A royal print: God save the King(makers)

tinyBuild delivers impressive H1/25 results headlining with Adj EBITDA US$4.2m – it was -US$2.3m a year ago. tinyBuild has a brim-full pipeline (four games parked up in the Steam Top 100), evidence of sales momentum and a disciplined cost base. H1 sales were entirely back catalogue. That H1 paucity of new releases is already addressed, with the successful debut of ‘The King is Watching’, notching up 200k+ units sold in the first two weeks, and from the back catalogue ‘DUCKSIDE’ for console and ‘Drill Core’ version 1.0. The cost and timing of the new releases prompts us to hold off the inevitable forecast upgrades for a few weeks while we track spend and revenue from the slate. tinyBuild’s continued recovery is predicated on the valuable back-catalogue and those game releases – already proving hugely popular; Kingmakers, SAND, Streets of Rogue 2 and Ferocious are #9, #37, #67 and #95 respectively, on Steam Wishlist. All have the potential to be new global franchises. The recovery has momentum, tinyBuild has strong valuation support (EV/Sales 0.7x vs sector 4.6x). For investors there is re-rating and earnings upside.

A royal print: God save the King(makers)

Beeks announces that NED William Meldrum is appointed Chair, and the current Chair, Mark Cubitt, becomes a NED. This follows Mr Cubitt’s appointment as Executive Chair of IQE plc, where he is busy with a strategic review. On 29 October, IQE CEO Americo Lemos departed and Mr Cubitt, who joined the IQE Board earlier that month, was appointed Executive Chair, taking over from Phil Smith, who stepped down as Chair but remains as a NED. By contrast, Beeks is a model of stability, unbridled growth and opportunity. Beeks is currently the top-performing LSE tech company (n=74) with a TSR +203.5% 2024YTD vs the sector +8.1%. In our view, Beeks is gaining from secular tailwinds (cloud adoption, compliance, data sovereignty, cybersecurity, sustainability, analytics, payment modernisation, AI in risk management etc), which have enabled it to carve out a moat as market leader in cloud infrastructure for financial markets and payments. The FY1 valuation (EV/EBITDA 13x) does little to reflect the proven execution on global TAM and the opportunity for more. Investors buy Beeks for long-term secular growth.

Board changes: ‘Do You Hear What I Hear?’

The latest Steam data tells us that tinyBuild has: (i) increased customer reach (+53% in Steam Followers), (ii) increased Wishlist rankings (Kingmakers: #20, Sand: #47, Streets of Rogue 2: #54) and (iii) made a success of its H1 title debuts (Duckside: 78% positive reviews, Train Valley World: 75%, Level Zero: 61%). Looking further afield, tinyBuild’s ‘socials’ reach continues to be best-in-class (5.5m TikTok likes). The Kingmakers release is now due in Q1 25 (from H2 24) and other titles that we expected in H2 have yet to debut. Content delays are common in the games industry (Devolver Digital has just shunted three titles into 2025) and, given the proximity of Christmas, it is prudent to expect these in 2025. The move reduces FY24E new title revenue by US$2m, and filters down to lower profitability and cash. Apart from the few delayed titles, tinyBuild continues to deliver on its investor promises: (i) retain emphasis on IP, (ii) expand reach, and (iii) monetise its back-catalogue. These actions will encourage investors. Games industry news remains mixed, but Christmas sales are expected to be strong (see inside). tinyBuild has strong valuation support (EV/Sales 0.3x vs sector 3.3x), making an eventual re-rating all the stronger.

The Christmas Wishlist

With the departure of long-standing CFO Ian Tichias to pursue other opportunities, Xaar has appointed Paul James as Interim CFO and Executive Director. Mr James has extensive experience: Group CFO of Biffa (Sept 2023-Oct 2024), Group CFO of Genuit Group plc (Mar 2018-Sept 2023), following senior financial roles with Dixons Carphone, Inchcape, British American Tobacco and Ernst and Young. We are reminded of the Boy Scouts principle to ‘try to leave this world a little better than you found it’. Mr Tichias joined Xaar as CFO and Board Director in March 2020, and has seen the company through a period of significant change. Latest results point to improved progress, with revenue from new printhead products +24% Y/Y and a 26% CAGR for new product revenue since 2019. We wish Ian well.

Board changes

HRnetGroup is an Asian recruitment company, offering temporary and permanent recruitment. The flexible offer and cost model help to insulate the business from macro swings. While shares reflect ‘bottom of the cycle’ valuation, a ‘peak and trough’ analysis indicates an intrinsic valuation at c3x current levels.

Income and long term growth

Finals sparkle, with an ‘in-line’/beat set of results (adj. EPS 6.4p vs our 5.1p estimate). Looking ahead, FY25 estimates are covered by recurring revenue, a strong pipeline and a new FY that is off to a flying start. To wit, ACMRR already ticked by £0.5m to £28.5m to 31 August – 74% of our FY25 revenue estimate. CEO Gordon McArthur telegraphs further progress: ‘Demand for our product is stronger than ever, fuelling a regular flow of new contract wins and extensions that offer long-term, recurring revenues.’ The offer has matured with service extensions, new sites, new ‘C’ suite hires and strides in go-to-market as Beeks gains from secular tailwinds (cloud adoption, compliance, data sovereignty, cybersecurity, sustainability, analytics, payment modernisation, AI in risk management etc) – all enabling Beeks to carve out a moat as market leader in cloud infrastructure for financial markets and payments. Shares have performed well, +157% YTD vs sector +4.7%, but TSR only reflects the operational momentum. The FY1 valuation (EV/Sales 4.0x vs cohort 4.2x) does little to reflect the proven execution on global TAM. We believe that Beeks offers long-term secular growth.

Head in the cloud, prospects in the stars

Takeaways from today’s results are: (i) cash US$9.2m vs US$2.5m at end-December; (ii) own IP 78% of Gaming revenue vs 65% at H1 23. While CEO Alex Nichiporchik describes the market as ‘difficult’, the H1 print tell us that the focus on cash generation and financial stability is working. The strategy of ‘investing cautiously’ in higher-budget games and building a diversified portfolio of own IP is similarly working. tinyBuild is gaining mindshare and added over 3 million wishlists across the portfolio in June alone. Own-IP sales were up to US$13.1m, from US$12.8m last year, as group revenue fell 19% to US$18.8m. Short- term fortunes remain tethered to H2 performance but tinyBuild has an improved pipeline (including larger-budget US$1m+ titles). We adjust estimates to reflect a highly competitive market for new launches, with FY24E adj. EBITDA at US$0.3m (prior US$1.1m). tinyBuild retains its emphasis on IP, expanding reach, title debuts and monetising the back-catalogue, which should encourage Investors. H1 was a rebuild, a catalyst to addressing the stark valuation gap (EV/Sales 0.3x vs sector 2.3x).

Interim results: Let’s play

Today’s in-line results headline with strong sales traction from new printhead products (+24%Y/Y) vs the decline in legacy Ceramics and EPS weakness. New product revenue has had a 26% CAGR since 2019, but this progress has been masked by the cyclical deterioration in the ceramics market. New products now account for 58% of H1 sales, and consequently the investment case pivots to growth and commercialising new products, as well as navigating legacy markets. The efficiency programme (Hubble) has delivered impressively; OpEx -24% Y/Y and the strengthened balance sheet are testimony to management as good custodians of shareholder funds. Xaar reiterates FY guidance. Notwithstanding H2 execution risk, we make no forecast changes. Trading on 1.1x EV/Sales 2024E, a sharp discount to the tech sector (2.9x), the risks appear more than ‘priced in’. When the macro improves, operational tailwinds will return, and until that point, this team is delivering on the transition.

Transition gathers pace

Beeks inks a multi-year contract extension at the Johannesburg Stock Exchange. The contract was first signed in September 2023, with the first extension in March 2024; the momentum reflects stronger-than-expected customer demand from JSE clients – this is a profit centre for JSE. The service is available at the JSE’s Teraco data centre, addressing additional regulatory requirements for dual location disaster recovery (customer upselling). The value was not disclosed; guidance is that the contract ‘supports the Board’s confidence in its financial expectations’. CEO Gordon McArthur comments that the ‘success of the solution at the JSE is supporting our discussions with other global exchanges’. News of regulatory approval at another exchange (14 August) highlighted ‘advanced discussions taking place with other major Exchanges across the globe’ – so this extension helps the pipeline. Shares have performed well: +154% YTD vs sector +8.4%. But we believe this only reflects the current operational momentum, while the FY1 valuation (EV/EBITDA 11.4x vs UK at 18x) does little to reflect the proven execution on global TAM. We see Beeks as a long-term secular growth opportunity.

Contract extension at JSE – ‘Please, sir, I want some more’

Beeks has received regulatory approval for Exchange Cloud at ‘one of the largest exchange groups globally’. The contract was first announced on 6 February. Now with regulatory approval, the contract moves to delivery and revenue recognition. This is the third Exchange to sign for Beeks, and today Beeks confirms that the Exchange Cloud pipeline ‘continues to build, with advanced discussions taking place with other major Exchanges across the globe’. CEO Gordon McArthur comments that Beeks is ‘well-placed to satisfy the strong demand for our solutions’. The contract trails a banner FY24E where revenue soared 27% Y/Y. Shares have performed very well – +123% YTD vs sector +8.4% – making Beeks the top performing share YTD in UK tech. But we believe this only reflects the current momentum, while the FY1 valuation (EV/EBITDA 9.7x vs UK at 18x) does little to reflect the proven execution on global TAM. We see Beeks as a long-term secular growth opportunity.

Beeks gets green light on new contract

Xaar has issued a reassuring H1 trading update. While the previously identified ‘challenging market conditions’ continue, pleasingly trading is in line with expectations. Of the data points: H1 revenue will be slightly down Y/Y to c.£29m, with net cash at £6.8m. With revenue guidance c.£29m, this suggests to us adj. EBITDA c.£1m. Recap that FY23 results were similarly ‘in line’ despite a weak end market where product debuts were delayed. This affected H2 23 and Q1 24 revenue. CEO John Mills concluded that the external trading environment ‘remained challenging’ due to geo-political and macroeconomic headwinds and some customers’ product debuts had slipped into mid- to late 2024, thereby telegraphing that sales phasing would bump revenue into H2. Despite the backdrop, shares have performed well, being +34% YTD. Xaar has rightly gained from the trend whereby quality, and cheap (1.5x EV/Sales), smaller company shares have benefitted from portfolio rotation by the investment community. This ‘large to small’ rotation started only recently but it is a current feature of the UK and US equity markets.

H1 trading update: ‘In-line’ reassurance

Following ‘significant double-digit growth’, Beeks announces that FY24 results (to 30 June) are in line with expectations. Revenue soared 27% Y/Y. We note a beat to FCF, a beat to net cash (£6.58m vs £4.41m in FY23) and a beat to profitability – all illustrative of improving unit economics. CEO Gordon McArthur comments that the record results are a testament to Beeks’ growing reputation. That Beeks did not suffer outage, or break SLAs, on 19 July will copper bottom that reputation. After that global IT outage, corporate buyers will review system resiliency, and having recently achieved ISO 22301 certification Beeks’ reputation is further enhanced. We leave FY25E unchanged, awaiting segment details in early October. Shares have performed very well – +102% YTD vs sector +11.4% – but we believe that only reflects the current momentum, while the FY1 valuation (EV/EBITDA 8.7x) does little to reflect the proven execution on global TAM.