Gresham Technologies Share Discussion Threads

[richjp] 14/8/2015 15:33

Quantas, I think the Motley Fool article may be a bit misleading to put it mildly. Where did they get their forecast of an “incredible 110%” profit increase for the current year from? As that forecast was not in the company statement, I assume it can only have come from the house broker’s forecast. However we have to remember that 2014 pre tax profit was only £0.46M because of the profit warning, compared to £2.26M for 2013. I would be very disappointed indeed if profits this year were not at least 110% higher compared to 2014.

I also feel that cc’s posting today supports what I have been previously trying to say, that it is not easy to knock out incumbent suppliers, although it is good to hear that major suppliers in the reconciliation market are aware of Gresham.

I recall either in a Gresham PR release or blog, or both, a year or more ago that GHT at one time was trying to position itself alongside traditional reconciliation systems within clients not replacing them, with CTC handling the highly complex derivative stuff, so as to appear non threatening to the incumbent, who could be left to handle all the high volume traditional less complicated stuff.

That would appear to be a reasonable strategy however that means that GHT may remain a niche player. There is nothing wrong in being a niche player in my view, as such companies can be very profitable, but it does mean that growth is likely to be steady rather than dramatic.

[crazycanuck] 14/8/2015 09:42

Every major bank already use a reconciliation system and extremely difficult to replace these due to cost. I work for a major bank and we use the two top rec systems (Smartstream and intellimatch). I have also spoken to one of the vendors and they rate ctc quite highly but they're not that concerned with gresham.

[qantas] 12/8/2015 07:35

Are Gresham Computing plc And Micro Focus International plc Better Buys Than Vodafone Group plc?
By Peter Stephens | Fool.co.uk – Mon, Aug 10, 2015 13:14 BST

Shares in Gresham Computing (LSE: GHT), the software and services company, are up by 2% today after it released an encouraging set of half year results.

The key takeaway is that Gresham is trading in-line with expectations and has been able to deliver a rise in pretax profit in the first half of the current financial year. In fact, Gresham's pretax profit increased from £597,000 in the first half of 2014 to £647,000 in the first half of 2015. That's a rise of 8.4% and was delivered due to a strong surge in revenue which more than offset higher operating costs.

Encouraging for investors in Gresham is news that its Clareti Transaction Control (CTC) software product is now the company's largest product by revenue, with it accounting for 31% of revenue in the first half of the year. This appears to confirm Gresham's decision to focus a significant proportion of its resources (in terms of both investment and sales resources) on this one product and, with revenue for CTC jumping by 247%, it appears to be a very strong growth area for the business.

Meanwhile, Gresham continues to have no debt on its balance sheet and remains confident in its outlook. Looking ahead, it is forecast to increase its bottom line by an incredible 110% in the current year, followed by a further 37% next year. And, while it trades on a rather rich price to earnings (P/E) ratio of 26.2, such strong growth prospects mean that Gresham has a price to earnings growth (PEG) ratio of just 0.5. Therefore, its shares could continue the run that has seen them rise by 18% since the turn of the year.

Of course, other stocks in the software services sector also have considerable potential. For example, Micro Focus (LSE: MCRO) is forecast to grow its bottom line by 4% in the current year and by a further 8% next year. Although these figures may be considerably lower than those of Gresham, Micro Focus offers superb stability, size and scale, with its earnings having risen in each of the last four years and its financial strength being evidenced via a yield of 2.5%. In addition, Micro Focus trades on a PEG ratio of 1.9 which, for a company with such strong finances and an excellent track record, appears to represent good value for money.

However, telecoms peer Vodafone (LSE: VOD) also has the potential to deliver strong share price growth. That's at least partly because the situation in Europe, which is a key market for the business, continues to improve. Because of this, Vodafone is expected to increase its bottom line by 21% next year, which puts the company's shares on a PEG ratio of just 1.8.

Furthermore, Vodafone continues to be one of the most appealing income stocks in the FTSE 350, with its yield currently standing at 4.8% and being expected to rise ahead of inflation over the medium to long term. And, as the largest of the three businesses, it has the greatest size, scale and diversity and, as a result, should be able to provide the greatest resilience and stability over the long run.

So, with all three stocks having bright outlooks, they appear to be strong candidates for purchase. Of course, finding great value stocks is never an easy task. That's why The Motley Fool has written a free and without obligation guide called 7 Simple Steps For Seeking Serious Wealth.

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[richjp] 11/8/2015 17:03

Bully Boy,

I would also like to see a strategy statement from the new man although he is still new and this quiet time of the year is probably not the best. Autumn would be good but most definitely as you suggest with the next final results.

They are winning clients in different business areas, but that could mean that there is not the potential in the major financial institutions that they originally thought. For example they issued RNSs concerning a property management company and John Lewis. Whilst good names I question whether CTC is as valuable to those type of clients, as it would be to a major bank, where the risk of something going very wrong is much greater and therefore where CTC would be of more benefit.

So yes, a strategy statement is needed.

[richjp] 11/8/2015 17:00

schytalk,

As far as I understand it, they are still well ahead of the competition technically, however I don’t think it is just about technical superiority. As I have said before some potential clients will prefer to go with an incumbent supplier even if their solution is inferior, rather than bring in an additional supplier. I would like to think that the potential is as large as you say, but I do wonder if CTC is seen as desirable to have but not perceived as essential and therefore not the priority for potential clients as we would all like it to be.

My other concern as I have said before is the length of the sales cycle. Having been in IT sales myself I know how long that can be. I asked at the AGM last year if I was right in suggesting that the sales cycle was between six and nine months and was told that was probably correct. I asked the same question at this year’s AGM and was told that was still the case. I noticed a slight hesitation in the response to my question so the sales process may actually be longer still.

I was hoping that the sales cycle would have speeded up as CTC gains good reference clients, but I think the issue is, because CTC interfaces with so many vital existing customer systems, each potential new client carries out a very thorough evaluation before going ahead. All of this of course slows the growth of GHT.

I am a great fan of Kestrel myself and have done well out of following them however I think like any fund or institution they will sell if the price is right. FFastfill (FFA) was a company where I made about fifty per cent profit, where Kestrel also had a holding and a director on the board and the company was taken over. Kestrel took the money.

I think it was earlier last year that some people on this thread were talking about an share price of 200P or significantly more by the end of 2014. That did not happen and I would suggest that on current information 200P is three years away from now at the earliest. Actually that would not be too bad when you consider how much you are likely to gain elsewhere.

In a three year timeframe however, an opportunistic bid could arrive. If someone were to come in with say 150P in the next six months I can quite see Kestrel, not to mention the other institutions who have larger holdings saying thank you very much. Sorry everyone to sound like a wet blanket, but I think some of us may have to have lower expectations than in the past, although I would be delighted to be proved wrong.

To end on a positive note, the CEO would probably not have wanted the GHT job if he thought that the company had a limited future.

[goldnugget] 11/8/2015 13:45

Share price has gone crazy since the positive results were released!

[thebullyboy] 11/8/2015 13:34

I was hoping the new guy would spell out how and what he would do differently to grow clients, I thought he was appointed for that. Hopefully there will be more in the finals.

[schytalk] 11/8/2015 10:28

richjp

Agree that we have yet to see the break through into volume sales but Gresham now has a new experienced CEO, an international sales force although not one built by the CEO and undoubtedly a market leading product (at least for now). I also suspect that resources band width was an issue with a higher requirement for professional services for the initial implementations.

I maintain the view that Gresham has arrived as a niche player but the real prize of becoming a significant global player remains unfinished business, hence the new CEO appointment. What Gresham are trying to do is a very tough ask but the prize is potentially huge, I think Kestrel/Max Royd clearly see this potential.

A concern I have is that Gresham does not appear to have any clear competition, at least in a technical product sense - anyone with any views on this? When you offer a step change that nobody else provides (particularly as a reasonably new entrant) it can often lead to a slow take up (making the market), so competition is a good thing assuming you can overcome it of course. However, as a betting man, my money would be on Gresham being acquired by someone who already has the market reach but of course some big wins are needed first. Time for the new CEO to take centre stage and make it happen.

[mick bell] 10/8/2015 20:44

Thank you for that post richjp, another excellent analysis which I agree with
100%. I am disappointed that the flood of key customer accounts predicted in
2014 has slowed to a trickle, Gresham are averaging roughly 1 new Key account
every 6 months; hopefully the new CEO is as good as his reputation suggests
and he can break the logjam.

[richjp] 10/8/2015 18:45

I think my views are generally in line with gnnmartin on today’s results. There are a lot of good messages but although the CTC growth is impressive in percentage terms, those percentages are in comparison to a very small previous base.

They are capitalising a lot of development cost which has often been a topic of debate when it comes to software companies. I have never been a fan of EBITDA, particularly the “A” in EBITDA. When it comes to pre tax profit as the old saying goes “profit is fantasy, cash is reality”. Cash at 31/12/13 after the fund raising was £4.39M and is now very little different eighteen months later at £4M. In cash terms the company is still not profitable and it is cash that matters in the end.

I accept that they have spent a lot of money in developing their international sales infrastructure, however it’s time that sales team started to deliver on a larger scale. Perhaps that will happen and I of course I hope that it will. The big breakthrough for GHT always seems to be six months away as we have seen a number of times in the past. It is still early days for the new chief exec but I would hope to see his appointment bear fruit in the latter half of this year.

It is encouraging that TechmarketView are positive, but I sometimes think that because they like the technology they may be overlooking the slow growth. It is the pace of growth that has concerned me before. We all want the share price to increase but I think we may be in consolidation mode for a while until we get more news.

[4-10] 10/8/2015 14:17

These results appear to be viewed positively by Richards team.

Article from Richard Holways Group UKHotViews - TechMarketView LLP
Gresham transitioning to growth?
Peter Roe, 09:29, 10 August 2015
Gresham Computing is making substantial progress in driving growth from its innovative Clareti Transaction Control (CTC) reconciliation software product. Overall, H1 revenues were up by 11% to £7.1m, in this total CTC Software sales more than trebled to £1.5m. As the business shifted more towards recurring product revenues and away from professional services, total revenue from CTC rose 10%. CTC is now Gresham’s largest sales and gross margin generator, driving 31% of Group revenue.

EBITDA was up 26% to £1.1m with cash of £4m, down £700k from December 2014.

Among its growing list of over 20 CTC customers, Gresham is building a cadre of core clients, now numbering seven, each capable of generating £0.6-1.0m p.a. These customers, including major names in financial markets, should provide growth as the CTC solution is rolled out across other divisions and trading instruments. Share of wallet should also rise as Gresham builds management and visualisation tools to surround the CTC core.

CTC is now available through the cloud, opening up a new group of potential customers among smaller and mid-sized users. This also increases the potential of using partners and system integrators as resellers.

We would now expect to see greater focus on business areas where CTC is most applicable, particularly in addressing large datasets, complex problems and where set-up time is crucial. These areas include the management of internal risk and regulatory compliance in financial markets. The company will have plenty of scope however to explore new market opportunities, given the growth in data volumes and the need for better control and reporting.

Gresham has built credibility in an important market niche (see here and work back). It looks like its investment is beginning to bear fruit as the balance of the business shifts towards CTC software.

[amt] 10/8/2015 13:22

A new CEO is not going to stick his neck out on first results so the fact he is so confident should be taken as very bullish in my view.

[schytalk] 10/8/2015 13:11

gnnmartin

I don't share your concern as regards admin expenses because the company do state they have built an international sales structure, so this is in place and we can expect modest or no further admin expense increase. If you look at the CTC run rate and the signings made so far, recurring revenue will be much higher in H2 and 2016, just with a roll out to these customers.

If I were to be picky I would say that the new CEO has so far been very low profile, presumably he is doing great work 'behind the scenes' and engaging with clients but there is a lack of visibility. Secondly, the job he was brought in to do, move Gresham from a significant niche player (which I believe it now is) to a serious global player, remains very much work in progress hence back to my lack of visibility comment.

On the positive side Gresham are producing a cloud computing based solution which will launch in the autumn. Further, they are looking to expand the usage of CTC from the core Tier 1 banking solution and developing addition sales channels and delivery models - coded language to agency/third party partnership sales?

Given that Gresham, certainly after the profits warning, will be delivering a conservative report on progress then on balance this is in my view a very positive set of interims.

[gnnmartin] 10/8/2015 12:06

I think the intangible assets are capitalised development of the CTC offering.

At first glance the results look very good indeed, but on closer inspection it is harder to be sure. Revenues are up 713k but admin expenses are up 860k, and a good chunk of the increase in CTC revenues is non-recurring. However, the text promises more from CTC this year, and hopefully this years non-recurring CTC revenues leads to future recurring revenues.

We are still burning cash, sensible enough if it gives faster growth and we if we can afford it. We are still losing money on everything except the legacy assets.

The full year results might be less ambiguous, but I can see why the market hasn't moved the price up more sharply on these results.

[schytalk] 10/8/2015 08:17

amt

Yes very good set of results as I had expected, hopefully we will see a move upwards in the SP, the drift lower made no real sense to me.

I notice that intangible assets continue to climb, any body got a list of what this is made up of. In particular it would be interesting to know the very latest additions.

Onwards and Upwards

[amt] 10/8/2015 07:19

Strong interims and bullish outlook as hoped. Maybe some upgrades?

[schytalk] 07/8/2015 15:15

I agree Mick Bell that things are starting to happen with Gresham, and in my view have been for some while. The new CEO is in place and the interim results are published next week, it will be interesting to see the detail.

The profits warning did create a few disgruntled investors and I am not sure that these have all departed, it will be very informative to get an up to date shareholder list and I look forwards to your posting.

I also believe that the brokers have been and perhaps remain at best neutral which is not helpful for a small cap stock like Gresham, it needs a committed and enthusiastic broker. Hopefully the new CEO will get them fully engaged again which will help prevent a drifting downwards of the share price on no real volume.

[mick bell] 07/8/2015 14:07

Not sure if the details of the purchase is not disclosed due to
the closed period before results?
Also buyers can get round threshold disclosure of large buys
by leaving the holding on their brokers books.
Almost all of the large institutional investors in Gresham
appear committed buyers and over the last 18 months increased
their holdings.

There were 2 large holders who have sold out, Jupiter Asset Mgmt
2.77m shares and Henderson Global 2.44m but they were gone
by the end of 2014.

The sale and purchase should both have triggered an RNS report
as it traded approx 4.3% of Gresham's shares, LSE require an RNS
crossing the 3% threshold and every 1% after that, however there
are 2 standards currently enforced and the EU requirement for an
RNS starts at 5% and every 5% thereafter.

I think Gresham have to complete a bi-annual disclosure of major
shareholders by 20th August, possibly end of August, so I'll check
the FT for updates then if no RNS is issued.
Seems positive to me also schytalk, mainly as a sign that things
are starting to 'happen' with Gresham.

[schytalk] 07/8/2015 11:59

Well several days have passed since the large share volume occurred and no RNS, so it would appear that this was a new significant purchaser who did not trigger a reporting requirement. Hopefully this is the exit of one of the remaining 'unconvinced' investors, the sooner all these exit the better. This seems positive to me rather than being purchased by an existing major holder, anyone with any thoughts?

[amt] 06/8/2015 21:05

I expect we will see a gradual rise into the results now.

[mick bell] 30/7/2015 15:00

It will be interesting as you say schytalk, to see who the buyer/seller were
yesterday. The recent fall probably caused by the overhang of this divestment.

Kestrel are always around mopping up loose sells, and over the last year have
increased their holding from 5.77m (9.12%) to 6.15m (10.3%) however the most
aquisitive buyer has been J.O. Hambro moving from 4.42m (6.99%) to 6.54m (10.35%)
overtaking Kestrel as the second largest shareholder.
These two along with Schroder (13.35%) now hold 34% of Gresham and it looks like
the company's shareholding is being increasingly concentrated in a smaller number
of large holders who will be able to influence the future of Gresham.

Kestrel is a relative minow compared to Schroder and J.O. Hambro who are both
global investment companies with £billion funds, which gives me some optimism for
Greshams future and looking forward to the results in August.

[wh1spa] 30/7/2015 13:43

There you go schytalk ...... Upwards! (Albeit without the patience!)

[schytalk] 30/7/2015 11:32

Agree that the share price drifting lower has been disappointing and not what I expected, the new CEO's options are somewhat under water having been granted at 110p.

That said the markets have been somewhat jittery and as richjp points out it is a funny time of year. I suspect that Kestrel are indeed covered by the closed period so cannot offer their usual support. There is still a hang over from the profits warning in that one or two major investors are not in the share for the long term hence the major sale yesterday - it will be interesting to see who the seller and buyer are. Also, I still believe that the broker remains somewhat bruised and so is not sweeping up any available stock, they seem to have left that function to Kestrel!

Overall though I remain positive about CTC and therefore the share price I believe that the interim results will be good and hopefully will contain some detail as regards CTC roll out and prospects. Yes patience is needed which as the saying goes is a virtue.

Onwards and upwards all be it with patience.

[jadeticl3] 24/7/2015 15:44

Good advice. However, I do not have an alternative, so I will be patient. I believe the company does have a very valuable asset, and that this will be recognised, purchased, used successfully by many companies. Then the share price will rise accordingly, but nobody is factoring in this potential until they see the revenues flowing in.

So with this confidence I cannot sell, and from time to time I add to my position, but falls such as I see now test my resolve. Maybe Monday, I say to myself, and then...next Monday!!!