Lombard Risk Management Share Discussion Threads

[igoe104] 05/6/2014 09:41

Ill be adding more over the next few months, lots of value here at the moment.

[rivaldo] 05/6/2014 08:52

Great stuff Techno, very encouraging.

I can't see the upgrade on the Hardman web site or Twitter feed - have you got a link, or how did you come by the info? Perhaps it's an e-mail update I can register for?

Good to se you here igoe104.

[emmo1210] 04/6/2014 21:24

Cheers Techno, good piece you found with decent analysis and view. I think it will be especially interesting to see how Americas and Asia does as the home market must be well saturated for new orders by now. John Mc Cormick must know the Asia market well.

[techno20] 04/6/2014 19:48

Great to see a few new posters on here and thanks Rivaldo for the WH piece. Really positive.....As is Hardman & co who have just upped their forecasts for 2015......


Lombard Risk Management (LRM)
Lombard Risk reported results on 13th May, profits and revenue ahead of expectations. We have upgraded FY15E. It posted a record backlog stood at £5.2m (+18%). FY14 featured a signing of a number of Tier 1 banking clients and strong expansion in Japan.
Revenue growth: All FY14 22% revenue growth achieved was organic (up from 18% organic prior year). 2H14 came in strongly, at 44% up on previously record half year. 2H14 revenue was £13.1m vs a full year FY13 of £16.8m. There was an element of 'catch-up' from H1, nonetheless the backlog (order book revenue to come from orders in hand) at year end leads us to raise estimates. Lombard Risks fulfils mandatory regulatory requirements for its financial sector clients and regulation rises (though there were delays to the regulator implementing a key stage until next month). Revenue from alliances should start to become meaningful.
Upgrade to revenue numbers: FY14 achieved £20.4m (£19.0m estimated). We raise sales FY15E 6% to £22.5m. 61% is recurring revenue plus the order backlog, a strong ratio. Indeed in FY14 there was a strong focus on entirely new business so order book conversion and underlying trend of repeat work and projects should do well in FY15E. We also have strong anticipation based on extending FY14 'beach-head' wins for growth in North America and Japan.
Upgrade to profit numbers: FY14 achieved £4.4m; had estimated £3.8m. We upgrade FY15E from £4.6m to £5.0m. With gross margins near 100% and high investment for growth in FY14, we see EBITDA margins expanding FY15 from 29.0% FY14 to 34.7% FY15E. This (allied to software amortisation conservatively rising from £1.6m to £2.8m) translates to a rise in PBT to £5.0m, 14% growth on FY14 just reported. So as costs were taken on (technology product development) in FY14, EBITDA rose 12% but we estimate a 32% rise in FY15E.
Investment for the future: Technology spend has been increasing, development capitalisation alone running at 26% of growing sales in FY12, FY13, FY14. Technology spend stood at £7.1m, up from £4.5m in FY12.

[igoe104] 04/6/2014 13:20

Count me in chaps, very impressive results and update.
and rivaldo here as well, sells it for me.

This looks like a boring un-loved stock the type i Love to hold.

Might have to give it a cuddle.

[rivaldo] 03/6/2014 10:39

WH Ireland have just sent out the June issue of their monthly investment circular, and amongst their recommendations are LRM, so hopefully this will generate some interest:



"UPDATE: LOMBARD RISK (LRM) Legislation driven growth
Share price: 11p | Market cap: £29m

A stellar second half has helped compliance software specialist Lombard Risk Management deliver results ahead of expectations.

In the year to 31 March 2014, revenues jumped 22% to £20.4m, as pre-tax profits increased 13% to £4.4m. Lombard sells software which is largely mandatory for financial services companies to use. It has signed 34 new contracts for its
COREP (Common Reporting) package and the well established COLLINE collateral
management software recently secured a significant deal with a Tier 1 bank.
The record order book is £5.3m, and recurring revenues are at a high of £8.6m.

Though the shares have proved lacklustre, the outlook is positive with profits for 2015 expected to nudge £5m for EPS of 1.56p. Consolidation in this sector of the market would suggest the valuation of Lombard looks anomalous."

[rivaldo] 02/6/2014 14:57

2m shares just reported at 10.5p - I assume that's a buy from earlier reported late which has prompted today's rise. Or the clearance of an overhang having the same effect. Good news either way!

[rivaldo] 02/6/2014 09:06

Cheers Simon, that's an excellent summary which exactly mirrors my own thoughts (and summarises them much more eloquently than I could!).

IMO this is an excellent buying opportunity following Friday afternoon's (calculated?) markdown.

I note that Moatology also recommends another blogger who also own LRM:

[simon gordon] 31/5/2014 16:35

Moatology - 28/5/14:

Lombard Risk (LRM.L)

Lombard Risk released their FY14 results on May 17th. The company posted strong results with revenues increasing 22% and operating profit up 23%. Operating cash flow was £5.3M but heavy software development investment drove FCF negative. Operationally, LRM signed 67 COREP contracts and landed a contract for their COLLINE collateral management solution with a Tier 1 bank.

Somewhat puzzling, shares sold off 30% leading up to earnings, hitting a low of £9.60 in early April. The only negative news was the resignation of CFO Paul Tuson, which now appears unrelated to any financial troubles at the company. Shares recovered slightly but still look dirt-cheap after earnings, trading at 1.3X revenues and 5X pre-tax earnings.

One theory for LRM's market valuation is skepticism of earnings quality, understandable given the high capitalization of R&D costs (~70%). This is view is a misunderstanding if you ask me. Lombard has ramped up product development and marketing expense to capture new opportunities created by the regulatory reform wave. Sacrificing profitability is a wise strategy – banking software is complex, churn is low, and customer lifetime values are very high as a result.

If I'm right, accelerating revenues from new customers coupled with declining product investment should drive soaring FCF in 2015-2016. In the meantime, the company remains an attractive acquisition target and likely fetches twice the current price in a buy-out. Lombard remains a high conviction idea and I took the sell-off opportunity to double my position.

[emmo1210] 30/5/2014 16:50

Is that the 2/3 year old news?

[2vdm] 30/5/2014 16:46

Hopefully the bad news (the way they capitalise their R&D) is already priced in. I've been a LTH here and remain positive.

[cwa1] 30/5/2014 16:32

Taken a modest punt on them. Hope it was no more than clumsy selling and not some after close/early Monday bad news heading this way......

[cwa1] 30/5/2014 16:07

Bit of a late Friday afternoon drift....hmmmm....

[rivaldo] 29/5/2014 10:24

Nice uptrend developing now, and the bid price is up to 11p (EDIT - well, it was!).

[rivaldo] 22/5/2014 13:40

Breaking upwards now - they were indeed large trades emmo, so perhaps an overhang has been cleared.

News too - some interesting extracts, particularly the paragraph re LRM's "leadership position in the UK":



"Lombard Risk launches XBRL-Checker to support EBA regulatory reports
19 May 2014 | 731 views | 0 Source: Lombard Risk Management plc
Lombard Risk Management plc (Lombard Risk), a leading provider of integrated regulatory reporting, compliance and collateral management solutions for the financial services industry, offers firms a FREE, on-line facility to help resolve XBRL validation errors encountered when submitting EBA regulatory reports to FCA or CBI.

Firms have until 30th June to produce, test and submit the new XBRL regulatory reports in order to be compliant with the latest Common Reporting (COREP) rules.....

.....Lombard Risk has been able to capitalise upon its leadership position in the UK and its prior experience in providing XBRL solutions in other regulatory jurisdictions to win nearly 100 clients for its REPORTER COREP / XBRL solution.

etc"

[emmo1210] 22/5/2014 09:35

2 whopper trades yesterday totaling £350k. Didnt seem to move the price any, will be interesting if there is a holding rns

[rivaldo] 21/5/2014 07:39

Good stuff in this new article - "significant upside":



"Lombard Risk Management – CEO Catch Up
By Steve Moore - Monday 19 May 2014

Following results from Lombard Risk Management (LRM) last week, I have now managed to catch up with CEO John Wisbey.

The issue of capitalisation of R&D spend versus reported profit is one he has frequently had to deal with – with him again noting that the company is following adviser guidance in reporting as it does.

A reported pre-tax profit of £4.42 million for the year ended 31st March 2014 compared to £4.22 million more than depreciation + amortisation of capitalised investment and the company is, I understand, generating free cash on an underlying basis. The balance sheet looks solid enough and, although current opportunities will see the company continue to invest, Wisbey pointed to the results announcement statement that "we expect research and development costs to reduce in the 2014/15 financial year as a percentage of revenues".

This supports my view that there will be growing free cash generation here and Wisbey was unsurprisingly, in the context of all-time high recurrent revenues, a highest ever year-end order book and continuing international financial industry regulatory change, confident in outlook.

Last seen, house broker, Charles Stanley, was reviewing forecasts, though a move towards reporting £5 million of profit looks realistic for the current year. At a current 10.75p-11.25p, Lombard is capitalised at sub £30 million and, as previously noted, the growth being recorded and positive outlook provide confidence and a trade sale looks the likely end-game outcome. At such a point metrics such as multiple of revenues likely come into play and there looks to remain significant upside on such a basis."

[emmo1210] 20/5/2014 14:03

Just because you cannot touch it, does not make it worthless. Hard to value, yes, but still valuable

[emmo1210] 20/5/2014 14:01

"Yes, emmo, they do, but the value of any company is the NPV of its future cashflows. Having an intangible asset on the balance sheet which is simply the historic cost of developing software is not (IMO) useful."

That would be cashflows earned on their assets right? It is difficult to earn cashflows on no assets.
I'd be interested to know how any balance sheet asset is not a historic cost of either developing or buying something?

[rivaldo] 20/5/2014 13:35

It was correct in percentage terms.....:o))

[eezymunny] 20/5/2014 13:12

Ah, yes, that was your incorrect post about reducing capex ;)

[rivaldo] 20/5/2014 12:54

EM, my post 412 above already noted re the article "Good to see an article which is balanced and takes a view of all the salient points, including high recurring income, reducing cap.ex, the requirement to write off/match costs etc."

LRM is an impressive company imo, and in the end a buyer will take note of all factors, not just the vagaries of accounting policies, to pay top dollar and multiples of sales. As they did with FFA, PTS and others.

[eezymunny] 20/5/2014 12:45

Look at post 420 Riv

"Despite this good performance and an encouraging outlook Lombard's shares remain on a low single figure P/E rating."

It's that I object to - though to be fair the majority of the discussion is much fairer than it used to be wrt cash flow/capexing etc.

As I've said, LRM top line growth impressive. Shareholders may well have a nice pay day ahead - but their continued headlining of EBITDA is just in my VHO utterly ghastly and doing more harm than good to the sp!

[rivaldo] 20/5/2014 12:33

No-one's quoting the low P/E by itself.

It's the amalgam of factors making LRM a market leader in its field, with high and increasing recurring revenues and high-profile blue chip clients, plus the already sunk investment costs, which is persuasive in LRM's case, for me anyway.

In addition, LRM invested almost £3m last year in developing "a market-leading solution to satisfy the regulatory requirements of the European Banking Authority's Common Reporting and in the new Optimisation module for the COLLINE® product family". These large investments are unlikely to be required again on such a scale, though will be replaced in part by further investment in IP and sales staffing etc as the group grows.

[eezymunny] 20/5/2014 12:02

Yes, emmo, they do, but the value of any company is the NPV of its future cashflows. Having an intangible asset on the balance sheet which is simply the historic cost of developing software is not (IMO) useful.

The software they have developed may be sold lock stock and barrel (which pretty much implies they sell the company!) but that would be for a different number to historic product devt costs.

As it stands people are quoting low historic and future P/E ratios that aren't matched by cash flows.