IS Research - Informed, Insight and Integrity

In the SaaS transition

Provider of portfolio analysis and asset pricing solutions Statpro has issued its year end trading update in which it says that results for the year to December will be in line with expectations. Recurring revenues from the pure SaaS offering Revolution have now grown to a small but meaningful level prompting management to bring forward moves to accelerate SaaS development in other areas of the business. We have nudged our 2011 estimates down slightly and made more substantial reductions to our current year estimates to reflect this accelerating transition to SaaS.

Statpro shares have slipped further over the last few days and are now at their lowest point for over two years. This reflects investor uncertainty about the how long it will take Statpro to come through the SaaS transition in which it currently finds itself. Although the financials will take some time to improve, much of the hard work is already done on Revolution and, we can see from other business that have made the SaaS transition, rewards for success can be substantial.

Gresham Computing confirms return to growth

Provider of software and IT services to the banking sector Gresham Computing has issued a year end trading update this morning in which it says that results for the year to December will be ahead of expectations and that the order book and pipeline for 2012 looks strong. Under new leadership, this will be the second year that Gresham has outperformed expectations after a long run of disappointing results.

Norcon set to benefit from 4G/LTE

Telecoms consultancy Norcon announced in a pre-Christmas update that the year to December 2011 is likely to be in line with market expectations (broadly flat revenues and EBITDA of $69m and $7.5m), and has given a reasonably positive outlook for FY12 driven in part by 4G/LTE.  The dividend policy is likely to be eased from the target 50% pay out to help fund growth. We publish for the first time our forecasts for 2012 which, given economic uncertainty, are broadly flat on 2011, but we have adjusted down our dividend forecast to a 20% pay out pending more clarity on a new policy.  Norcon shares, at 33.5p, trade at just 2.4x 2011 EBITDA and 5.2X PE, well below the megabuyte Consulting and Systems Integration peer group averages of 6.5x and 10x respectively, whilst the dividend yield, even on a lower pay out, is likely to be not far shy of 4%. This seems a rather low valuation for a company that has weathered economic storms and has potential LTE/4G upside. 

Monitise signs five year strategic mobile money agreement with FIS

Hot on the heels of its upbeat trading update on Wednesday 14th December, mobile money specialist Monitise has announced a formal five-year, multi-million dollar strategic agreement with FIS, opening up new routes to market for Monitise. The agreement follows Monitise’s acquisition of FIS’s 51% stake in their Monitise Americas JV in October, under which FIS became a 3.3% shareholder in Monitise.

Under this new five-year licensing, development and services agreement, FIS and Monitise have created a joint development team to leverage Monitise’s technology to provide mobile banking products for FIS’s clients. FIS (or Fidelity National Information Services) is a $7.6bn NYSE listed company specialising in financial services technology and products, operating in 300 geographic markets.

FIS and Monitise are well known to each other, after FIS acquired Monitise’s major US partner Metavante in April 2009.  Monitise bought out FIS’s 51% stake in their Monitise Americas JV in late October for $15m in Monitise shares, which both resulted in FIS becoming a 3.3% shareholder in Monitise as well as providing a cleaner basis for the two companies to work together going forward, which is reflected in today’s announcement.

This is another positive development for Monitise, and highlights the company’s ability to attract major strategic partners and investors.  First, we understand that the deal is worth a minimum of $10m to Monitise over the five years, but as the experience with Visa International and RBS shows, there is scope for considerable upside. Second, it gives Monitise an enhanced presence in FIS’s core US market, where the company has yet to achieve the same penetration as in the UK. Third, it also appears to represent an additional route to market for Monitise, compared with its existing in-house work for major financial clients (eg Visa International, Visa Europe and RBS) and its role in service JVs (eg the recently launched Mobile Money Network with Best Buy Europe/Carphone Warehouse and Charles Dunstone).

Market forecasts for Monitise are unlikely to move after today’s announcement, given the revenue upgrades following Wednesday’s positive trading statement (H1 FY12 revenues above expectations at £15m compared with £14m for the whole of FY11).  However, this agreement helps to underpin forecasts of strong revenue growth (we forecast £32.8m this year and £46.3m for FY12/13), and supports our view of Monitise as a key holding for anyone wanting exposure to the fast growing world of mobile money.

Monitise first half revenues on track to exceed full year FY10/11 revenues

Mobile money specialist Monitise has issued a typically upbeat update for the six months to end December, with revenues likely to be ahead of expectations at £15m, versus £14m for the whole of FY10/11, but also higher than expected EBITDA losses (but in line with last year) reflecting the ever expanding opportunity pipeline. Key metrics show an almost doubling of customers to 5.5m in just under a year, and a significant increase in average service usage. Monitise shares have fallen recently from an all time high of 40p to 29p, but still stand well above the 19p of a year ago.  At a £233m market value (£210m EV), Monitise commands a premium valuation, but the fact that it is on course to more than double revenues again this year shows both the momentum behind mobile money and the strength of its market position.