Gentrack sags on Brexit fears but confident over long term

AUCKLAND: Gentrack says it’s cautious about how Brexit will affect its business in Britain and Europe in the shortterm, even though it remains confident it can grow organic operating earnings at 15% or more in the long term.

The company’s shares fell as low as $6.08, and were recently down 57c at $6.15, or 7.5%, from Wednesday’s close after it reported annual results in line with guidance, including a 17% increase in net profit to $13.9 million.

Chief executive Ian Black told analysts on a conference call that it is realistic and appropriate to note the potential impact of Brexit.

‘‘Given that some of the energy suppliers are owned by European organisations, that means that there’s going to be a bit of caution about making decisions rapidly in the next short while until things settle down,’’ Mr Black said.

‘‘We’re just calling out that we, as much as anybody else, want to see the outcome of that Brexit decision and the potential impact on confidence in the UK and European markets,’’ he said.

‘‘The mere fact that our platform is very sticky and is mis sion critical for our customers, means that the continued underlying spend on software and our support services and regulatory compliance activities will go on regardless of the political uncertainty,’’ he said.

‘‘We’re just being cautious because we’re still dependent on projects and contracts to grow our business.’’

The business in Britain is ‘‘very solid’’ with a broad customer base from tier one electricity companies to new entrants and delivers a very strong recurring revenue stream, Mr Black said.

Britain accounted for 53.8% of Gentrack’s $104.5 million in revenue in the year ended September, up from just 30.8% the previous year.

As well, total committed annualised revenue more than doubled to $51.8 million.

‘‘We added 25 utilities and three airport customers during the year, lifting fullyear subscription and software licence revenues by 78% on last year to $48.9 million,’’ Mr Black said.

‘‘We have maintained our leading market share of the UK’s independent energy suppliers and our software has now been selected by a number of the largest utilities in the UK including Npower, E.ON and SSE,’’ he said. Gentrack is in the process of transitioning its business from selling upfront licences with recurring maintenance contracts to a cloudbased subscription, softwareasaservice, business model.

Comparing the two models, ‘‘we see the total lifetime value to Gentrack over seven years being at least 50% greater,’’ Mr Black said. ‘‘In reality, most of our customers stay with us much longer than that.’’

The aftermath of Gentrack’s $99 million float in mid2014 was marred by a profit downgrade by as much as 32% shortly after it listed on NZX, largely reflecting timing issues with contracts.

In the event, earnings were 7.8% lower than the prospectus forecast at $13 million and the Financial Markets Authority decided to take no action after investigating the situation, but that experience has doubtless made the company more cautious about forecasting.

Gentrack’s final dividend of 8.7c per share, which takes the annual payout to 13.7c, up 8% on the previous year, is based on the company’s policy of paying out 70% of net profit before amortisation.

Mr Black said that policy could be subject to review.