Mi­cro­gen buy-and-build risk worth tak­ing

RevStream deal com­pli­cates stel­lar or­ganic growth

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Fi­nan­cial ser­vices soft­ware sup­plier Mi­cro­gen (MCGN) has agreed the £9.7m pur­chase of RevStream. It is a Cal­i­for­nia-based en­ter­prise rev­enue man­age­ment soft­ware de­signer with more than half its rev­enues earned on a re­cur­ring con­tracts ba­sis. Mi­cro­gen is pay­ing £9.7m in a cash and shares deal.

This fits neatly for the UK company. Mi­cro­gen op­er­ates two di­vi­sions; Ap­ti­tude Soft­ware and Fi­nan­cial Sys­tems. The lat­ter busi­ness largely designs and runs a suite of tools in the wealth man­age­ment sphere, par­tic­u­larly in the trust and fund ad­min­is­tra­tion mar­ket (T&FA), although it pro­vides other fi­nan­cial sys­tems and ap­pli­ca­tion man­age­ment ser­vices also.

Ap­ti­tude is a very high-through­put trans­ac­tion pro­cess­ing engine. The plat­form al­lows fi­nan­cial chiefs to stream­line fi­nance func­tions and de­liver strate­gic an­a­lyt­ics, all un­der the um­brella of in­dus­try red tape.

RevStream will be folded into the Ap­ti­tude busi­ness, ex­pand­ing its North Amer­i­can foot­print and bol­ster­ing at­tempts to supply ser­vices be­yond the fi­nan­cial space, tele­coms in par­tic­u­lar.

‘The deal looks to have high strate­gic merit, pro­vid­ing another route for fur­ther ge­o­graph­i­cal and ver­ti­cal ex­pan­sion,’ says Rob Waren­sjo of the Me­gabuyte IT anal­y­sis con­sul­tancy.

NOT WITH­OUT RISK

Mi­cro­gen ap­pears to be tak­ing a cal­cu­lated growth risk with RevStream. The company’s Ap­ti­tude di­vi­sion has been grow­ing rapidly dur­ing the past cou­ple of years. Mi­cro­gen an­nounced a 45% jump in first half rev­enues this year to 30 June, with Ap­ti­tude in­come up 60% at con­stant cur­ren­cies. That ac­cel­er­ated from the di­vi­sion’s con­stant cur­rency 48% rev­enue in­crease in 2016.

Up­set­ting that im­pres­sive or­ganic progress with ac­qui­si­tions ‘seems dar­ing’ in the view of Me­gabuyte’s Waren­sjo.

Among the im­me­di­ate im­plied threats is to the Ap­ti­tude unit’s prof­itabil­ity. Last year the di­vi­sion posted a 71% jump in op­er­at­ing profit to £3.8m, once for­eign ex­change gains were stripped out. In con­trast, RevStream record a £0.8m loss be­fore tax in 2016, on £2.7m rev­enue.

A profit im­pact this full year may be partly off­set by man­age­ment’s con­fi­dent pre­dic­tion that RevStream sales are ‘ex­pected to more than dou­ble in 2017.’

Mi­cro­gen shares have en­joyed a stun­ning run in 2017, soar­ing 173% in the year to date. The stock is cur­rently chang­ing hands at 503p, lev­els last wit­nessed in the death throes of the dot.com boom and bust nearly 20 years ago. That im­plies a chunky-look­ing 2018 price to earn­ings mul­ti­ple of 27.8-times next year’s 18.1p fore­cast earn­ings per share. (SF)

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