Straker Translations (ASX:STG) share price flat after half year results release

The Straker Translations Ltd (ASX:STG) share price is trading flat despite delivering solid growth in the first half…

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The Straker Translations Ltd (ASX: STG) share price is trading flat on Thursday following the release of its half year results.

At the time of writing the translation platform provider’s shares are fetching $1.59.

How did Straker perform in the first half?

For the six months ended 30 September, Straker delivered a 9% increase in revenue to NZ$14.8 million.

The vast majority (93%) of this revenue is classed as recurring, with its annualised repeat revenue increasing 32% to NZ$28.1 million.

A reduction in the company’s gross margin due to COVID-19 induced pricing pressures and acquisitions, led to its gross margin falling from 54.4% to 51.1%.

Nevertheless, Straker recorded positive adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$0.04 million, compared to a NZ$0.24 million loss a year earlier. Management advised that this was driven by acquisition synergies and COVID-19 related cost reductions.

Cash used in operating activities was NZ$0.4 million, down from NZ$1.5 million a year earlier. Management believes this reflects the improved operating performance of the business.

This led to Straker finishing the period with cash on hand of NZ$7.7 million, which management believes provides more than enough capital to fund its operations.

The company’s CEO and Co-Founder, Grant Straker, commented: “We are very pleased with the progress we have made over the last half year. Although the COVID-19 pandemic disrupted momentum and margins in the first quarter, we have over the last few months seen a resumption of growth and this culminated in September with our largest ever sales month.”

“COVID-19 is accelerating the transition of the translation industry to an outsourced and automated model and we are benefitting from this trend. Our technology and service proposition continues to gain recognition around the world, as our recently announced contract with IBM highlights and this interest is filling the sales pipeline. We are seeing particularly strong engagement with global enterprise customers who value our global reach as much as they value the speed, accuracy and service that our platform delivers,” he added.

Outlook.

The company believes its growth can continue in the second half and beyond, particularly given its recent game-changing agreement with IBM.

Mr Straker said: “Straker is well placed to continue to grow for the remainder of the current financial year and beyond. Core repeat revenue is strong. The relationships we have established with new enterprise customers through acquisitions and through the follow up by our sales teams positions us for organic growth.”

 “We continue to expect revenue from the recently announced IBM agreement to positively impact the Q4FY21 financial results and expect it to yield a significant contribution in FY22,” he added.

The chief executive also revealed that the company has acquisitions in its sights and discussions are ongoing.

He explained: “Meanwhile, with COVID-19 accelerating the consolidation of the global translation industry, we have resumed talks with several potential acquisition targets where we can drive immediate margin improvements as we integrate our technology and share support office costs.”

Before concluding: “We are looking ahead with confidence and look forward to providing an update at the end of the third quarter, if not before.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Straker Translations. 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.

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