Aptitude Software looks expensive as it launches £20mn buyback

When the macroeconomic conditions are tightening, it's no surprise that companies would take a closer look at their finances to cut out any unwanted expenses.

For Aptitude Software (APTD) it hasn’t quite played out like that. Aptitude’s software helps customers track their subscriptions to get a clear view of where their money is going while helping them stay compliant with changing regulations. However, annual recurring revenue (ARR) growth dropped to 2 per cent, from 15 per cent the year before. The company said that headline growth “moderated” due to continuing churn in subscription, billing and revenue management, caused by worsening economic conditions. 

A new management team has been brought in, with both the new chief executive and chief financial officer promoted from within. They have a new strategy, which is to promote Aptitude's finance product, Fynapse, with the aim of creating an autonomous artificial intelligence (AI) service.

The company has launched a £20mn buyback programme, which feels a little confusing given its push to promote Fynapse. It might have been better served investing internally. For a company this small, you would hope there would be lots of opportunity for growth.

Management might point to the fact that R&D spend was over 20 per cent of revenue, which is above average. But this is misleading given the small size of the company and the slowing growth.

At 22 times forward earnings, based on FactSet consensus, it looks expensive. We need to see the Fynapse plan succeed before upgrading. If it had invested more we might have been a little more confident. Stick to hold.

Last IC View: Hold, 369p, 21 Mar 2023