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Dialling into data analytics

A software company has been winning significant contracts that have boosted its recurring revenue, improved sales visibility, and expanded the range of industries it sells to.
September 22, 2022
  • First half cash profit up 16 per cent to $1.9mn on 21 per cent higher revenue of $4.2mn
  • Visibility over 95 per cent of $9mn annual revenue estimate
  • Over $6mn of 2023 revenue contracted already
  • Net cash of $1mn subsequently boosted by $1.9mn cash receipts since half-year end

Aim-traded Pelatro (PTRO:22.75p), a company that makes its money by providing 25 large telecoms operators with precision marketing software, has been winning significant contracts that have increased its recurring revenue, improved sales visibility, and expanded the range of industries it now covers.

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.

So far this year, the group has added three new clients to its customer base including a $1mn three-year contract from a Middle Eastern telecom group awarded last month. Pelatro has also won its first contract in the fintech space, a three-year Software-as-a-Service (SaaS) award worth $1.5mn with Orea Money and Banque Nationale d’investissement in Africa. Pelatro will use its data analytics technology to analyse and generate predictions using AI/machine learning based models.

In addition, the group revealed over the summer that it is providing a six-month proof of concept (POC) trial to a large global telecom group which could result in a contract award worth $4mn in annual recurring revenue over a subsequent 24 to 30-month period. In total, Pelatro has a pipeline of potential contract opportunities worth $19mn, of which $3mn are from existing clients.

Analysts at Dowgate Capital expect Pelatro’s current year cash profit to increase from $2.8mn to $3.4mn based on 23 per cent higher revenue of $9mn, the forecast being de-risked by the fact that management has visibility over 95 per cent of forecast revenue. On this basis, expect adjusted pre-tax profit to treble to $0.3mn to produce earnings per share (EPS) of 0.5c.

Moreover, with the group set to enter 2022 with a much higher level of recurring revenue year-on-year, and taking account a normal level of repeat requests worth $2.5mn from clients, then Dowgate are predicting annual revenue of $10.5mn in 2023, cash profit of $3.8mn and a doubling of pre-tax profit to $0.6mn. This implies the shares are priced on a forward price/earnings (PE) ratio of 25, a rating that would drop like a stone if the POC trial is converted into a contract or for that matter if Pelatro lands any of the other significant contracts in its sales pipeline.

So, although the share price is unchanged since I covered the annual results (‘Tapping into software as a service’, 23 May 2022), I maintain the view that the shares are priced to deliver a highly profitable outcome if the contract momentum can be maintained. It’s worth noting that the group benefits from US dollar strength as 80 per cent of its cost base is in India/UK, but three quarters of annual revenue is US dollar denominated. Buy.

Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.

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