Robust trading despite macro headwinds

Interim results for the six months ended 30 September 2022 show that Shearwater has delivered a robust trading and operational performance. The Services division saw an increase in revenue, while Software division revenue was once again impacted by the impending new product launches and revisions. Current trading is strong, with newly released software products generating encouraging interest. The financial performance was, however, affected by a significant unrealised forex charge and working capital drag. We have revised our forecasts to reflect these transient negatives and sustainable positives. Cyber and Shearwater are long-term stories with dynamics that are significantly more attractive than mainstream software and services; Shearwater’s market valuation does not appear to reflect this.

Robust trading despite macro headwinds

IG Design Group has delivered a strong set of interim results, as guided in October’s trading update, with adjusted PBT up 35% to $27.4m on a reported basis (+42% on a constant currency basis). This was driven by accelerated ordering of seasonal goods by retailer customers keen to de-risk their supply chains, alongside catch-up pricing and product engineering, which has delivered some gross margin recovery. While cautious on the outlook given continuing economic uncertainties, the Board has upgraded FY23E guidance to a small adjusted profit before tax (PBT).

A strong H1, with progress on many fronts

Idox has today released a trading update for the year ended 31 October 2022. The statement reports a strong performance, with particularly encouraging news on order flow and sales of Idox Cloud. We have adjusted our forecasts for FY23 and FY24 to reflect new assumptions around cash payments and working capital. Management expectations for FY23 are maintained and the year has started well. The update reflects the progress over recent years and the strong position Idox holds, which should allow further organic and acquisition-driven growth.

Trading update shows strategy driving results

ZOO has announced an exceptionally strong H1 period (to end-September) with revenue almost doubling year on year and strong growth in both profitability and cash generation. The result is in line with September’s trading update, which prompted significant upgrades to estimates for this year and next. The business appears well positioned to benefit from ongoing growth in media content production, with the key streaming providers racing to deliver international (and therefore multi-language) content and ad-supported tiers. This represents a material opportunity for ZOO, underpinned by the well-timed roll-out of ZOO’s strategic geographic hubs and investment in capacity. The FY23E outlook remains in line with market expectations, and we look forward to further delivery in H2 and beyond.

Growth, cash and opportunity

Aferian has this morning given a trading update for the year to 30 November 2022. Revenue and profit will both be impacted by a shortfall within the devices business as customers reduce inventory levels, ironically due to an easing of concerns over supply chain logistics. We reduce our estimates for both FY22E and FY23E following the announcement. The group has also announced that it has been in discussions around a ‘significant acquisition opportunity’, which has been aborted.

Customer de-stocking hits device shipments

IG Design Group has reported strong trading across both divisions for the H1 period ended 30 September. The primary driver is that the group’s retailer customers have brought forward their seasonal ordering to pre-empt a repeat of the supply chain challenges and disruptions that occurred in the run-up to Christmas 2021. The result of this reweighting towards H1 will be a significant improvement over last year’s difficult H1 period. As such, and mindful of the ongoing challenges of a difficult economic backdrop, there is no change to the Board’s expectations for FY23E’s full-year trading outturn. Our FY23E forecast is thus unchanged at this stage.

A strong first half, but no change to full-year guidance

Thruvision has announced a positive H1 23 trading update, to 30 September 2022, as the group continues to benefit from its diversified revenue base. The Customs division has contributed very strongly, and we expect the acceleration of growth to continue given the recently announced US Customs and Border Protection (CBP) framework agreement. The quantum of CBP spend is large, with the two recent orders totalling $9.7m, and we upgrade revenue by 26% for FY23E. Economic headwinds have created a challenging environment for retailers, with H1 23 Profit Protection revenue flat year on year having achieved 70% growth in FY22. Any uptick in demand in Profit Protection could allow further upgrades later in the financial year, and we note that there has been a good level of new business in this area, plus upselling opportunities.  We look forward to further developments as the technology becomes rapidly more accepted and mainstream.

Strong and reassuring trading update

Beeks Financial Cloud Group, the cloud computing, connectivity and analytics provider for financial markets, has delivered impressive FY22 results. Revenue (+57% YoY) and profit (underlying EBITDA +52% YoY) both grew strongly, which we view as 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 year and commentary on the outlook is positive. We leave underlying FY23E revenue and earnings estimates unchanged following the announcement and introduce FY24E forecasts.

Impressive FY22 results

ZOO recently held an in-person Capital Markets Day (CMD) for retail and professional investors. No new financial detail was given, but this note aims to summarise the additional market intelligence and operational understanding that we gained from the event. Overall it was a very upbeat and reassuring presentation, reaffirming that ZOO enjoys a strong position in an exciting and fast-evolving market.

Capital Markets Day highlights profit potential

Tern has successfully raised £1.6m gross proceeds through an issue of 17.3m subscription shares and 4m retail shares at 7.5p per share, a 14.3% discount to the closing price on 4 October. In line with management’s commitment to its overall shareholder base, retail and other investors were able to participate via PrimaryBid. The net proceeds are intended to bolster Tern’s commercial position by supporting further growth and strategic investment in its current portfolio companies. In the most recent funding rounds, Tern’s investment proportion has been relatively small as the businesses becomes attractive to third-party investors. In order to protect shareholder value already created, it is imperative that Tern has the ability to negotiate from a position of strength when competing with private equity providers that often have far greater resources. We see this fundraise as a logical step as the group continues to mature its position and offering.

Fundraise to strengthen negotiating position

The acquisition of LandHawk Software Services for £1.5m, announced yesterday, marks a continuation of Idox’s existing acquisition strategy, building on the purchases in 2021 of Aligned Assets, thinkWhere and ExeGesIS. LandHawk is a land mapping software and GIS data business that currently specialises in the UK renewable energy industry. The transaction brings an interesting, growing business to Idox, while also increasing Idox’s client base and allowing cross-selling opportunities into the group’s current local authority customer base. We leave our earnings forecasts unchanged for now, although the statement suggests that the transaction should be earnings enhancing in its second year.

Sharp eye for acquisitions

Thruvision, the leading provider of ‘safe distance’ people screening technology, has this morning announced the signing of a purchasing framework agreement by US Customs and Border Protection (CBP), as well as a first order under this agreement for the amount of $7.0m. Both developments are significant positives for the near- and long-term performance of the group, coming hot on the heels of the $2.7m CBP contract award announced on 22 September. Given recent caution around Profit Protection, and in line with our comments last week, we will await the October trading update prior to revisiting forecasts.