Software-as-a-service provider business Gentrack Group Ltd (ASX: GTK) this morning reported to the market that it has signed a couple of significant new deals with U.S. airport operators. One deal with Orlando International Airport is at the final negotiations stage after Gentrack was awarded “preferred vendor status”, while the group also announced it’s been awarded a contract for its BlipTrack guest predictability solution at the operator of Newark, New Jersey, JFK and Stewart Airports in New York.
The Auckland-based group reports on a financial year ending September 30 2018 and stated that the new deals don’t affect guidance for FY 2018, although the all-important outlook for growth in FY 2019 is brightening on the back of potential for new contract wins.
The group stating that “the new contracts will contribute to FY 2019 results and position the group well for further wins in the US airport and Australian utility markets”.
Gentrack also recently announced it is to fully acquire the UK’s Evolve Analytics Limited an energy data software analytics business for an enterprise value of NZ$44.2 million, with the deal to be funded by an extension to Gentrack’s debt facilities.
The group also flagged that it intends to “undertake a fully underwritten pro-rata non-renounceable entitlement offer to reduce its debt”, although as far as I can see no written details have been provided to the market. Flagging an upcoming capital raising but not disclosing proposed terms is not especially helpful t0 your average investor.
For the six months ending March 31 2018 Gentrack reported a net profit of NZ$8.4 million on revenue of NZ$52 million and retains a target to grow EBITDA (operating income) at 15% compound annual organic growth rate over the long term. This is an ambitious target that suggests a bright future if it’s met given the group also has the opportunity to grow acquisitively as demonstrated by numerous recent acquisitions including the Evolve deal.
Gentrack does look to tick the boxes as a small-cap growth prospect, with the key drawback being that its lofty valuation is likely to turn off the hardcore bargain hunters. This morning the ASX scrip is changing hands for $6.57, which puts on a high multiple given it has previously guided for flat EBITDA growth for the current six-month period ending September 30 2018. As such I’d rate the stock a hold today.
Another software-oriented business that investors may find better value in is online communications and internet services provider MNF Group Ltd (ASX: MNF). It’s valuation has taken a big dent on the back of ambitious plans to launch a mobile phone service under its Pennytel brand. This looks a high stakes project given the tough conditions in the mobile sector, but if MNF can pull it off the stock is likely cheap at $5.15 given its other underlying growth.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended MNF & GENTRACK FPO NZ. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.