- Framework agreement with large Asian telco worth US$0.5m in revenue in 2022.
- Two new contracts for 2021 year worth US$0.5m.
- Over 97 per cent of analysts’ 2021 revenue forecasts already covered by order book.
- Placing and PrimaryBid Offer raises £3.35m.
Aim-traded Pelatro (PTRO:43p), a company that makes its money by providing 19 large telecoms operators with precision marketing software, has been awarded multiple contracts since I last highlighted the investment opportunity (‘Profit from big data analytics’, 19 April 2021). The company has also been increasing annual recurring revenue (ARR), thus de-risking the investment case and enabling investors to attribute a higher valuation to its growing income stream.
Pelatro uses 'big data' analytics (artificial intelligence, machine learning and other analytical techniques) to reveal patterns, trends, associations and behavioural traits of telecom subscribers. These insights enable mobile telecom operators to monetise their data, boost average revenue per user and their share of subscriber spend while also reducing churn rates.
Having rolled out its leading mViva software platform across 23 markets, handling data of 800m clients across Asia, the Middle East, Africa and Latin America, Pelatro is leveraging its position further by announcing a framework agreement with one of its large Asian telcos, which has 230m subscribers.
Pelatro's current engagement with the telco's operating companies includes annual maintenance support and ad-hoc change requests. These have been brought under the framework agreement, with a base level of man days for change requests forming part of the contract every year, thereby making them recurring in nature, along with an annual maintenance fee. Operating companies can also now access other products and services (on an agreed price list) from Pelatro without the need for price negotiation. Pelatro will be paid a fixed amount each quarter for all its base products, thus creating a valuable ARR stream. The incremental revenue for the 2021 financial year will be around US$100,000, and is expected to ramp up to US$500,000 from 2022 onwards.
In addition, Pelatro has announced two contracts with existing customers worth a total of US$500,000 in revenue, one for additional modules as the client moves parts of its activities onto the group’s mViva platform, the other is for change requests. The revenue will be delivered in 2021 and means that Pelatro has already secured US$7m of house broker Cenkos Securities’ US$7.2m revenue forecast, a high proportion of which is recurring in nature as the company transitions its business model away from lumpy licence fees.
The company is also raising £3.35m through a placing and PrimaryBid Offer of new shares, at 40p, subject to shareholder approval on 1 July. Around £1.5m of the proceeds will be used to leverage Pelatro's position in 'big data' analytics to enter the mobile advertising space, a market that is worth $100bn and projected to grow to $221bn by 2024. I highlighted the growth potential here in my last article. The balance of the fundraise will be used to strengthen the company's balance sheet.
The point is that Pelatro could very well exceed Cenkos’ revenue forecast, which factors in 80 per cent year-on-year growth, and move into a small operating profit, so reversing the 2020 loss of £1.9m. Furthermore, the building contract momentum and ARR stream means that Cenkos’ 2022 revenue estimate of US$8m is starting to look far too conservative, especially as the directors have US$16m of contracts in the pipeline.
Prospects of outperformance in 2022 is certainly not in the price. Based on Cenkos’ 2022 cash profit estimate of $3.5m (£2.53m), Pelatro’s enterprise valuation (post the placing and PrimaryBid Offer) of £16m equates to around six times forecast cash profit, hardly excessive for a company that is now generating operational cash flow and has a growing valuable ARR stream. In fact, Pelatro’s enterprise valuation to ARR multiple is less than half the average rating (eight to 10 times) for software companies operating Software-as-a-Service models.
Pelatro's share price is up 8 per cent since my April article, albeit the price pulled back sharply on news of the equity raise. Once the dust has settled, I fully expect the upward trajectory to resume maintain my 100p target price. Buy.
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