Brady (LON:BRDY) has undergone a significant transition into a leaner, more focused business. Costs have been taken out and the recycling business sold earlier this year as it did not fit well with the business. The main priorities are delivering on legacy contracts while significant resources are being used to refresh the product, with c 25% of FY18 sales expected to be spent on R&D. Consequently near-term ratings remain elevated. However, the market opportunity is substantial and we believe Brady is well positioned to benefit from the significant sector consolidation.
Investment case: E/CTRM is a highly attractive space
Brady has more than 300 customers, including many blue-chip names that cover a wide range of commodity businesses such as trading companies, financial institutions, producers and manufacturers. The global E/CTRM market was worth c $1.65bn in 2016 (ComTech Advisory) and is forecast to grow at c 6% CAGR in 2016-20. Brady has a strong position in niche areas including commodity logistics, credit risk, metals (number one globally) and European energy, yet has a relatively modest market penetration overall (we estimate 1.2%). Recurring revenues were 74% of the H118 group total, which is above the 70% medium-term target.
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