2021 Quicktake #1: Gentrack
2021 Quicktake #1: Gentrack
Software provider to utilities and airport
Summary:
Gentrack is a provider of software to the utilities business (electricity and water) in Asia Pacific, Australia, New Zealand and United Kingdom.
This is no software start-up but a 30 years veteran on the market. Similar to every start-up, instead of delivering the software on premise, Gentrack is increasingly delivering their software through the cloud. In addition, they are doing it at a fraction of a cost below what a company will pay to the likes of SAP and Oracle.
Their customers include tier1 and tier2 energy providers. With logos like the below, there are very few competitors who can rival their width and depth of the relationship with their customers.
They have a smaller business known a Veovo which supplies critical airport operating systems, displaying flight time and billing of airlines.
From utilities to airport, they provide softwares that are critical to their customers. That meant recurring revenues.
Gentrack got listed in 2014 and soon become a market darling rising from NZD 2.50 to NZD 7.30 as they went on to acquire multiple companies to expand within their sector.
With a couple of bad acquisitions and quite a bit of bad luck - UK government regulation introduced price caps and a few of Gentrack newly acquired customers went under, Gentrack share price proceeded to fell to a low of NZD 0.92 during the depth of the pandemic.
The old management is swiftly gone and the new management took over.
The new management headed by Gary Miles, comes with relevant software and turnaround experience.
Financials:
Their 20212Q performance looks more promising. Revenue seems to be recovering and the management seems to be keeping expenses under control.
More than half of their revenues are recurring and the possibility of utilities ripping out Gentrack software to go to a new firm or start-up is very low.
In addition, despite the headwind from Covid-19, Veovo continue to grow their recurring revenue. With the opening up of travel, this segment should also recover swiftly.
The balance sheet looks strong with NZD 22m of net cash, thou there could be further impairment due to the high level of intangibles and goodwill on their balance sheet.
Valuation:
This is a turnaround play and the company is currently only on breakeven. The main thing is that their problems could be easily fix.
They need to double down on improving and growing their relationship with their existing customers and then move on to acquire new logos. With an ability to deliver, Gentrack should be at the forefront when a tender comes along.
The growth of the company will be slow and steady. In their latest strategy day held on the 16th June 2021, the management provided some targets for themselves.
The management had guided that FY2022 will still be a tough year for them but a 10% CAGR for FY2024.
With a new management team, a pristine balance sheet, tons of logos which is tough to acquire, for investors who are looking to invest in a SAAS company operating in a generally unsexy place, Gentrack may be the company you will want to keep on your watchlist.
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