At a glance
Our UK small-cap software leaders index edged up 0.2% while our large-cap software index eased 0.2%. This compared with a 0.5% decline in the FTSE-100 and a 0.6% fall in the NASDAQ Composite index.
Small-cap tech news roundup
Last week saw final results from PCI-PAL PLC (LON:PCIP), Beeks Financial Cloud Group PLC (LON:BKS) and Eagle Eye Solutions Group PLC (LON:EYE) and interim results from IQGeo Group Plc (LON:IQG), Kape Technologies PLC (LON:KAPE), Boku Inc (LON:BOKU), Bango PLC (LON:BGO), Corero Network Security PLC (LON:CNS), Accesso Technology Group PLC (LON:ACSO), KRM22 PLC (LON:KRM) and WANdisco PLC (LON:WAND). There were also trading updates from Panoply Holdings PLC (LON:TPX) and Trakm8 Holdings PLC LON:TRAK) and commercial announcements from Seeing Machines Ltd (LON:SEE), Boku Inc (LON:BOKU), Cerillion PLC (LON:CER) and Trackwise Designs PLC (LON:TWD).
PCI-PAL, which provides secure payment solutions, announced a 56% jump in full-year 2020 (FY20) revenue to GBP4.4mln, which was in line with expectations.One hundred new contracts were signed during the period, of which 78% were via channel partners representing 42% of the contract value. Total contracted recurring ACV increased 66% to GBP6.75mln while TACV for the North American region increased 181% to GBP1.66mln. The gross margin increased by 900 basis points (bp) or nine percentage points) to 69.2% reflecting the benefits of the shift to the Amazon Web Services platform. Meanwhile, administrative expenses increased by 14% to GBP7.3mln and the adjusted operating loss eased to GBP4.1mln. The group closed the period with cash of GBP4.3mln and debt of GBP1.3mln, giving net cash of GBP3.0mln. A further GBP1.25mln debt facility is available to draw. The secure payments software space is a new market dominated by three UK companies – Eckoh PLC (LON:ECK), privately-owned Semafone and PCI-PAL. The market is growing quickly, driven by regulation, notably General Data Protection Regulations (GDPR) in Europe and California Consumer Privacy Act (CCPA) in North America and PCI-PAL looks well-positioned with the only pure cloud offering in the market.
IQGeo, which provides geospatial productivity and collaboration software, announced that order bookings related to IQGeo products increased by over 120% to GBP5.5mln in the first half (H1) as total revenue from IQGeo products increased by over 50% to GBP3.6mln. The group is shifting to a subscription model and recurring IQGeo product revenue increased by over 170% to GBP1.6mln. Total group revenue, which includes Geospatial services from third-party products, rose by 30% to GBP4.7mln while the adjusted EBITDA (underlying earnings) loss more than halved to GBP1.2mln. Net cash remains strong at GBP11.2mln, down from GBP13.1mln at end December. The company says that its target customers, which are telecoms and utility network operators, have remained resilient through the pandemic and their investment plans in networks (broadband, 5G, electricity and gas) and workflow productivity have remained substantially unaltered during the downturn.
Seeing Machines, which provides AI-powered operator monitoring systems to improve transport safety, announced that its aftermarket driver monitoring technology, Guardian, has gathered over 5bn kilometres of naturalist driving data, due to its extensive customer list globally. The significance of this is that these validation data are key to marketing driver monitoring solutions in the automotive market and we understand that none of the group’s competitors come anywhere close to matching the depth of these data.
Panoply, which provides digital transformation services, notably to the UK public services sector, said in its annual general meeting (AGM) statement that trading remains strong. The group has signed around GBP10mln of new contract wins in the first two months of the current quarter (Q2), including a GBP1.8mln contract win with Cheshire West and Chester Council, and Cheshire East Council, as well as the previously announced Land Registry contract. The integration of recently acquired Arthurly and Difrent is progressing well. Management is confident that FY21 results will be in line with the recently upgraded expectations and maintain their three-year commercial vision to deliver GBP100mln run-rate revenue by March 2023 with EBITDA of GBP12-14mln.
Kape Technologies, the business-to-consumer (B2C) cybersecurity business, announced a 97% increase in H1 revenue to US$59.0mln, which reflected 12% growth on a proforma basis. The company acquired US-based digital privacy rival PIA in December for c US$127.6mln. Consequently, the Digital Privacy division grew revenues by 245% to US$42.2mln, but this also included organic growth of 47% excluding PIA. The business benefited from a strong tailwind received from the shift to homeworking following the rapid onset of COVID-19 from March. Recurring revenues jumped by 140% to US$50.8mln, representing 86% of the total. Adjusted EBITDA surged by 185% to US$16.4mln as the EBITDA margin expanded by 860bp to 27.8%, reflecting the acquisition synergies and strong cost control. Adjusted operating cash flow jumped to US$8.8mln from US$0.2mln in H119. Consequently, the group finished the period with net debt of US$25.6mln, down from US$32.0mln at end-December. Also, Kape secured a new senior term loan and revolving credit facilities of up to US$70mln in March 2020, and debt costs saw a reduction in the margin above Libor from 500bp to 185bp. The company says that trading is towards the upper range of management’s expectations and the PIA acquisition is expected to deliver synergies towards the upper end of the US$3.5-4.5mln guidance. The group is on track to reduce PIA’s operating costs by 40% as part of the integration. The board remains confident of the group achieving FY20 revenues of between US$120-123mln and adjusted EBITDA of between US$35-38mln. Most of the group’s customers are in the 25-35 years old age group and the VPN strategy involves focusing on the PIA and CyberGhost brands, with PIA focused on the North American market while CyberGhost is focused on Europe.
Beeks Financial Cloud, a cloud computing and connectivity provider for financial markets, reported a 27% uplift in FY21 revenues to GBP9.36mln. Annualised committed monthly recurring revenue (ACMRR) increased by 23% to GBP11.2mln. Underlying EBITDA jumped by 34% to GBP3.33mln, with the margin rising by 190bp to 35.6%, and the group finished the period with net debt of GBP0.75mln, which compares with GBP0.72mln net cash at end-December. In April, Beeks acquired Velocimetrics, a UK-based network monitoring and trade analytics software company for a base consideration of GBP1.3mln in cash and equity, plus contingent earn-out. The company said that current trading is within the range of market expectations.
Boku, which provides mobile payment and mobile identity solutions, announced a 9% increase in underlying revenue to US$24.7mln, along with an 84% jump in adjusted EBITDA to US$6.4mln; the numbers are after excluding a one-time revenue item in the prior period. Underlying payments revenue grew by 14% to US$22.0mln while identity revenue was affected by COVID-19 and dipped by 21% to US$2.7mln. The group finished the period with cash of US$80.7mln; however, this included US$44.5mln of cash held to pay for the acquisition of Fortumo on 1 July 2020. Excluding this cash, the group’s cash balance was US$36.2mln. Stripping out US$0.8mln of restricted cash and US$19.5mln of bank loans leaves end-June net cash at US$15.9mln. The group is expanding its payments business beyond direct carrier billing into solutions relevant to local markets and is already making progress with eWallets with seven mobile wallets now live. The group’s core end market is the digital content space, which represents circa 5% of the global e-commerce market, and the goal is to extend the target market into other areas of e-commerce.
Bango, the global platform for data-driven commerce, grew H1 revenue by 50% to GBP4.77mln while adjusted EBITDA more than doubled to GBP1.09mln, reflecting a 23% EBITDA margin. End-user spend was GBP743mln and remains on track to reach GBP2bn in the full year. The group finished the period with net cash of GBP4.2mln. The Bango Marketplace, which is a tool for app developer marketing teams to increase revenue, continued to gain momentum with gaming giants Nexon and Nimble Neuron joining the Bango ecosystem. Much of the growth is happening in Asia, and that is reflected in the NewDeep (Audiens) joint venture with NHN of South Korea. In April, NHN invested GBP6.6mln in a 60% stake in the joint venture and also acquired a 4.7% stake in Bango for GBP3.2mln. The company says that the H2 deal pipeline is strong and H2 will see the benefit of the new contracts and connections made in H1, including the launch with SoftBank, while Q4 is traditionally a period of high online spend.
Corero Network Security, which is a cybersecurity company providing distributed denial of service (DDoS) defence solutions, announced a 48% jump in revenue to US$6.2mln, while recurring revenues rose by 54% to US$8.8mln. Order intake increased by 58% to US$7.9mln, which includes 18 new customer wins. The EBITDA loss shrank by US$0.5mln to US$1.2mln and net cash reduced to US$3.3mln from US$5.4mln as at end-December. A new management team, including a chief executive officer, chief financial officer and chief technology officer, joined the company during the period.
Cerillion, the telecom software solutions provider, announced its largest-ever contract win in an agreement worth GBP11.2mln with a major UK provider of enterprise connectivity solutions. The majority of income, including software licences and services, is expected to be recognised in the next 12 months, and the contract has an overall term of five years.
Eagle Eye Solutions, which provides SaaS-based customised loyalty solutions primarily to the retail and food and beverage sectors, announced a 21% jump in FY20 revenue to GBP20.4mln. Recurring revenue represented 73% of the total, up from 71% in FY19. Adjusted EBITDA surged by 359% to GBP3.3mln and the group finished the period with net cash of GBP1.5mln, compared with GBP2.2mln net debt at end-December. Two flagship international clients were won and went live in the year – The Warehouse Group in New Zealand and Southeastern Grocers in the USA; the latter is expected to drive revenue growth in the current year. Separately, the company has announced that Pret A Manger is using Eagle Eye’s AIR platform as part of the foundation for its digital transformation with a pioneering new coffee subscription service.
Accesso Technology, which provides technology solutions to the leisure, entertainment and cultural markets, announced a 51% fall in H1 revenue to US$24.6mln, which was ahead of managements revised expectations. The decline was due to the impact of COVID-19 on the group’s leisure-related end-markets, which came after a solid start to the year with the group reporting 13% revenue growth in January and February. accesso swung to an adjusted EBITDA loss of US$7.4mln and finished the period with net cash of US$30.8mln, which was bolstered by a c GBP39.1mln equity fundraise in May. Management says that recent trading is slightly ahead of its expectations and, assuming market conditions do not deteriorate, expects to produce FY20 revenues of not less than US$48mln. The group is now positioned for the upswing, with its cost base realigned, and much more focused. We note that monthly operating costs have been cut to US$3.8mln from US$6.0mln in Q1. Despite the tough trading environment management is optimistic on the outlook. For instance, it argues that there will be an increased demand for technology from its customers when the crisis has abated as customers will need to improve their efficiency and there will be a bigger push for digital solutions. We also note there has been demand for 100% virtual queuing solution to cope with social distancing in theme parks.
KRM22, which is focused on risk management in capital markets, announced a 31% jump in H1 revenue to GBP2.3mln, which included organic growth of 19%. 94% of the revenue was from recurring contracts. The undisputed annualised recurring revenue (ARR) stood at GBP4.0mln at the end of June, down from GBP4.1mln a year earlier, but currently stands at GBP4.3mln. The adjusted EBITDA loss shrank by c 90% to GBP0.3mln and the group ended the period with cash of GBP0.8mln, down from GBP1.1mln at end-December. While H1 was affected by the effects of COVID-19, with extending sales cycles and delays in decision making, the pipeline remains strong and management says the business is on track to deliver full-year market expectations. KRM22 has agreed a new GBP3.0m convertible loan facility arranged by Kestrel Partners, the company’s largest shareholder.
WANdisco, which enables enterprises to shift their mission-critical data to the cloud, announced a 40% fall in H1 revenue to US$3.6mln, as the adjusted EBITDA loss increased to US$11.9mln. The group finished June with net cash (excluding leases) of US$32.2mln, up from US$21.2mln at end-December. WANdisco raised gross proceeds of US$25mln in a placement at 650p in June. Management expects FY20 revenues to be lower than current market estimates. For FY21, it expects a minimum revenue of US$35m. The FY21 outlook is based on the migration of more than 100PB of data for customers to the Azure cloud (with more than 50 customers signed over the year) and greater than 30PB into the AWS cloud.
TrackM8, the telematics provider, said in its annual general meeting (AGM) trading update that the improving trend had continued into the recent months, with FY21 new orders 9% greater than the corresponding period of last year, while revenues in July and August were each only 7% lower than the same month in FY20. Also, the losses have continued to be significantly lower than in FY20. H121 revenues are expected to be 18% lower than last year; however, the gross margin is expected to be 8 percentage points higher and overheads 30% lower than H120. As a result, the H121 adjusted loss is expected to be 75% lower. Net debt excluding IFRS16 lease liabilities is expected to be in the range GBP5.4mln to GBP5.9mln (FY20: GBP5.6mln) at end-September. H2 will benefit from the resumption of a more normal level of fleet activity and a significant increase in the Insurance shipments; however, given the continued economic uncertainty due to COVID-19, the company is still not providing any full year guidance.
Trackwise Designs, which provides specialist products using printed circuit technology, has announced a product manufacture and supply agreement with an unnamed UK manufacturer of electric vehicles. The three-year agreement, which is Trackwise‘s first for full series production for its IHT-enabled (Improved Harness Technology) flexible printed circuit board products, has the potential to generate up to GBP38mln in revenue up to 31 December 2023, including up to GBP5mln in FY21. This compares with Trackwise‘s group revenue of GBP2.9mln in FY19. The IHT technology will be used in the manufacturer’s vehicle battery modules and battery packs, reducing part count and assembly time while saving on space and weight. The deal is a major endorsement of the group’s technology as Trackwise seeks other opportunities for IHT elsewhere in the electric vehicle industry and other target markets.
Small-cap software & services market roundup
Tech stocks continue to outperform the broader markets. Our UK large-cap software index has increased by 57% since the bottom in mid-March, while small caps have risen by 52%. This compares with an 18% gain in the FTSE-100 over the same period.
Last week, accesso Technology jumped 22% after providing a confident outlook with its H1 results. Seeing Machines extended recent gains by 13% following a string of positive newsflow. Eckoh, which held its AGM on Wednesday, rose 11% over the week, while Cerillion jumped 9% after announcing its largest-ever contract win. Meanwhile, Wandisco dipped 24% after posting a 40% fall in H1 revenue.
Source: Indices are unweighted, with number of constituent’s in brackets
Recent UK tech sector fundraisings
No significant new fundraisings in small-cap tech were announced last week.
| Est’d gross amount (mln’s) | Announced | Method* | Price | Discount/ (prem) to prior day (%) | Est’d % of new capital | Comment | |
| CentralNic | GBP30 | 10-Sep | P | 75p | 6.0 | 17.2 | Funds the acquisition of Zeropark and Voluum |
| AVEVA | $3500 | 25-Aug | R | N/A | N/A | N/A | Proposed rights issue to part-finance acquisition |
| Pelatro | GBP2.1 | 04-Aug | P, S | 49p | 12.1 | 12.2 | Strengthen sales and marketing |
| TERN | GBP1.5 | 20-Jul | S | 8.5p | 19.0 | 5.9 | To expand the portfolio |
| Nanoco | GBP3.4 | 16-Jul | P | 17.5p | 2.8 | 6.4 | Address opportunities, while maintaining b/s during a lawsuit |
| Ethernity | GBP0.78 | 13-Jul | P, S | 12p | 37.0 | 16.6 | To support engagements for its 5G offering |
| Deepmatter | GBP2.1 | 13-Jul | P, S | 1.5p | 18.9 | 16.2 | Invest in sales, marketing, distribution, support |
| Redcentric | GBP5.76 | 26-Jun | P, S | 110p | (7.8) | 3.3 | Part funds settlement with the FCA |
| Instem | GBP15.75 | 26-Jun | P | 435p | 4.4 | 17.7 | Accelerate the acquisition strategy |
| Boku | GBP20.1 | 17-Jun | P | 85p | 7.1 | 8.4 | Part finances $41m acquisition of Fortumo |
Source: Data from regulatory news and company websites.
* Key: P- placing, S-subscription, O- open offer, R- rights issue.
Tech calendar
The interim results season is in full swing in the UK small-cap space over the next few weeks. There is also a scatter of final results over the next few weeks from companies with periods ending April, June and July.
Among large caps, Learning Technologies Group PLC (LON:LTG) reports interims on 22nd September and Spirent Communications Plc (LON:SPT) holds a capital markets day on 8th October.
We are not aware of any notable tech results in the US this week.
| Date | Company | Event | Period ending |
| Sep | Crossword Cybersecurity | Interim results | 30-Jun |
| 21-Sep | GRC | Interim results | 30-Jun |
| 21-Sep | Craneware | Final results | 30-Jun |
| 21-Sep | Tern | Interim results | 30-Jun |
| 22-Sep | Ideagen | Final results | 30-Apr |
| 23-Sep | LoopUp | Interim results | 30-Jun |
| 23-Sep | Trackwise Designs | Interim results | 30-Jun |
| 23-Sep | Cloudcall | Interim results | 30-Jun |
| 24-Sep | ZOO Digital | Virtual Capital Markets Day | |
| 28-Sep | Instem | Interim results | 30-Jun |
| 29-Sep | Alfa Financial Software | Interim results | 30-Jun |
| 29-Sep | Blancco Tecnology | Final results | 30-Jun |
| 29-Sep | XLMedia | Interim results | 30-Jun |
| Late-Sep | Attraqt | Interim results | 30-Jun |
| 13-Oct | essensys | Final results | 31-Jul |
| Oct | Mobile Streams | Final results | 30-Jun |
| Mid-Oct | D4T4 | Trading update | 30-Sep |
| 21-Oct | D4T4 | Virtual Capital Markets Day | |
| 30-Oct | Seeing Machines | Final results | 30-Jun |
Source: Data from regulatory news and company websites
Small-cap software & services valuations
The sector ratings look fair in comparison with the UK 350 large caps, given the significantly stronger growth potential, combined with the relatively strong balance sheets.
| Shr Price Pence | Market Cap GBPm | Net debt/ (cash) GBPm | Enterprise Value GBPm | EV/sales Year 1 | EV/sales Year 1 | P/E Year 1 | P/E Year 2 | |
| First Derivatives | 3280 | 905 | 49.4 | 954.4 | 4.1 | 3.8 | 56.8 | 43.4 |
| EMIS Group | 1146 | 720 | (44.1) | 675.9 | 4.3 | 4.1 | 24.3 | 22.3 |
| SDL | 710 | 648 | (35.1) | 612.9 | 1.7 | 1.6 | 30.1 | 23.8 |
| NCC Group | 193 | 539 | 4.2 | 543.2 | 2.2 | 1.9 | 32.7 | 19.8 |
| Ideagen | 196 | 444 | 32.4 | 476.4 | 8.5 | 7.7 | 36.2 | 31.1 |
| Craneware | 1560 | 418 | (38.7) | 379.3 | 7.1 | 6.8 | 33.6 | 33.5 |
| DotDigital Group | 135 | 402 | (25.4) | 376.6 | 8.0 | 7.5 | 34.5 | 36.6 |
| Iomart Group | 325.5 | 355 | 37.3 | 392.3 | 3.4 | 3.2 | 19.7 | 18.7 |
| IMImobile | 402.5 | 331 | (2.0) | 329.0 | 1.9 | 1.9 | 26.7 | 27.0 |
| Alfa Financial Software Holdings | 99.6 | 299 | (68.0) | 231.0 | 3.6 | 3.6 | 55.3 | 60.7 |
| Kape Technologies | 178 | 282 | 20.7 | 302.7 | 3.3 | 3.0 | 17.6 | 15.4 |
| Aptitude Software Group | 450 | 254 | (30.9) | 223.1 | 3.9 | 4.1 | 35.1 | 37.9 |
| Redcentric | 141 | 218 | 13.5 | 231.5 | 2.5 | 2.4 | 20.4 | 17.8 |
| Alpha Financial Markets Consulting | 215 | 217 | (14.1) | 202.9 | 2.2 | 2.0 | 15.7 | 14.3 |
| WANdisco | 410 | 215 | (26.0) | 189.0 | 11.9 | 8.4 | (16.7) | (27.3) |
| IDOX | 46.2 | 205 | 14.0 | 219.0 | 3.3 | 3.0 | 21.2 | 17.6 |
| Tracsis | 605 | 176 | (11.0) | 165.0 | 3.4 | N/A | 24.7 | N/A |
| Tribal Group | 61 | 176 | (6.7) | 169.3 | 2.3 | 2.3 | 14.9 | 15.1 |
| Blancco Technology Group | 229 | 173 | (6.7) | 166.3 | 5.0 | 4.5 | 56.3 | 47.7 |
| Eckoh | 67.5 | 171 | (12.2) | 158.8 | 4.4 | N/A | 39.9 | N/A |
| Centralnic Group | 87 | 167 | 62.1 | 229.1 | 1.5 | 1.4 | 19.1 | 16.6 |
| Quartix Holdings | 347 | 166 | (10.0) | 156.0 | 6.1 | 6.2 | 30.2 | 33.4 |
| Seeing Machines | 4.65 | 156 | (25.0) | 131.0 | 6.0 | 5.3 | (9.5) | (13.7) |
| Accesso Technology Group | 341 | 141 | (24.9) | 116.1 | 3.7 | 1.7 | (6.2) | (66.9) |
| Bango | 164 | 122 | (4.2) | 117.8 | 9.9 | N/A | 96.5 | N/A |
| Loopup Group | 204 | 113 | 5.4 | 118.4 | 2.1 | 2.1 | 13.9 | 26.1 |
| Instem | 515 | 105 | (23.2) | 81.8 | 2.8 | 2.6 | 28.6 | 30.2 |
| Oxford Metrics | 83.5 | 105 | (14.2) | 90.8 | 2.4 | 2.2 | 19.3 | 14.2 |
| Cerillion | 322 | 95 | (4.8) | 90.2 | 4.4 | 4.1 | 31.0 | 27.3 |
| Sopheon | 895 | 91 | (17.7) | 73.3 | N/A | N/A | N/A | N/A |
| D4T4 Solutions | 199 | 80 | (12.8) | 67.2 | 3.1 | 2.8 | 29.2 | 24.8 |
| Essensys | 145 | 76 | (8.4) | 67.6 | N/A | N/A | N/A | N/A |
| Gresham Technologies | 110 | 75 | (5.1) | 69.9 | 2.8 | 2.7 | 48.0 | 55.0 |
| Averages | 3.3 | 2.9 | 42.6 | 30.4 |
Source: Data from regulatory news and market sources
