Lombard Risk Management Share Discussion Threads

[battlebus2] 15/10/2013 20:56

I agree Simon on SNTY, i took a few after the recent update, Simon Cleaver seems to know what he's about imv.

[techno20] 15/10/2013 20:13

As the longest held stock in my portfolio, I tend to look at LRM through rose tinted specs.

But even I struggled to see the positives when I read the results this morning. The top line was disappointing, the bottom line dire.

I was going to sell a chunk first thing this morning, but couldn't get my account to work on the train on my mobile!

I'll probably stay patient now as techmarketview suggests, but either PT needs to urgently get some control over the cost base or if this level of spend is required to stay in the game, JW needs to recognise LRM would be far better off as part of a larger business.

Techno

[simon gordon] 15/10/2013 19:42

Woody,

I don't hold this one, got burnt on these in 2012, so have no confidence in it.

I noted you were heavy on them, so I've been keeping an eye on them.

Software stocks can be good money spinners when they leverage their operational gearing, but if they're very niche (tight limited market) with a lumpy order intake then it's hard for them to really take off.

SNTY is one I'm looking at right now, it's very small but has a biggish market to aim at, it'll either race away or be a pancake stock.

[woodcutter] 15/10/2013 19:12

pmac

yep with you there if it gets to 8p i'll consider it.

i guarantee at the full year results JW will make great play of EBITDA and adjusted earnings etc. glossing over the D&A and/or capitalised development aimho of course.

At year end my guess would be that by the time they've paid the divi, capitalised spend and accounted for D&A and WC requirements they'll be about evens on cash. So they might need to raise further equity to pay for the future WC and divis.

Call me cynical but raising funds from your shareholders to pay them a divi isn't quite why i do this or what i'd expect.

frustrated and disappointed as i really hoped this would be a long term investment with considerable upside


woody

[woodcutter] 15/10/2013 19:06

SG hope you don't mind me passing comment on the techmarket posting.

So, without wishing to sound pedantic i think techmarket have not read the report correctly imv.

"CEO John Wisbey however was confident of second half improvements due to the near doubling of contracted revenue and other wins, stating that any new business won would represent revenue growth for the full year, giving him confidence about meeting market expectations."

he's only confirmed his confidence in meeting revenue expectations, there's a world of difference in meeting profit expectations imv. And i think he's being a little disingenuous or perhaps clever in the way he's skirted around the profit expectations.

WC

[woodcutter] 15/10/2013 18:53

onb

using your figures we get:

Revenue £20m (digital look have £19m pencilled in)
gross margin 99% GP £19.82m
admin cost £15m
D&A say £2m
PBT £2.82m (digital look forecast £4.55m)
PAT £2.17m
eps 0.82p (digital look forecast 1.55p)

without wanting to sound condescending have you looked at the cashflow statement. LRM capitalised over £2.4m of development costs in H1. If we assume they do the same in H2 they are clearly not generating any cash, indeed they are burning it at a rate that will wipe out any profit. Even if you add back to the P&L the amortised cost of almost £2m for the full year. (933K for H1 from cashflow statement)

"we believe we have already won enough business for the full year's revenues to equal or exceed last year's full year revenue number of £16.8m. Consequently, any business awarded to us and implemented in the next 5½ months will represent revenue growth for the year as a whole. This gives us continued confidence in meeting the full year REVENUE forecasts in the market."

Wisbey constantly refers to revenue and never once mentions profit. The above statement like much of the wording in these interims is all about revenue.

I am not against software companies capitalising development costs provided they are likely to be one off expenditure in developing the product and are generating cash but LRM are doing it too big too often.

It's an earnings warning waiting to happen imv.

Im reminded of the old saying

Sales are vanity, profit is sanity and cash is reality.

Woody

post amended to include adding back of amortised costs.

[pyemckay] 15/10/2013 16:09

would be tempted if it fell back near lows of the year, risk reward would be better.

[simon gordon] 15/10/2013 16:01

TechMarketView:

Tuesday 15 October 2013

Lombard Risk Management – Delays hit H1 results

Several companies selling in and around the Financial Services sector are complaining that progress has been affected by unexpected delays. (See Access Intelligence, Brady) Given economic uncertainty, the re-writing of regulation and the challenges faced by customers, estimating the precise time of payback for any investment is extremely difficult.

Lombard Risk Management is a serial victim. Impressive full year results (see here) would have been even better without regulatory delays and we warned then of volatility in results. First half figures, announced today were also damaged by delays. They showed revenue down 5% to £7.3m (after growth of 31% for the previous year). EBITDA was just positive at £0.1m, but LRM moved into loss at the pre-tax level. About half of the £2.6m cash raised in the first half was deployed in developing new products.

Delays in setting the European Banking Authority's reporting rules meant the postponement of LRM's COREP product and weighted the balance of performance even more to the second half. CEO John Wisbey however was confident of second half improvements due to the near doubling of contracted revenue and other wins, stating that any new business won would represent revenue growth for the full year, giving him confidence about meeting market expectations. (In the absence of further delays, that is).

Despite the timing hiccoughs, there are significant grounds for optimism. Order books are at record levels as FS firms attempt to meet their regulatory obligations, (see here). COREP deliveries can begin, the US pipeline is strong, customer retention is high and the portfolio is being expanded into collateral reporting systems for larger banks. The company appears on the right track to deliver, be patient.

[oldnotbold] 15/10/2013 15:50

I am new to the story so please forgive stupid comments, but the commentary seems positive and I'm surprised so many posters are so concerned. As an entrepreneur myself I know that only Madoffs achieve smooth earnings perfection. Life isn't so elegant unfortunately. But:
a) Revenues are going to be extremely strong in H2. That is repeated so often during the statement that it would be criminal misrepresentation if it doesn't come through.
b) While the shift to £0.9mn of loss is awful, the statement that 'the second half of the year can be expected to be appreciably cash generative in contrast to the first half' does suggest that costs will not track revenues higher. Since 75% of costs are salary-related and they claim this is largely fixed, the operating leverage here is helpful.
c) Assuming £20mn of revenue, and admin costs rising from £7mn to £8mn in H2, plus £2mn of depreciation gives £3mn of profit before tax, maybe £2.5mn after tax which translates to 1p eps per share. 11x earnings. Not bad, not amazing.
d) The key question for me is the sustainability of revenues. Will demand grow next year, or once this European regulation is done, will revenues slip back again? If revenues can grow again in 2015, this is a strong story.
Your thoughts and experience much appreciated.

[painter] 15/10/2013 14:19

Also out today. Big money (1st big) in this business but also big risk (2nd big). Delays in regulations is common and costs big money (3rd big) If you need to hire short term contractors in this area to help for fill new contracts or maintain existing clients you pay big money (4th big). Further delays give you big xxxxx? answers on a postcard,

Like pyemckay good luck to the holders. I know this business area well and will watch with interest.

[pyemckay] 15/10/2013 11:03

i sold too as the results are very poor, working capital and cashflow are my concerns. out with a small profit.

good luck to the holders but there is downside risk for me

[battlebus2] 15/10/2013 09:14

Paul Scott agrees with you Woody..

hxxp://www.-.co.uk/content/small-cap-value-report-15-oct-utw-lrm-78117/

[woodcutter] 15/10/2013 08:48

yep b2 glad i'm out made 20% but was up early this morning as usual and lucky to make the trades before everything went too far south, out at an average of 12.75p so can't complain.

fwiw my full year forecast based on H1 are:

Revenue £18m (digital look have £19m pencilled in)
gross margin 99% which suggests nearly all costs are on software development
GP £17.84m
admin cost £14m twice H2 as they are people and fixed
D&A say £2m twice H1 probably more now there's further capitalised assets
PBT £1.84m (digital look forecast £4.55m)
PAT £1.44m
eps 0.54p (digital look forecast 1.55p)

So you can see it looks poor to say the least. There's a small amount of deferred tax assets and they may not pay tax at the 23% rate but even so it isn't inspiring.

And that's without considering the additional cost associated with further capitalised software development if we consider that at twice H1 at £4.8m then they are making a substantial loss of about £3m.

I think that's it with me and software companies from now on i've won a few and lost a few but they are too manpower dependent and the costs are therefore too fixed. With a manufacturing business money can be made in other areas like materials, improving production processes etc.

My view is despite the growth in client base and the strength of the order book they don't seem to be able to control costs and therefore generate cash. I've held for sometime and the apart from one occasion it's been pretty consistent as you say same old, same old.

That's even more cash on the portfoilio now.

Woody

[battlebus2] 15/10/2013 08:24

Same old same old from this company i'm afraid Woody.

[2vdm] 15/10/2013 08:23

Well given that they are working in a tough market the company seems to be well on target as promised. The short termers are not surprisingly bailing this morning, but the second half looks solid and I like the the CEO's comment "We enter the second half of the year with a strong book of pent up and committed orders. The contractual order book was up 92% to GBP5.4m at the period end, from GBP2.8m a year earlier." In addition 16 new clients, pinched from competitors LRM must be attracting some big names now and this can only lead to a stronger visibility/reputation which will help boost the company forward.

[woodcutter] 15/10/2013 08:19

sold my entire holding in two tranches this morning. Not showing on the trades data though and i had to take a much lower bid due to volume. Nevertheless i made a decent profit

Poor results.............looks like a full year profit warning coming to me.And i know it's generally second half weighted but there's too much to do to meet the 1.55p eps forecast.

Again there's significant capitilsation of software costs and the money raised earlier this year is what's enabling the divi to be increased. They may even need to raise further capital to meet WC needs.

Too much concentration on revenue growth and no cash generation. Profit not even mentioned in expectations for full year figures.

I've no doubt the client base and products are very good but as with a number of recent results for software companies the admin and development costs are not being controlled sufficiently. BRY was another recent example.

Good luck to those who stay with it, my guess will be the share price will drop quite a bit over the coming months. My estimate for full year eps fwiw is about 0.54p well below forecast but as always that's dependent on how much software development is capitalised.

Woody

[twiggy2] 14/10/2013 12:00

Moving up nicely ahead of tomorrows results.

[techno20] 12/10/2013 07:34

Taken from Hardman's October newsletter...looks like they've been briefed...does point towards H2 bias on revenue...should see a very bullish outlook statement on Tuesday. Techno

Lombard Risk Management (LRM)
Lombard Risk, the leading provider of collateral and transaction reporting software, is a clear beneficiary of increasing levels of regulation. Waves of regulation continue to provide opportunities for the company. We estimate this will deliver 16% compound growth (FY11-FY15E). During the current period (i.e. FY14) the introduction of common reporting (COREP) is providing many opportunities, with a significant number of contracts ready to be recognised in the second half.
The implantation of common reporting (COREP) at the European level is in its final phase of implementation. In July the "final draft" of the rules were released for consultation, signaling that the EBA (essentially the European banking regulator) was essentially in the "beta phase" of its development. "Final draft" is the point at which the broad brush rules have been agreed and the detail of the guidelines are being checked for consistency. On 19th September, the EBA released a consultation paper on "the XBRL Taxonomy" related to the technical standards. This paper outlines the processes and formats in which reporting institutions deliver the common reporting.
These two developments represent the end game for delivering a finished COREP package to clients, enabling Lombard Risk to tweak its proto-type software and get it market ready. Therefore, over the coming 8-10 weeks Lombard Risk will be in a position to deliver the completed software to enable the implementation of clients' reporting solutions ready for the first submissions to the EBA for the quarter ending 31st March 2014.
Lombard Risk has successfully signed up a significant of COREP related contracts. By the time the company reported FY13 results, 33 clients had signed (11 were for new names), with a number of additional opportunities still to go for. The majority of these contracts will be recognised once the CORP packages are delivered, which should mean FY14 represents a record year for the group. We estimate revenues increase from £16.8m in FY13 to £19.0m in FY14. Since annual licence fees are recognised on a percentage-completion basis (see note 1 FY13 report and accounts) these COREP contracts will predominantly fall in 2H14.

[techno20] 11/10/2013 08:09

LRM covered in yesterday's Shares mag...

Suggests t/o @ £7.4m and pre-tax profit at £2m.

Given they delivered £7.7m last H1 and £9m in H2, I'd be disappointed if the £7.4m proves correct. Given the repeat income and new contracts being worked on I'm hoping for something closer to £8.5m. But no's will be H2 biased due to COREP.

COREP contract no's in my mail above should have read 40+.

Techno.

[techno20] 11/10/2013 07:58

Courtesy of Harkin on iii. Assume from Sharecrazy....like the potential take-out valuation...

oday (2013-10-10 12:39:54)Print this Article
by Richard Gill

A brief update from software provider to the financial services industry Lombard Risk Management (LRM) which has confirmed it is in the final stages of concluding a major contract for its COLLINE collateral product with a large European bank. It looks almost certain that the deal will be confirmed in due course, with expense already committed to the project by the bank. Lombard expects to conclude the deal by the end of December. As usual no financial details have been announced.

Assessment...

The deal for COLLINE adds to a raft of contract wins for Lombard this year, showing that significant investment in its products is really starting to pay off. While the financial details of the contract have not been announced we believe that the deal is a significant one, especially given that it has been announced before being fully signed.

Valuation...

Lombard shares have performed steadily since our last update and at the current 12.375p are at near 2 year highs. The firm is now capitalised at £32.43 million.

Lombard will be announcing interims next week when we will be meeting management and providing a more detailed update. However, we still believe that the end game situation here could be a take out by a larger industry player. As a reflection of prices being paid for "fintech" (financial technology) businesses, AIM listed FFastFill was taken over earlier this year by a subsidiary of its majority shareholder ION Group on a multiple of c.6.2 times historic revenues and 4.5 times projected revenues - a common valuation measure within the sector. Apply the FFastFill buyout multiples to Lombard and we are looking at a price range of between £103.4 million and £84.6 million, or 44.5p to 36.4p per share.

Overall, the investment case continues to look attractive, with the long-term growth in expected regulations and the company's strong product suite providing good prospects. "Buy".

[2vdm] 10/10/2013 12:10

Tudes100, quite right,my mistake Results on Tues, not Monday. Apologies to all.

[techno20] 10/10/2013 10:48

Positive news. Had wondered whether the new Colline version release was linked to work with a specific client.Expecting solid results next week and hopefully news of more COREP clients to take the no's over 30.Given implementation timeframes most income from these should be in the next few months - so combined with this deal should mean a very busy H2. Great to see new high today, but further to go imo. Techno

[tudes100] 10/10/2013 09:15

Results on Tuesday, 15th

[2vdm] 10/10/2013 08:59

Some more good news in today's RNS and looking forward to the results on Monday.
Here is Northland Capital's view (FWIW, I've not heard of them before) that came through this a.m. on the Proactive Investor email today.

NORTHLAND UK VIEW: Announcing a prospective contract win is a fairly unusual step and presumably points to the significance of the customer. COLLINE, its collateral, clearing and repo platform, has around 50 direct clients and many more indirect clients but the recent growth has been coming from the regulatory and compliance software products (REFORM, COREP and ComplianceASSESSOR). Hence the growth in COLLINE revenue is encouraging. The demand drivers for the company remain good with ongoing waves of regulation and the wider spread of reporting. The current rating of 7.8x FY14 and 6.7x FY15 are low for the sector but there is substantial development spend capitalisation (£4.3m in FY12) to factor in.