business is student information systems (SIS), which provide higher and further education establishments with the ability to manage and engage with students. This generates revenues from licence fees, implementation and support. An increasing amount of revenues are coming from cloud-based software. This division already has a large market share in the UK and is seeking to expand in Asia. Education services is the smaller part of the business, and it provides quality assurance and benchmarking services to the education sector.

Figures

In the six months to June 2022, revenues were 8% higher at £42.4m. Annualised recurring revenues are running at £53.7m. New product launches and the problems with the contract with Nanyang Technology University (NTU) in Singapore hampered group margins. Underlying pre-tax profit fell from £7.9m to £5.7m. That figure excludes £1.27m of restructuring and transformation costs.

There was a cash outflow from operations due to the timing of implementations, although cash generation is always better in the second half. The amortisation charge was £1m, while capitalised development costs were £5.59m.

The growth in SIS revenues was mainly due to the newer software, plus related implementation revenues. The NTU implementation is much larger and broader than normal implementations and it will continue to hamper margins into next year.

Education services improved its interim revenues from £6.8m to £6.9m and there was an improvement in margins due to the contract mix and remote delivery.

Future

House broker Singer forecasts an improvement in revenues from £81.1m to £85m this year, but a decline in pre-tax profit from £14m to £13m with higher margins expected in the second half. Net debt of £1.4m is forecast for the end of the year as cash generated from operations is ploughed into software development. A dividend of 1.3p a share is forecast.

The move to cloud-based software and expansion in Asia provides long-term potential for Tribal, although it will take time to show through in profit.  The share price has fallen 5.5p to 81.5p, which means that the 2022 prospective multiple is 16.   

Aim movers: Tremor International downgrade and RUA near to clinical trial design agreement with FDA

Andrew Hore
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Aim movers: Tremor International downgrade and RUA near to clinical trial design agreement with FDA

Programmatic advertising services provider Tremor International (LON: TRMR) is the worst performer of the day. The share price has fallen 18.3% to 357.2p. That is less than 50% of the price when Tremor joined Nasdaq one year ago. Second quarter revenues declined, and operating profit was 27% lower at $15.5m. The six months revenues are slightly ahead but operating profit is lower. Share issues have led to a much sharper decline in earnings per share. Advertisers such as car manufacturers have been postponing spending because of a shortage of supply. There has also been a focus on lower margin business. finnCap has lowered its 2022 earnings forecast from 71.6 cents a share to 64.9 cents a share and it expects a decline in revenues and profit compared with 2021.

Even though broker Singer says 2022-23 revenues and profit are on track, space management software provider Smartspace Software (LON: SMRT) shares have declined 10.8% to 41.5p. Interim revenues are expected to be 46% ahead at £3.6m and annual recurring revenues are 32% higher at £5.2m. However, a change in the way that annual recurring revenues are calculated means that they will be lower than previously forecast at the end of the year. Net cash was £2m at the end of July 2022. A full year loss of £2m is forecast.

The Edenville Energy (LON: EDL) share price has fallen 10.8% to 12.25p after the announcement of a 12-month production agreement with Brahma Energies for the Rukwa coal project in Tanzania. All the coal produced will be sold to local buyers introduced by Brahma. Edenville will get $10/ tonne of coal sold at $35/tonne and 60% of revenues above that selling price. A minimum of 4,000 tonnes of washed coal will initially be produced each month and that could rise to 6,000 tonnes if plant improvements are carried out. Rukwa should be cash flow positive after two months.

Shares in RUA Life Sciences (LON: RUA) have been on a downward trajectory since the end of last year. Today they have bounced back 16.9% to 41.5p following the biostable polymer vascular grafts and heart valves developer’s AGM statement. IP licencing and contract manufacturing operations are trading more strongly than expected and revenues have grown by 50% in the first four months of the financial year. RUA is close to agreeing a clinical trial design for vascular grafts with the FDA.  

Ascent Resources (LON: AST) has continued its recent rise following yesterday’s announcement that it is commencing arbitration proceedings against the government of Slovenia, whose policies it claims destroyed the value of its investments in the country and stopped it producing gas. The claim is for €500m in damages, although Ascent Resources’ lawyers would get a significant chunk of any settlement. The share price is 12.2% higher at 6p. That is a 57.9% increase in the past week.

Invinity Energy Systems (LON: IES) has signed a memorandum of understanding with US Vanadium to create a US-based 50/50 joint venture to build and sell vanadium flow batteries. Arkansas-based US Vanadium produces high-purity vanadium pentoxide and electrolyte for vanadium flow batteries. There was a 9% increase in the share price to 42.5p.

Product life cycle management software supplier Sopheon (LON: SPE) has secured a five-year contract with the US Navy worth $11.2m. This is for a range of submarine programmes. Sopheon gained certification as a supplier during June. The share price rose 4.8% to 550p.

Tekcapital receives 49p price target from SP Angel

UK Investor Magazine
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Tekcapital receives 49p price target from SP Angel

Tekcapital has received a 49p price target from analysts at SP Angel following the IPO of their smart eyewear business, Innovative Eyewear, on the NASDAQ yesterday.

The listing valued Innovative Eyewear at $54.8m at a unit price of $7.50 with each unit comprising of 1 shares and 2 warrants. After the listing, Tekcapital retains a 70% state in Innovative Eyewear.

Providing an outlook on Tekcapital shares, SP Angel said in their note they ‘continue to believe there is significant upside to the current valuations of each of TEK’s portfolio companies. Looking at the valuation of the portfolio companies we derive a minimum current value for TEK of ~49p/shr. We continue to rate TEK a Buy.’

Tekcapital shares were trading at 31p at the time of writing on Tuesday.

BHP expects China to provide commodity stability as profit soars

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BHP expects China to provide commodity stability as profit soars

BHP attributable profits soared 173% in the year ending June 2022 as rising commodity prices and a bounce back from the pandemic spurred demand.

BHP follows in the footsteps of other major diversified miners in producing record profits in 2022. BHP’s strength in iron ore, copper and coal helped theme to produce a record $40.6 billion EBITDA.

BHP bumper profits have meant significant payouts for investors as the miner announced cash dividends of US$3.25 per share, equivalent to a 77% payout ratio.

BHP shares surged on the news, gaining over 4% at the time of wiring on Tuesday morning.

Chinese stability

Not only did BHP impress markets with their 2021 performance, they provided reassuring comments on the outlook for Chinese demand for their metals.

The BHP CEO said they saw China as a source of commodities ‘stability’ through to 2023 which is at odds with recent investor concerns about the health of the Chinese economy after a series of lockdowns.

“Despite China’s fragility, commodity giant BHP Billiton sees it as the more reliable source of revenue ahead, while other advanced economies face more of a struggle amid rising inflationary pressures,” said Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown.

“BHP’s pre-tax annual profits tripled mainly due to soaring coal and copper prices over the year. But weaker commodity prices especially for industrial metals remain a risk for the miner ahead especially given worries about China’s property sector, although it’s strong cost control and low cost operations should give it resilience amid the uncertainty.’’

Bid approach for Darktrace

Andrew Hore
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Bid approach for Darktrace

Thoma Bravo LP has made a preliminary approach to Darktrace (LON: DARK) concerning a possible cash bid. Discussions are at an early stage.

Cambridge-based Darktrace provides artificial intelligence (AI)-based cybersecurity services, and it was formed in 2013. The AI technology can detect and stop cyber attacks. There could be other uses for the AI technology both within cyber security and in other areas. The technology uses machine learning to identify cyber threats.

Darktrace obtained a premium listing on 4 May 2021 when it raised £143.4m at 250p a share, valuing the company at £1.72bn. In September last year the share price was nearly four times the original placing price. More recently it fell below 300p before recovering to 414.8p, which values Darktrace at £2.94bn.

A fourth quarter trading statement revealed that year-on-year customer numbers were nearly one-third higher, and revenues were 48% ahead. A 2021-22 pre-tax profit of $32.3m is forecast. The full figures are due to be published on 8 September.

The 2021-22 estimated multiple is more than one hundred times earnings. A decline in pre-tax profit to $24.3m is expected for 2022-23, even though revenues are forecast to grow by 30%.

Net cash is estimated to be $350m and it is expected to increase to more than $400m by June 2023.

The top ten shareholders own around two-thirds of Darktrace. That could make it easier to agree a suitable bid.

Private equity firm Thoma Bravo is an investor in a wide range of software companies, including Kofax Inc which was successful with a 55p a share cash bid for AIM-quoted electronic invoicing company Tungsten Corporation.

At the end of March 2022, Thoma Bravo had more than $114bn of assets under management.

Vp sales process comes to an end

Andrew Hore
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Vp sales process comes to an end

Plant hire company Vp (LON: VP.) has ended its formal sales process after the board unanimously decided to conclude the process. Proposals were reviewed but the board did not feel that they were in the interest of all stakeholders of the fully listed company.

The process started at the end of April, when 50.3% shareholder Ackers P Investment Company Ltd, which is connected to the Vp chairman Jeremy Pilkington indicated that it wanted to explore selling its shareholding. Ackers P Investment Company Ltd says that it does not intend to sell its shares in the foreseeable future.

The plan was to seek a buyer that would continue the culture of the company and enable it to prosper over the long-term. Vp has been listed since 1973.

In the year to March 2022, revenues were £350.9m and underlying pre-tax profit was £38.9m. This year pre-tax profit is expected to be in excess of £40m.

At the AGM in July, the company stated that activity levels were encouraging, although there is cost inflation and supply chain disruption.

The share price has already lost most of the rise that came after the announcement that the process was commencing. At 840p, the prospective multiple is just over ten and the forecast yield is 4.4%.

Treatt shares decline by one-third after warning

Andrew Hore
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Treatt shares decline by one-third after warning

Flavourings ingredients supplier Treatt (LON: TET) says that profit will be below expectations in the year to September 2022. Restrictions in China have not helped, while costs have increased, and sales of iced and leaf tea in the US have been lower than expected. Currency movements have made things worse. On the bright side, the order book is one-quarter higher.

Peel Hunt has reduced its 2021-22 pre-tax profit forecast from £23.6m to £16.3m, which is down from £22.6m last year. Raw material prices have risen by one-fifth and there is a delay in passing this on to customers. Revenues from tea will be £3m lower than previously forecast and that knocks £2.5m off profit.

There are likely to be £2.5m of currency losses this year, compared with a £1.5m gain last time.  

Management believes that there is potential in the coffee market and this category will be reported separately in the full year figures. Generally, the longer-term outlook for the company’s markets is positive.  

The share price has slumped by one-third to 537p. This is the lowest level for two years. The prospective multiple is 26.

Directors have immediately bought shares. Chairman Timothy Jones acquired 8,944 shares at 555p each and chief executive Daemmon Reeve purchased 3,556 shares at 559p each.

Gresham House CEO calls for greater investment in UK forestry

UK Investor Magazine
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Gresham House CEO calls for greater investment in UK forestry

The CEO of leading Alternative Investment provider, Gresham House, has called for a greater level of investment in UK forestry to help meet burgeoning future demand.

Tony Dalwood, CEO of Gresham House, says demand for timber is set to grow 2.7x by 2050 and highlights the lack of new projects with the capabilities to meet this demand.

The problem is particularly pronounced in the UK with 80% of demand being meet with imports, despite favourable conditions in the UK for domestic supply.

“The UK urgently needs more trees to satisfy its sustainability and economic growth agenda. The Government may have pledged to reach 30,000 hectares of new planting per year by the end of 2024, but with only c. 14,000 achieved by 2021, it is quickly falling short,” said Tony Dalwood, CEO of Gresham House.

Gresham House is a specialist ESG asset manager and naturally seeks to provide positive impact on society or environment , alongside financial gains.

“Investment in forestry generates triple bottom line benefits. It delivers strong financial returns, absorbs more carbon than it releases, and timber is a renewable and climate-friendly raw material which can replace concrete and steel.  Forestry also provides an inflation hedge – timber has historically been positively correlated to inflation while being less volatile,” Dalwood said.

FTSE 100 dips as miners react to Chinese data

UK Investor Magazine
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FTSE 100 dips as miners react to Chinese data

The FTSE 100 underperformed European indices on Monday as London’s leading index was dragged by weaker miners following a raft of softer Chinese data overnight.

“Chinese stocks were lower as there was further evidence of the harm the country’s zero-Covid approach is doing to the economy in the short term,” said AJ Bell financial analyst, Danni Hewson.

“This has obvious implications for global growth and, in particular commodities demand, and in this context it was no surprise to see shares in the big mining firms slip a little in early trading.”

Antofagasta slipped 3% as Rio Tinto, Glencore and Anglo American all gave up over 2%.

China took steps to improve economic conditions by cutting interest rates 10 basis points in an effort to stimulate a bounce back from Covid lockdowns, which may have contained some of the pessimism around commodities stocks on Monday.

UK property market

The UK property market was again in focus as Rightmove added to recent comments by Nationwide around the slowing of the UK housing prices.

“In the UK, property website, Rightmove reported that asking prices in August fell by the most for two and a half years. August is a month that often sees a setback with buyers in holiday mode, but this year’s 1.3% August dip is the largest monthly drop for some while,” said Steve Clayton, fund manager at HL Select.

However, the easing in prices varies throughout the market with London and high-end properties seeing the biggest declines.

“Rightmove’s Tim Bannister said the dip was most pronounced in London and top-end properties and said indicators were pointing to a continuing cooling of the market,” said Clayton.

This would suggest that while some areas of the market are feeling the pinch, Rightmoves findings are consistent with other studies that still see strong demand among first time buyers and lower priced properties.

Housebuilding shares were largely unchanged as the slowing UK housing narrative has been building for many months and we are yet to see any meaningful deterioration.

RS Group

RS Group was the FTSE 100’s top riser as speculation around a takeover approach intensified following a report by the Times.

The Times reported an offer of 1,500p could be made, a significant premium to the current 1,146p RS Group share price.

AIM movers: TP Group write-downs and significant Abingdon Health loss

Andrew Hore
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AIM movers: TP Group write-downs and significant Abingdon Health loss

Engineering and consultancy business TP Group (LON: TPG) has finally brought out its 2021 results and reported a loss of £19m. New management will hopefully have got all the write-downs out of the way in this set of figures. However, there is a warning there are still concerns about the resolution of legacy maritime contracts. This year and next year are described as a period of transition. Net debt is £1.6m and bank facilities will be renegotiated over the next 12 months. The share price slumped 25.3% to 1.4p.

Diagnostics company Abingdon Health (LON: ABDX) reported a slump in revenues and they are still significantly lower when Covid-related revenues are taken out – down from £3.6m to £2.8m. This means that there will be a substantial loss in the year to June 2022. A previously announced £2.7m technology transfer deal may not go ahead. There should be more than enough cash for the current financial year and the company is refocusing on contract services. The share price dived 24.3% to 7p.  

Designer and supplier of automotive interior components CT Automotive (LON: CTA) says that although first half revenues of $55m were ahead of expectations gross margin was lower. This was due to Covid lockdowns in China, delays in shipping and problems with UK manufacturing. UK production is being closed and there will be a small exceptional charge. The recovery in vehicle production is stronger than expected. CT Automotive joined AIM at the end of 2021 at 147p a share. Today, the share price fell 17% to 122.5p.

Trading in platinum and precious metals explorer Future Metals NL (LON: FME) shares has been halted on the ASX but continues on AIM. An announcement regarding a fundraising is anticipated. The share price has fallen 6.45% to 7.25p.

International payments company Cornerstone FS (LON: CSFS) has appointed former Equals Group (LON: EQLS) executive James Hickman as its new chief executive. He will start in September. The share price bounced back 16.7% to 10.5p.

Velocys (LON: VLS) believes that new legislation in the US will enable the financing of its sustainable aviation fuel project. The bill includes sustainable aviation fuel tax credits, which should help the Velocys project in Natchez, Mississippi. Southwest Airlines and BA have agreed to buy the fuel and an offtake agreement is being finalised. The share price jumped 14.9% to 5.975p.

Spectra Systems (LON: SPSY) has amended a contract with a bank customer and that means that there will be an additional $4m of revenues, which is likely to be earned in the two years to the end of 2024. The banknote authentication and brand protection technology provider will use some of the additional cash to boost the marketing of machine-readable secure polymer substrate, Fusion. This pushed the share price up 7.36% to 138.5p.

Secure payments technology provider Eckoh (LON: ECK) says that new orders in the first quarter are significantly higher than in the same period last year. This includes a two-year contract with a global hotel company worth at least $1.3m. The share price rose 7.32% to 44p.

Oil and gas producer Serinus Energy (LON: SENX) increased interim revenues from $15.9m to $29.3m and this enable it to move from loss to a $4.35m pre-tax profit. This was partly thanks to strong sales in April when the oil price was near its high. Cash generated was ploughed back into capital investment. A full year pre-tax profit of $8.9m is forecast. The share price was 6.5% higher at 12.25p.

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