Why Buf­fett might ap­pre­ci­ate Proac­tis value

Pro­cure­ment and an­a­lyt­ics plat­form has im­pres­sive un­der­ly­ing charms

Shares - - CONTENTS -

Be­ing bold when oth­ers are fear­ful is a mantra cham­pi­oned by many of the world’s best in­vestors, in­clud­ing the sage of Omaha him­self, War­ren Buf­fett.

We be­lieve that Proac­tis

(PHD:AIM) is a value op­por­tu­nity very much along those lines, one that could de­liver 65% share price up­side over the next 12 to 18 months, per­haps more.

Tech­nol­ogy is typ­i­cally most suc­cess­ful when it al­lows or­gan­i­sa­tions to op­er­ate faster, cheaper and bet­ter. That’s just what the e-pro­cure­ment and spend an­a­lyt­ics plat­form run by Proac­tis does.

Through a suite of soft­ware ap­pli­ca­tions, or­gan­i­sa­tions are able to im­ple­ment spend­ing con­trols to ex­tract best value from a stream­lined pro­cure­ment process.

This in­cludes au­to­mated work­flow, req­ui­si­tion au­tho­ri­sa­tion, or­der­ing, in­voic­ing and stock con­trol, with full vis­i­bil­ity of costs through the buy­ing pipe­line.

The busi­ness has al­ways been ac­quis­i­tive, but in July 2017 it com­pleted a very sig­nif­i­cant pur­chase of US-based Per­fect Com­merce for £99m, a deal that will more than dou­ble prof­its in fu­ture.

The com­pany re­ported £5.1m of pre-tax profit last year to 31 July 2017. The equiv­a­lent fig­ure this year is ex­pected to be £11.7m, ac­cord­ing to an­a­lysts at Fin­nCap, the com­pany’s bro­ker, and £14.7m next year to 2019.

CHAL­LENGES FROM A PER­FECT DEAL

The scale of the Per­fect Com­merce ac­qui­si­tion im­plied chal­lenges and like the char­ac­ters in the Le­mony Snicket books, Proac­tis has been struck down by a ‘se­ries of un­for­tu­nate events,’ as one an­a­lyst puts it.

This largely stems from the sur­prise loss of four large ac­counts and the de­layed de­liv­ery of syn­ergy cost sav­ings from the Per­fect ac­qui­si­tion, al­though a stronger pound ver­sus the dollar and euro hasn’t helped ei­ther. An­a­lysts cal­cu­late that 56% of earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion (EBITDA) is non-ster­ling.

This spooked the mar­ket and led to the share price to drop from 190p in April.

Yet un­der­ly­ing key per­for­mance in­di­ca­tors re­main en­cour­ag­ing. The com­pany added 35 new cus­tomers ac­counts dur­ing the first half, keep­ing it on track with full year 70 tar­gets, and most of those (31) are on a sub­scrip­tion ba­sis, which typ­i­cally are more sticky.

Proac­tis is also up­selling im­pres­sively, get­ting ex­ist­ing clients to spend more over the plat­form. The com­pany re­ported 46 in the first half this year, ver­sus its 100 a year goal. It has £47.8m of for­ward or­ders backed up.

This gives us con­fi­dence that man­age­ment can af­fect a rapid op­er­at­ing im­prove­ment as the com­pany moves for­ward, and that should be­come re­flected in the share price as in­vestor con­fi­dence re­turns. Fin­nCap re­tains its 250p 12-month tar­get for the stock. (SF)

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.