Market Prognosis

A concise summary of the major macro events of the past 24 hours, and selected UK company-specific news.

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July 4, 2023

The unfortunate growth in mental well being

Macro & Overnight

Australia followed the Fed’s lead in adopting the hawkish rate pause.

UK Company News

ActiveOps, the Management Process Automation (MPA) software vendor, reported revenue growth of 11% and ARR growth of 13%. Gross Margins remain healthy at 82%, and cash conversion of 505% £15.4m cash (2022: £13.8m). Net Revenue Retention (NRR) was 110% (2022: 102%), and a 20% increase in ARR from its ten largest customers. It is developing a series of software enhancements for release utilising Artificial Intelligence (AI) and Machine Learning (ML). It has a healthy sales pipeline and a positive outlook.

Cash conversion of over 500% is remarkable. 

Fintech investor Augmentum Fintech reported that its NAV per share increased by 2.4% to 158.9. Its top 10 holdings, which represent 78% of portfolio value, grew revenue at an average of 117% year-on-year and are cash generative or have an average of 29 months cash runway. Cushon’s acquisition by NatWest Group was completed post year-end and returned £22.8 million to the Company, delivering a return of 2.1x multiple on invested capital and an IRR of 62%.  £19.9m was invested in 2 new companies and eight existing portfolio investments. The Company has successfully exited five portfolio investments at or above the last reported holding value.

With a share price down 40% over the reporting period, Augmentum makes its case for the public market to value its privately owned assets less conservatively. 

Foresight reported exceptional growth of 38% and 35% in Assets under Management (“AUM”) and Funds under Management (“FUM”) in FY23 to £12.2 billion and £9.0 billion, respectively. It drove a 38% increase in revenue to £119.2 million and a dividend of 20.1p per share for FY23, a year-on-year increase of 46%. It remains confident in its diversified business model to deliver profitable growth in FY24 through high-quality recurring revenue and a visible high-margin retail and institutional fundraising pipeline. 

Foresight continues to be a rare success story among the cohort of IPOs from 2020-2021.  

Kooth, a youth digital mental well-being leader, has announced a $188m four-year contract in California and a material upgrade to 2023 revenue guidance. It also proposes fundraising of approximately £10m to accelerate its expansion strategy, anticipates increased EBITDA margin in FY24, and after that, aims to deliver a sustainable Group EBITDA margin in the mid-teens for the remaining life of the contract with the potential to improve after the initial investment phase. Following the initial investment phase, cash generation will increase significantly from 2025 and beyond.

This contract win is a substantial and exciting opportunity for an £80m market cap company where the US provides its most significant potential. However, the execution risk involved is considerable and should not be discounted. 

Restore, the digital and information management services provider, warns of continued weakness in its Technology business. Demand for specific service lines has reduced since its last update, particularly in bulk digital scanning, where the price of recycled shredded paper has significantly fallen in the past month. This trend is anticipated to continue into H2. As a result, profit before tax will be lower than expected at £31m. Charles Bligh will be standing down as Chief Executive Officer, and Jamie Hopkins, the Senior Independent Director, has agreed to become Interim Chief Executive Officer. Sharon Baylay-Bell has agreed to become Executive Chair. All changes are with immediate effect. 

Restore’s problems look like a case of “diworsification.” Any technology business that depends on the price of recycled shredded paper is questionable. The management changes have been swift, and the value of a decent core business should become apparent in due course. 

Sainsbury’s Like-for-like sales (excl. fuel) were up 9.8%. Its outlook is unchanged, and it continues to expect FY23/24 underlying profit before tax of between £640 million and £700 million and to generate at least £500 million of retail free cash flow. 

These numbers will be intensely scrutinised for non-existent greedfaltion. 

Solid State, the value-added component supplier, had strong trading in Q1, supported by the recent NATO contract and has a robust order book for the year ahead. This leads the Board to expect revenue for the 12 months ending 31 March 2024 to be ahead of the current consensus. 

WANdisco, the troubled and suspended data activation platform, is announced the successful completion of the $30 million equity fundraise at 50p, representing approximately 70.7% of the Company’s existing issued share capital. 

Is this chapter 3 or 4? The management team behind this latest version of the soon-to-be-renamed WANdisco is credible and is putting money into this refinancing. However, expect a flurry of critical press coverage and puns on lyrics from 197os disco hits. 

Prognosticator 

 

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