Tribal's cloud transition is too slow

Tribal (TRB) sells student recruitment software to universities. It automates the email campaigns and responses to prospective student inquiries, while it also provides data-led analysis on the effectiveness of campaigns.

The current mission is to switch the company into a SaaS (software-as-a-service) business. The progress has been steady but underwhelming. Annual recurring revenue was up 4.8 per cent which is fine, but given the low margin nature of the business we would be hoping for faster progress. Usually software companies sacrifice margin for growth but Tribal seems to have neither here. 

Compared with the same period last year, the cash profit margin has fallen 6.2 percentage points to 16.7 per cent. Part of the reason for this is a delay in the implementation of a £17mn contract with Nanyang Technology University. Tribal has blamed the issue on Covid-19, but the fact it has taken two years to implement is not promising. Good software is frictionless to install and use.

The other issues for SaaS in education is the amount of cash universities currently have. The education industry has been hit badly by Covid-19 and universities may not be in the right place to spend lots on new CRM software – even if the promise is to lower the cost of attracting potential new students.

Tribal is currently trading on a forward PE ratio of 18, which is cheaper than most SaaS companies. However, given the slow growth, falling margin and our general bearishness on the education sector, this lowly PE is justified. In fact, it is probably a little expensive. Sell.

Last IC View: Hold, 87p, 17 Mar 2022