90. Accesso
Accesso Technology (ACSO) provides software to improve guest experiences. This includes ticketing solutions and distribution, but it is most proud of its virtual queuing solution. This means people don’t have to stand around in a real queue. Good for the customer, notwithstanding the British affinity for such things. But better for the businesses such as theme parks that use the technology, as customers can move around and spend money elsewhere rather being tied up in lines.
The pandemic was awful for Accesso given that all its customers rely on in-person interactions (regardless of how tickets are sold). However, it has now bounced back fully. Cash profit (Ebitda) of $10.6mn in the six months to June was well ahead of the $1mn generated in the first half of 2019.
But the gross margin fell 6.8 basis points to 73.8 per cent because of a drop in higher-margin queuing revenue. Accesso said this was due to “a change in strategy” from a large customer. It’s hard to tell if this is a one off, but losing a big customer is never a good look for software businesses. Hold. AS
89. TinyBuild
Gamers show no sign of get bored of TinyBuild’s (TBLD) games. In the first half of this year, 99 per cent of TinyBuild’s revenue came from its back catalogue. Rather than having to constantly rely on new content (like Netflix), TinyBuild can rely on the popularity of its existing products to keep cash coming into the business.
And sales are still growing healthily: revenue rose 54 per cent in the first half. Because 83 per cent of the revenue comes from its own intellectual property, there are minimal licence fees to be paid. This keeps the operating margin around a healthy 40 per cent.
Still, independent game developers are risky investments because even a couple of bad releases can take a big chunk out of profits. TinyBuild has a good track record, but it too needs to look ahead. In the coming months it is going to release up to five new games. If it keeps delivering, revenue growth is assured. Buy. AS
88. Boku
The long downward drift in the shares price for digital wallet payments specialist Boku (BOKU) was reversed to some extent after a late July trading update showed a business starting to recover ground following the mauling that tech companies took during the first half of the year. Interim results in September confirmed that pre-tax profit from continuing operations fell from $4.2mn to $3.6mn, hampered by the strength of the US dollar, but the group also booked a profit of $25.2mn on the sale of its ID verification division.
That leaves Boku with a sound cash position of $67.8mn and it is now completely debt-free. The operations are also looking more solid with active user numbers up 22 per cent to 46.3mn. Overall, Boku looks to be in a much more solid position than at any time in its recent history. If there is a change in emphasis towards looking for value in growth companies, then Boku might be well-positioned to take advantage of an improvement in sentiment surrounding the sector. It might be too early to call the bottom, but it is at least visible. Hold. JH
87. Seeing Machines
Given the massive sell-off many technology companies – particularly those that aren’t profitable – have experienced this year, the 28 per cent year-to-date decline in Seeing Machines’ (SEE) valuation seems relatively mild.
The Australian manufacturer of systems that monitor driver behaviour has made progress on a number of fronts, though.
The company, which reports full-year numbers shortly after we go to press, expects revenue for the year to 30 June to be 15 per cent ahead of 2021 at A$54.2mn (£30mn). Around A$20.7mn of this will be recurring – a 20 per cent year-on-year increase.
Seeing Machines’ Guardian system, fitted to truck and bus fleets to spot signs of driver fatigue or distraction, is now installed in almost 40,000 vehicles – a 25 per cent year-on-year increase.
The company is also securing more deals – to install systems in newly manufactured vehicles, for instance, and to check on pilots in air ambulances used in the state of Victoria.
More recently, it has signed a $65mn agreement with Canadian car parts maker Magna International (US:MGA). Seeing Machines’ technology will be integrated into rearview mirrors made by Magna.
In return for gaining exclusivity on its use in mirrors, Magna is paying Seeing Machines $10mn upfront, plus a further $7.5mn over the next two years. Magna also agreed to invest up to $47.5mn in Seeing Machines via a four-year convertible note.
Some $30mn of this can be drawn down once the deal closes, with the rest available until December 2024. The notes will pay a yield of 8 per cent and are convertible into shares at a price of 11p. If all of the notes were converted, they would give Magna a 9.9 per cent share in Seeing Machines – a figure that includes its existing stake of 1.5 per cent, acquired during a $41mn fundraising last year.
For Seeing Machines, the deal means the company is “now funded to deliver on our current business plan”, according to chief executive Paul McGlone.
Broker Panmure Gordon argues that this should help to reverse a recent decline in Seeing Machines’ shares, as it allays fears that the company would need to tap investors for a further equity raise.
However, its forecasts do not envisage a profit being made even by the end of 2024. In a market such as today’s, where the opportunity costs of tying up capital in the eventual hope of a future windfall are much higher, we’re not convinced enough by the investment case here. Sell. MF
86. Dotdigital
Dotdigital (DOTD) had a stellar lockdown. The online marketing group, which provides businesses with tools such as chatbots and automated text messages, saw demand surge as brands sought to keep in touch with their customers. Things are looking less rosy as we emerge from the pandemic, however.
In March, Dotdigital reported an “unwinding of customer buying behaviour in a post-lockdown environment, with reduced growth in demand for SMS, and macro headwinds affecting international activities”. As a result, revenue growth will be slower than previously expected. Business in the US – which was previously growing at a good clip – is facing particular difficulties.
It’s not all bad news, though. In a summer trading update, management said adjusted profits for the full year would be ahead of market expectations, sales growth is robust at 8 per cent, and average revenue per customer is rising strongly. However, with a forward PE ratio of over 20, and uncertain long-term prospects, we’re not convinced. Sell. JS
85. SigmaRoc
It’s been an awful year for building materials companies – and SigmaRoc (SRC) is no exception. Its shares are down by more than 55 per cent over the past 12 months.
There are lots of reasons for this, one being the higher energy costs involved in making and transporting products, but the overriding concern is about end markets. The Construction Products Association said last week that most heavy-side companies – those like SigmaRoc that produce aggregates or ready-mix concrete – reported a fall in business in the third quarter for the first time in over two years.
Yet as Simon Thompson argued last month, the risk of a deterioration in trading was already priced into its low valuation – the shares trade at 5.5 times forecast earnings, or about half of their five-year average. Moreover, its third-quarter trading update showed it retained its ability to pass on higher costs to customers – its cash profit margin of almost 20 per cent was driven by “effective pricing action and ongoing efficiency initiatives”. We maintain our buy view. MF
84. Numis
Numis (NUM) has endured a rocky ride since the start of the year, as the shuttering of the IPO market chokes off the pipeline of corporate broking that underpins a significant portion of its business. The company sits in-between true boutique broking houses and the major investment banks’ much larger offerings. In many ways, that makes it a key bellwether for the UK market and a reflection of the underlying state of business confidence.
It was clear from the September trading update how difficult market conditions currently are. Revenue for the full year to 30 September is expected to be a third lower at £144mn than last time, with lower income from both equities and institutional sales. Basically, as well as fewer companies raising money on the markets, investors have been holding back from taking part in any new fundraising. Numis has a reasonable pipeline of work, and has been helped by elevated UK merger and acquisition activity this year, but predicting the completion of projects has become difficult to say the least. Hold. JH
83. AB Dynamics
It’s hard not to like AB Dynamics (ABDP). In a market as uncertain as the current one, few companies offer such an attractive mix of decent, profitable and cash-generative growth.
The company said last month sales for the year ending in August are set to rise by more than a fifth to £80mn and that adjusted operating profit would come in ahead of expectations. Even after an additional £4mn of capital expenditure, it finished the year with net cash of £29mn, or around £7mn more than it started with.
The company’s bread and butter is still track testing – making sure that cars coming onto the market meet the standards required. However, as the industry experiments with driverless systems, it is able to retrofit even the most specialist vehicles. It is installing driverless systems in mining vehicles for a Japanese customer, and pursuing similar opportunities in defence.
The company’s shares are down by a quarter this year and, even at 27 times FactSet consensus forecasts, don't seem too rich given its potential. Buy. MF
82. Tracsis
Tracsis’ (TRCS) software helps railways with all aspects of their operations. This includes customer experience and payment, as well as data analytics to optimise planning and management. An events consultancy division helps a wider range of businesses, from Silverstone racecourse to Glastonbury festival, with traffic management.
Events have unsurprisingly bounced back strongly since Covid-19, a £4.6mn increase in half-year revenue helping group sales rise 31 per cent to £29.2mn in the six months to 31 January. The group swung from positive to negative cash flow due to M&A activity, indicating it is still in growth mode.
In March, Tracsis acquired US rail technology software group RailComm, giving it exposure to the US for the first time. This seems savvy considering President Joe Biden’s massive infrastructure bill. A reported $66bn has been put aside for railway improvements. If countries want to hit net zero, trains are going to be a big part of it – even in the US. Tracsis will be a beneficiary of this government windfall. Buy. AS
81. Benchmark Holdings
Aquaculture production – fish farms – overtook wild fish catch for the first time in 2019. As global demand for seafood ticks ever upward, fish farming will play an increasingly important role in protecting wild fish stocks. Benchmark Holdings (BMK), an aquaculture biotechnology business, stands to benefit from the fishing industry’s move away from the open ocean.
Each of the company’s three divisions – genetics, advanced nutrition and health – reported year-on-year revenue growth for the third quarter of 2022. The upward trend was particularly pronounced in the health business, where sales were up 213 per cent thanks to sea lice solutions Ectosan and CleanTreat.
However, Benchmark also fell to a deeper statutory loss before tax in the quarter due to a “significant £5.9m increase in net finance costs”. More than half of this was driven by the translation of US dollar-denominated loan balances. The company is currently mulling over an additional listing in Oslo and could yet exit the London market subject to shareholder approval.
The move towards fish farming might be positive for the company, but macro conditions, including dollar strength and greater scrutiny of debt burdens, mean its near-term trajectory is somewhat uncertain. Hold. JJ
