At a glance
The sector was boosted by the proposed acquisition of SDL PLC (LON:SDL), the language translation software business, by RWS Holdings PLC (LON:RWS) via share exchange. SDL initially jumped as much as 45%, but the gains pared back as RWS shares declined and SDL finished the week 22% higher. The sector also received support from Alfa Financial Software Holdings PLC (LON:ALFA), which jumped 21% after news that its expectations for FY20 (full-year 2020) trading are now ahead of current market expectations.
Our UK large-cap software index recorded an even stronger performance, rising 4.1% over the week, and is also in positive territory for the year, up 0.5%. Among the software majors, AVEVA Group PLC (LON:AVV) surged 19% after the provider of industrial software announced the acquisition of private California based rival OSIsoft for about US$5bn. Consequently, AVEVA has surpassed The Sage Group plc (LON:SGE) as the largest software company in the FTSE-100 in terms of market capitalisation. This will be extended by the roughly US$3.5bn proposed rights issue which is intended to part-finance the OSIsoft acquisition.
Small-cap tech news roundup
Last week saw interim results from Sopheon PLC (LON:SPE), trading updates from Proactis Holdings PLC (LON:PHD) and Alfa Financial Software Holdings PLC (LON:ALFA) and a commercialisation announcement from Blackbird PLC (LON:BIRD).
Proactis, the business spend management solution provider, said that trading in the year to July 31 had been in line with board and market expectations for the year despite the emergence of the coronavirus (COVID-19) pandemic during the period. The company expects to report FY20 revenues of £49.2mln and adjusted underlying earnings (EBITDA) of £11.8mln. New business deal intake for the year was at a record high as total contract value increased by 29% to £14.6mln. Net bank debt as at July 31, 2020 was £37.1mln. Regarding the pandemic, the company says demand has been marginally subdued through this period and sales processes have been more challenging. While the outlook remains encouraging, the board is cautious given the macro-economic backdrop and associated risk across new business trends, project implementation deferrals, volume-based contracts and customer solvency.
Alfa Financial, the developer software for the asset finance industry, said that as a result of strong trading along with good progress on securing revenue, that the board’s expectations for FY20 results are now ahead of current market expectations. The news follows the July update which reported first-half (H1) trading had been better than expected and that demand had been largely resilient to the COVID-19 pandemic and the company said the strong H1 performance had continued into July. For H1, the company expects to report total revenues of circa £38m with an EBIT of around £10mln and a net cash balance of about £68mln; however, the company remains cautious on the outlook due to the pandemic, noting that the early-stage pipeline remains weaker than it would like and the medium-term economic outlook is uncertain.
Blackbird, which provides a cloud video editing platform, announced that Live X selected Blackbird for cloud video editing and publishing at the US Democratic National Convention that was held on 17 – 20 August 2020.
Sopheon, which provides software and services for enterprise innovation management solutions, grew revenues by 1% to US$13.9mln in the six months to 30 June, while adjusted EBITDA eased by 7% to US$2.6mln. The annual recurring revenue (ARR) increased by 8% over the 12 months to stand at US$16.5mln. The business added US$1.5mln of new ARR since the start of the year, when ARR stood at US$15.9m, outweighing churn of around 6%. Cash generated from operations rose by 15% to US$5.0mln and the group finished the period with net cash of US$21.9mln, up from US$19.4mln as at December 31. The outlook statement is cautiously optimistic, pointing to the continued sales traction with a doubling of new customer booking value and the company puts revenue visibility for FY20 at US$25.5mln.
Small-cap software & services market roundup
Small-cap software stocks pushed to fresh post-pandemic highs last week, rising 2.5% over the week, despite a languishing FTSE-100 that extended recent losses by 0.6%. Sentiment across the UK tech space remains boosted by the tech-heavy Nasdaq which rose by a further 3.4% last week to fresh highs. The mood was also bolstered by news of the proposed acquisition of SDL by RWS and an upgraded outlook from Alfa Financial Software, with rallied 21%. Despite the gain, Alfa remains 73% below its 2017 flotation (IPO) price of 325p, which valued the equity at close to £1bn. Alfa reached around 550p later that year, for a market capitalisation of roughly £1.6bn.
Large-cap software stocks recorded an even stronger performance, with our index gaining 4.1% last week as 11 out of the 12 constituents posted gains. Only Avast PLC (LON:AVST) posted a decline, albeit modest at 0.5%. This compared with 20 gainers and 8 decliners among our small-cap constituents. Meanwhile, among UK mega-caps, eight out of 10 were lower. AVEVA led the large-cap winners following news of its bumper US acquisition. Elsewhere, Blue Prism Group PLC (LON:PRSM) jumped 16%, helped by news that Staffordshire University had chosen to implement the Blue Prism Cloud intelligent automation platform.
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. In the large-cap space, AVEVA is proposing a US$3.5bn rights to finance the acquisition of OSIsoft.
|Est’d gross amount (mln’s)||Announced||Method*||Price||Discount/ (prem) to prior day (%)||Est’d % of new capital||Comment|
|AVEVA||$3500||25-Aug||R||N/A||N/A||N/A||Proposed rights issue to part-finance acquisition|
|Pelatro||£2.10||04-Aug||P, S||49p||12.1||12.2||Strengthen sales and marketing|
|TERN||£1.50||20-Jul||S||8.5p||19.0||5.9||To expand the portfolio|
|Nanoco||£3.40||16-Jul||P||17.5p||2.8||6.4||Address opportunities, while maintain b/s during lawsuit|
|Ethernity||£0.78||13-Jul||P, S||12p||37.0||16.6||To support engagements for its 5G offering|
|Deepmatter||£2.10||13-Jul||P, S||1.5p||18.9||16.2||Invest in sales, marketing, distribution, support|
|Redcentric||£5.76||26-Jun||P, S||110p||(7.8)||3.3||Part funds settlement with the FCA|
|Instem||£15.75||26-Jun||P||435p||4.4||17.7||Accelerate the acquisition strategy|
|Boku||£20.10||17-Jun||P||85p||7.1||8.4||Part finances $41m acquisition of Fortumo|
|Wandisco||$25||11-Jun||P||650p||12.2||6.0||Strengthen b/s and working capital|
|Learning Tech||£81.80||29-May||P||127p||7.6||8.8||Accelerate growth and gain market share|
Source: Data from regulatory news and company websites.
* Key: P- placing, S-subscription, O- open offer, R- rights issue.
The interim results season in the UK small-cap space moves into full swing in September. There is also a scattering of final results from companies with periods ending March, May and June. Among large caps, Computacenter PLC (LON:CCC) reports interims on 9th September and Learning Technologies Group PLC (LON:LTG) on September 22.
Across the pond, in a quiet week, tech-related companies expected to report earnings include Cloudera, Crowdstrike and Broadcom.
London Tech Week 2020 conference runs from September 1st to 11th, with speakers including Eric Schmidt, former CEO and chairman of Google, and Warren East, CEO of Rolls Royce and previously CEO of ARM.
In the economic calendar, the key US jobs data for August are published on Friday; there is only one further jobs report scheduled (for September) prior to the US election in early November.
|07-Sep||SRT Marine Systems||Final results||31-Mar|
|15-Sep||Kape Technologies||Interim results||30-Jun|
|15-Sep||Corero Network Security||Interim results||30-Jun|
|16-Sep||Eagle Eye Solutions||Final results||30-Jun|
|16-Sep||Accesso Technology||Interim results||30-Jun|
|Mid-Sep||Beeks Financial Cloud||Final results||30-Jun|
|Sep||Crossword Cybersecurity||Interim results||30-Jun|
|Late Sep||Craneware||Final results||30-Jun|
|29-Sep||Alfa Financial Software||Interim results||30-Jun|
|29-Sep||Blancco Technology||Final results||30-Jun|
|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 £m||Net debt/ (cash) £m||Enterprise Value £m||EV/sales Year 1||EV/sales Year 1||P/E Year 1||P/E Year 2|
|Alfa Fin’l Software Holdings||87||261||(68.0)||193.0||3.3||3.2||120.8||66.9|
|Aptitude Software Group||444||250||(30.9)||219.1||3.8||4.0||34.6||37.4|
|Alpha Fin’l Markets Consulting||205||207||(14.1)||192.9||2.1||1.9||14.9||13.6|
|Blancco Technology Group||202||152||(6.7)||145.3||4.4||3.9||49.6||42.1|
|Accesso Technology Group||262.5||108||(24.5)||83.5||2.6||1.2||(4.7)||(50.6)|
Source: Data from regulatory news and market sources