Servicepower Share Discussion Threads

[chrisdgb] 10/11/2016 14:46

At least a corporate interest in the business justifies our beliefs and shuts people like chimers up.........

[spooky] 10/11/2016 12:29

Looks as though someone will have some explaining to do with the three purchases of 250,000 shares earlier this morning, they stick out like a sore thumb.

[brummy_git] 10/11/2016 12:15

If the Constellation approach naturally flushes out any other interested parties then this shouldn't be an issue

[spooky] 10/11/2016 12:13

Your problem here is that Constellation will back away if the key shareholders demand too high a price and then it's back to 2.5p.

[brummy_git] 10/11/2016 12:12

Constellation is a quality US software house, that should be able to generate serious synergies from incorporating servicepower's products into its extensive geographical footprint and distribution channels.

Personally I would be very surprised if they didn't pitch an offer at least > 6p per share. Indeed in the event there is a competitive auction, especially given the recent sterling weakness (i.e. cheaper for American buyers), then I could see a takeover at perhaps even >10p.

[letmepass] 10/11/2016 12:06

Talk of 15p but don't believe it

[tomboyb] 10/11/2016 12:01

Constellation was a listed entity before - but I think this is consellation Inc -

A bit different - ?

But dyor as my memory is a bit thin -

[spooky] 10/11/2016 12:00

Constellation never over pay IMO.

[chrisdgb] 10/11/2016 11:59

I was trying to remember what other old quoted names Constellation took over..?? need to dust off the memory cells...!

[tomboyb] 10/11/2016 11:54

Who knows what Jonas will offer -

[brummy_git] 10/11/2016 11:53

6p equates to circa 1x 2016 sales, which would definitely be cheap for a software firm. That said Constellation Software is a serious trade buyer, so any final purchase price may be much higher

[chrisdgb] 10/11/2016 11:49

Thanks, this was always my fear that it would go too cheaply.....6-7p..????

[morton2011] 10/11/2016 11:45

Chris your wishes may come true about takeover . Good luck and hope it's above your average price you paid .

[tomboyb] 10/11/2016 11:44

offer for company bu Jonas - what price?

[chrisdgb] 10/11/2016 08:41

The spread here remains deeply irritating...

[chrisdgb] 07/11/2016 08:53

Would still be nice to generate more interest in this company..

[chrisdgb] 04/11/2016 09:14

Great looking contract announced, we are not far away from generating a decent recovery, I still think we are vulnerable to someone picking the company up on the cheap..

[chrisdgb] 03/11/2016 14:00

£750 of stock sold and the price is down 9.5%.....seriously?

[yoyoy] 27/10/2016 16:58

Chimers.

Its amazing but those 11 BrandsMart stores generate a turnover of $569m.

[chrisdgb] 21/10/2016 11:00

With the helpful currency backdrop supporting the story, it would also be nice to see some decent contract news....

[chrisdgb] 11/10/2016 08:29

Cheers for the analysis sidam, it is great just to get some sensible debate here. I appreciate the disappointments in the past but with the currency now and a lower cost base, we have a great chance of a multi bagger.....

[morton2011] 10/10/2016 17:41

sidam

Good luck here.

As the crazed Chimers likes to say when he is not howling at the moon servicepower can only spin positive stories and have spent the last 5 years announcing new business while revenues remain basically flat having fallen over 30% in 2011.
Every business needs new business as old ones get taken over, go bust, find new suppliers etc.

The 98% recurring revenues you mentioned is stated in the interim as:
"
Total revenues of £6.4 million (H1 2015: £6.9 million)
o Recurring revenues accounted for 98%
"
so taken literally there was a 2 % new business gains in the last 6 months
yet a few lines later we get:
"
Following the momentum gained in 2015, 11 deals were signed during the period with new and existing customers, with a strong pipeline in place for H2 2016 and 2017
"
work out how to reconcile those 2 statements. I could not and did not bother to read in detail much of the rest

Chrisdgb, the optimist here, is hoping the dollar rate will help. Only does if there are actual cash profits. If the company needs $ cash being based in London then getting the dollars to support the US operations is suddenly a lot more expensive.

There is also the loan from Herald you do mention but at 1.07 million to repay in Dec that is a lot of cash to generate since August - from the RNS back in February
"
Loan Facility
The Company also announces that it has obtained an unsecured short term loan facility for £1,000,000 from Herald Investment Trust plc, to take effect from 8 February 2016 and repayable in full on the 16 December 2016, accruing interest at a rate of 8 per cent per annum (the "Loan"). The purpose of this Loan is for on-going working capital purposes and in order to continue R&D investment.
"
Last year in Dec 2015 they repaid 700,000 loan then take our 1 million in Feb 2016.

To me way too risky to make any investment until the cash position is clearer and there are significant revenue gains as a group not just 'new contracts'.

[sidam] 10/10/2016 16:12

chrisdgb

you asked earlier if anyone had seen a reearch note. Here are my comments on the company which includes comment on some research. Hope this helps.


Those of you, who have been readers of my past scribblings, will know that I have been much too bullish about this company. That includes autumn of last year when I was sure that there was major upside in the short term. I was wrong, but with hindsight the reason was beyond both the company’s and my control. There was a major proof of concept, which should have resulted in a very large contract and revenues. Unfortunately, the potential customer was acquired by another major group, which lead to the programme being closed. If the potential client had not been acquired, revenues for the current year would have been sufficient to generate overall profitability and my optimism should have been proved correct.

So where are we now. I must say that on face value the interim results could lead to one being quite bearish, but I am not. In fact, I consider that the inflection point is very close.

Looking at the interims: revenues were down year on year, expenses were higher, the Group made a loss and cash consumption was very high indeed. But looking a bit closer.

Revenues were down, but the comparative period had a significant licence and revenues included the last £250K of low margin business from which the Group was exiting. Adjusting for those factors, they were marginally ahead, but of more importance 98% were recurring. The Group has also won new business, which will drive H 2 revenues and these could therefore reach consensus revenues of £13.5m for the full year. If realised that is over £7.1m in H2 against almost £6.4m in H1. Gross margins in H1 also increased to 51.7% against 49% in the corresponding period.

Expenses were also higher, but I understand there were undisclosed reorganisation costs.

Losses before tax increased, but the company indicated that it had traded EBITDA positive in June, July and August and indicated that the results for July and August were positive at the pre tax level. So there has been a turnaround with consensus estimates showing H2 to be profitable with the full year loss reduced to £0.3m from £0.7m in H1.

Cash flow was bad, but again the major driver was working capital, which the company indicated should reverse. H2 should be much stronger. In particular, H2 sees major maintenance renewals. The largest of these is 1.2m due in October. Management indicated that, after repayment of the short-term loan, they expected net cash to be over £1m at year-end. (N.B. The company’s brokers are more conservative showing only marginal net cash at that time).

Future Estimates I have only seen one set of estimates (the house broker’s) for next year. These indicate revenues of £15.0m. That seems reasonable. H2 2016 is projected at £7.13m (or £14.26m annualised so the 2017) so the estimate does not require major growth. The PBT estimate is £0.5m and EPS of 0.2p. There are no projections for longer periods. The projections suggest that the Group will be cash flow positive and increase the cash balance.

However, I do have some concerns on the projections. Gross margins are shown as 49%. I think that is too low. Management had previously indicated 2016 margins of 52% (met in H1) possibly rising to 55% in 2017 and with a long-term target of 60%. That said, the projection for administration and other expenses look too low, so one could offset the other.

Speculative Upside: Management indicated that there were two new strategic partners with annual revenues targets (targets not actual) of $3m, which at $1.5 is £2m. These are targets and I understand from management that no revenues for these partners are included in their guidance. So there maybe considerable upside on published numbers especially as these partners have existing clients and an easy sale can be new products to existing clients.

Long term: Assume the house broker is correct for 2017, but add back £0.1m of interest giving starting PBT of £0.6m. If we assume that revenues increase by 10% per annum, but that costs increase by 5%, then over the next four years to 2021, revenues would increase to £22m. PBT margin would increase to around 15% (OK for a software company) and PBT to £3m. The historic growth rate would be 27% and a PEG of 1 (25 PER assuming full tax which will not be paid because of past losses), we get a 10 bagger.

I hope I am correct. These are just projections and there are delivery risks as we all know, but there is a possibility. Not a sell in my view.