Strong performance in software and services

Aferian’s update for the six months ending 31 May 2022 highlights a strong performance from the (higher margin) software and services business, with management actively mitigating the short term supply disruption being experienced by the devices segment. At the group level, earnings quality continues to improve, as does earnings visibility. Management strikes a confident tone in the outlook commentary, and we leave estimates unchanged. In our view, the release demonstrates further progress towards delivering the 2025 strategy, and we continue to believe that Aferian is strongly placed to benefit from the ongoing structural shifts in the TV industry.

Strong performance in software and services

Instem has reported FY21 results consistent with the January trading statement and in line with our forecasts. Despite the ongoing macroeconomic turbulence from Covid-19, the group continues to report impressive revenue growth, both headline and organic. With three major acquisitions, the group also made a strategic step change in its platform during 2021. While the release contains positive commentary on the outlook, we adjust FY22E and FY23E profit forecasts to reflect revised opex assumptions.

FY21 Strong financial performance, strategic transformation

Aferian has announced a small acquisition to continue the expansion of its software suite – a business called ‘The Filter’, which offers a video recommendation platform, powered by advanced Artificial Intelligence (AI) technology. The deal is small ($2.0m initial consideration) and we make no changes to estimates at this time, but it appears to be a useful additional element for Aferian’s software offer to existing and new customers.

Product suite in-fill

Beeks has reported impressive H1 22A results, in our view. Revenue (+46% YoY) and profits (underlying EBITDA +41% YoY) both saw strong growth – a highly creditable performance given the material investment currently being made in the platform and new product development. The group made strong operational progress during the half and commentary on the outlook is positive. We increase FY22E and FY23E revenue and EBITDA forecasts following the announcement.

Delivering on the Land and Expand strategy

Instem offers an opportunity to invest in a business with two specific attractions – (1) The group is exposed to a number of structural long-term growth markets – big pharma continues to develop and test steadily more drugs each year, and there is a growing use of technology to optimise and streamline this process; and (2) Instem has a strong position in the pre-Clinical (animal testing) phase of the drug development lifecycle, and is beginning to replicate this strength in other areas, most notably the recent d-wise acquisition with a focus on software and technology consulting in the Clinical trials segment. We believe that Instem will continue to deliver on an organic basis, but that its recent acquisitions will serve to dramatically expand the group’s reach and its long term potential.

Bringing drugs to market faster

Aferian’s FY21A results release (year-ending November 2021) contains three key highlights: a strong financial performance, improved earnings quality and solid progress towards the group’s 2025 strategic goals. Furthermore, the outlook commentary is positive, the dividend policy has been reaffirmed and the group’s financial position remains robust. We make revisions to FY22E estimates following the announcement, while introducing FY23E forecasts.

Strong FY21A performance

Beeks has announced a second major contract win for its Proximity Cloud product range, effectively a private cloud specifically tailored for financial markets clients. The deal is for $2.2m over four years, and although some of the upside is already anticipated in our (and consensus) numbers, we upgrade estimates to reflect the positive news. We increase our FY22E revenue estimate and both revenue and profit in FY23E. The group will be reinvesting the additional revenue, so we leave FY22E earnings estimates unchanged at this time.

Major deal prompts revenue uplift

Instem has delivered a positive trading update for the year to 31 December 2021, reporting like-for-like (LFL) revenue growth of over 10% on a constant currency basis and a £15.1m closing (gross) cash position. FY21 was a period of material operational progress for the group, and the release signals that, alongside the strong organic performance, the three transformational acquisitions completed during the year are integrating well. Management commentary on the outlook is positive and we make no changes to earnings estimates following the announcement. Overall, we believe the update will give confidence in Instem’s continuing ability to deliver both organic and acquisition-driven growth.

Trading in-line, all key metrics improving

Aferian’s trading update for the year ending November 2021 signals the business has performed extremely strongly against a backdrop of COVID-19 driven challenges. At approximately $92m, revenue is c.11% higher than FY20A and ahead of our forecast. The period also saw an improvement in earnings quality and visibility. The group’s financial position remains robust, and, in our view, the new (increased) $100m debt facility demonstrates confidence in the outlook. We leave underlying estimates unchanged following the announcement and believe the group remains well placed to capture growth from the ongoing structural shifts in TV consumption.

Strong trading, all key metrics ahead of FY20A

Cloud computing, connectivity and analytics provider for financial markets, Beeks Financial Cloud Group (“Beeks”) has delivered solid FY 21A results in our view. Against a backdrop of COVID19 and ongoing investment in new products and the platform, the group has reported impressive growth in both revenue and profits. The accompanying trading update confirms a record start to the current financial year, including a number of sizeable contract wins. We increase FY 22E forecasts following the announcements, with revenue and adjusted EBITDA increasing by 15% and 13% respectively.

Solid FY 21A results, a strong start to FY 22E

Aferian plc