Gresham Technologies Share Discussion Threads

[4-10] 15/3/2019 21:22

Apologies for the tardy posting of this.
UKHotViews from TechMarketView LLP
Richard Holways firm
Gresham's difficult year ends with positive momentum
Jon C Davies, 09:57, 12 March 2019
Gresham Technologies, the provider of real-time data integrity and control solutions, has announced full year results for 2018, highlighting a difficult twelve months. Group revenues, including discontinued operations, for the year ended 31 December, were down 8% to £20m, and down 7% on a statutory basis. Adjusted EBITDA was down 78% to £1.1m in 2018, compared to £5.1m in the previous twelve months. Gresham did manage to shrink its losses before tax to £1.4m in 2018, having reported a £3.8m loss in 2017. Adjusted diluted EPS was down 108% to 0.5p compared to 6.5p in 2017.

Although Gresham's full-year results highlight a challenging period for the company, the news around its Clareti offering is far more encouraging. Overall Clareti revenues were up 6% to £11.8m, including £0.7m derived from the B2 Group acquired in 2018 (see: Gresham buys B2 Group as revenue dips). The company added fifteen new Clareti clients in 2018 and in February Gresham announced a major contract with a Global Systemically Important Bank (GSIB) see: (Gresham announces £2.3m Tier 1 Clareti win). Meanwhile, 2019 appears to have started positively for Gresham and the company will be hoping that it can continue its turnaround, fuelled by its recent positive momentum.

[richjp] 14/3/2019 16:59

jadeticl,

I posted on here back in January that I had made two more purchases of 10,000 each as I thought the fall in the share price was way overdone. Added to my original holding I now have more than enough. Yesterday afternoon's meeting just gave me some reassurance that I had done the right thing. It looks as though I got it right that time. Of course it might just have been luck.

[jadeticl3] 14/3/2019 16:48

Thanks for all this information richjp. Did it all sound optimistic enough to cause you to join gnnmartin in buying more? I am wavering on that one!

[tacticaltrader] 14/3/2019 16:45

Thanks again RJP, Regtek have only recently come on board so I think it is fair to say that Cognizant could be to blame for poor US sales. I did post the other day links to recent jobs being advertised by Cognizant for people with CTC experience in the main Indian Tech hubs so perhaps they were under staffed - who knows! (if you Google the following search terms : 'Gresham post trade Cognizant' you should find a marketing pdf under the yourtechdiet.com address explaining the cognizant/gresham collaboration/offering) Furthermore I take note of their recent acquisition :https://www.consultancy.uk/news/20600/cognizant-purchases-dublin-based-fintech-innovator-meritsoft

[richjp] 14/3/2019 16:14

gnnmartin,

I am actually not too bothered in the change in the way they recognise revenue as it all works out the same in the long run, although perhaps if they had made it clearer in the past how much was fixed term and how much was recurring revenue that might have helped. Cash will still be received at the same time as under the previous accounting policy and as I keep saying, cash is so important.

Tactical Trader,

It's a shame you could not make it. I would encourage more PIs to attend if they can.

On page 13 of the online presentation they refer to Cognizant and Regtek as the two newest partners and that they are looking to recruit more so that information is in the public domain.

IM did say that the cost of direct sales people is high because to get the best people you have to pay them a fair amount and that partnerships might be a better way forward in some situations.

[tacticaltrader] 14/3/2019 15:42

Many thanks RichJP. (I would have joined you at the meeting but work commitments + residing in Edinburgh put pay to that)Can I ask if there was any mention of the US partner they have who are white labelling, of sorts, their CTC offering. Its the identity of them that interests me and whether that is being made public.

[gnnmartin] 14/3/2019 15:40

As richjp reports, one contract slipped from December into this year, and is now signed. GHT decided to alter the way the contract is constructed and hence the way the revenue will be accounted. The result is that the profit we expected to register last December won't just move into this year, it will be spread over the next 3 years (IIRC). I don't think the other contract is similarly reworked, since it was signed and only did not get taken onto the books because the contract is conditional on a third party signing up to a separate contract.

Anyhow, the message is perhaps good news with a short term hit. The first half profit may disappoint those who just expected last year's missed revenue to fall into this year's first half. On the other hand I am encouraged that they feel able to spread the revenue over the coming years. A cynic might speculate that they had their arms twisted to do so, because (in my view at least) that is a more accurate way to reflect the company position. I can best demonstrate my opinion by saying that that 5,000 buy this morning was mine.

[double double] 14/3/2019 15:38

Thanks richjp sounds good

Unfortunately if forecasts are to be believed we have had a serious setback of good 3 years, unless after 2020 we get some kind of a hocky stick effect.... live in hope.

[richjp] 14/3/2019 15:11

Below are a few thought from yesterday afternoon’s meeting however the following quote from the broker note today sums it up for me: “investors should focus on the positive strides made so far in 2019”.

There were six of us PIs there. The meeting went on for over an hour and a half compared to the one hour which these type of events have typically lasted before. GHT were represented by IM and the FD Tom Mullan.

They have been doing numerous institutional investor presentations in recent days, with more to follow. Perhaps most important the three fund managers that are the biggest current shareholders which I think are Schroders, Hambro and Kestrel were very supportive.

The two deferred contracts were discussed at some length. One was deferred because the client did not follow their own internal procedures correctly the second needs a partner agreement to be signed but that is very close. I would be amazed if the second one was not closed very soon indeed. If they had been able to book some revenue in 2018 from these contracts the numbers could have looked very different.

They were disappointed with their US performance although the recurring revenue for 2018 is higher than that for 2016. The revenue for 2017 benefitted from a major fixed term contract. It seems that they are still perceived over there as a very small UK company compared to the established companies in the US. The signing of a major tier one bank should help in that respect and they are considering providing technical support from the US. At the moment US technical support is provided online from the UK and Australia. They intend to persevere in the US.

Two or three PIs expressed strong feelings about the fact that some of the directors, particularly non execs were non shareholders. IM duly noted that so we will have to wait and see what happens.

They were keen to stress how far they have come since 2012. They have gradually sold off a lot of the legacy businesses and they expect to be in a position sometime during 2020 where they will be able to run the company on Claretti income alone. IM said it was almost inevitable that there would be a setback at some time such as happened last year.

They still think that they have a major market opportunity. The two major established competitors cannot compete on functionality and flexibility. Although GHT’s pricing is similar the benefits that Claretti can bring means that the total cost of ownership for the client is much superior.

[tacticaltrader] 14/3/2019 08:43

The two previous postings are from the brokers note - I presume - that someone was kind enough to cut and paste to me.
Interesting that they have a bitcoin exchange as a customer.

[amt] 14/3/2019 08:30

Great Post Tactical. Sounds like a Professional.

[tacticaltrader] 14/3/2019 08:25

Clareti traction increasing despite deal slippage
While headline numbers highlighted the impact of deal slippage at the end of last year,
30% growth in Clareti ARR confirms the growing traction of this unique technology and
good momentum in building a more predictable annuity business. Full year numbers were
largely in line with the 4 January update, with group revenue down 8%. Group adjusted
EBITDA of £1.1m was better than the £0.8m indicated due to the release of conservative
bonus/commission accruals. On a continuing basis, revenue was £19.3m and EBITDA £0.5m.
Highlights include B2 acquisition and 15 new Clareti contracts
A total of 15 new Clareti clients were added in 2018, including a further tier 1 global bank.
The acquisition of B2 Group in July 2018 was significant, adding cloud-based bank
integration technology and a further 16 customers. This business delivered four customers in
H2 2018, including a high-profile German challenger bank and a Luxembourg-based
bitcoin exchange. As the core of the new Cash Management Solutions division, B2 will help
Gresham penetrate the growing multi-bank cash management market.
Post year end events demonstrate positive momentum in 2019
The signing of one of the two slipped deals and the successful divestment of the legacy
VME business post the year end confirm that momentum is rebuilding. The slipped contract
signed represents a landmark deal in the industry, while the VME disposal removes future
earnings risk and frees up resource that can be focused on the Clareti- led growth strategy.
New FY20 forecasts introduced, valuation in line with financial software peers
We make no major changes to our headline FY19 estimates and introduce a new set of
forecasts for FY20. These reflect conservative assumptions around both Clareti growth -
given the focus on subscription revenues – and the rate of decline in legacy revenues.
While the current valuation is in line with financial software peers, we are confident that
premium Clareti growth will help deliver significant outperformance in the long term.

[tacticaltrader] 14/3/2019 08:24

FY 2018 results were largely as indicated in the January trading update, although adjusted EBITDA was slightly ahead. Investors should focus on the positive strides made so far in 2019, reflected in the successful disposal of the legacy VME business and the signing of one of the landmark deals that slipped from December. Strong growth (30%) in the Clareti recurring revenue base offers a potent reminder that this unique technology continues to gain traction across a broadening array of use cases.

[amt] 13/3/2019 16:28

Thanks Richjp hope it's an interesting presentation

[richjp] 13/3/2019 10:57

Yesterday's presentation was for institutions. The PI one which I am attending is this afternoon.

We might get a broker note following yesterday but they might not be in any rush. When I have been to these PI meetings before someone from N+Singer is usually present so they might just be interested in what PI's have to say.

I think that somewhere in the results and/or the presentation they say that one of the two major orders that was deferred has been signed and that the other is imminent, which suggests to me that they are just sorting out the contractual details.

[jadeticl3] 13/3/2019 10:28

TT not saying much!

richjp will say more.

Can I check, please....have the orders that were originally expected to be completed by year end now all been completed? I know one was announced but any that were slightly delayed should be sorted now, 2.5 months after year end.

[gerihatrick] 13/3/2019 09:48

I await richjp's feedback as he indicated he was going to the meeting

[amt] 13/3/2019 09:33

No feedback from the meeting yesterday so either a lot to report on which takes time to report or nothing of much interest. Doesn't seem to have brought out any buyers anyway.

[richjp] 12/3/2019 14:14

I don’t think there are any real surprises in the results today as the trading update has prepared us for this.

In the investor presentation put up on their website today however, on page 6 it refers to “disappointing sales in the US largely due to lower new sales of initial licence fees” and the figures presented show that revenue actually declined from the previous year. A year ago they were saying how important North America was to them and what a great opportunity it was, so I did find this surprising and a bit of a concern. It may be that the deferred orders might be a part of this. I am attending tomorrow afternoon’s meeting and I will try and find out a bit more.

I am confident that GHT is on a sound financial basis so I see little downside risk. The problem is the rate of growth. I have always been a bit more conservative than some when it comes to growth expectations, however I would like to see more than we have had in the last couple of years. Lots of PIs go for what are perceived as high growth companies so I cannot see a lot of fresh PI money coming in for the moment.

I think the share price will recover and when it does it will be more strongly underpinned than before but it is likely to take some time.

[jadeticl3] 12/3/2019 09:40

Whatever happened to the CEO’s new moto “from Challenger to Champion” or something similar? Just now it does not look as though either of those descriptions fits GHT very well?
I will await richjp’s studious reflections!

[double double] 12/3/2019 09:05

Both brokers out already, they forecast 1.4p and pe of 61 for 2019 and 2.2p and pe of 39 for 2020. So long way back to where we were unfortunately.