Brady (LON:BRDY)’s H1 results reveal the initial impact of the group’s transformation. While revenues slipped, reflecting the planned shift to software rental, recurring revenue rose to 68% of total revenues, up from 60% a year earlier. The move into microservices is gaining traction, with three proof of concept trials taking place in H2. Four new licences were sold in H1, all on a rental format, of which three are hosted. With nearly four months remaining in FY17, the group has 93% of revenue in the bag, including several software renewals and services business. Given the attractive long-term growth opportunities in the E/CTRM space, we believe the shares look attractive on 14x our maintained cash-adjusted FY19 EPS.
Interim results: 4 new contracts – all rental, 3 hosted
H1 group revenue dipped by 11% to £13.2m, while EBITDA before exceptional items (Brady definition) swung to a £0.9m loss from a £2.0m profit. Services fees fell 26%, reflecting the lower number of deals and timing of new deals. There was £0.6m in exceptional restructuring costs and cash slipped by £1.4m over H1 to £5.0m. Management says that FY17 results are expected to be in line with expectations, and we note that a stronger than normal H2 weighting is expected, partly due to c £2m of software licence renewals. These renewals are a legacy of the group’s historical term licence business model. Management’s focus now is on completing the strategic plan and company re-organisation, accelerating the move of the group’s business model to recurring fees and catching up on the technical and delivery backlog.
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