- Profit fell due to rising staff costs
- ARR now makes up more than half of revenue
Like many B2B software companies, D4t4 (D4T4) is going through the expensive process of converting itself into a recurring revenue business. The company has a data marketing platform called Celebrus and the newly created Celebrus Fraud Data Platform.
D4t4’s premise is that both these products will receive regulatory tailwinds. The marketing product only uses first-party data, so increasingly tight data regulation should give an advantage over rival products that use second-party data. Large fines are being handed out to financial businesses that fail to prevent fraud, increasing the need for D4t4’s product.
On paper, these arguments seem sound, but D4t4 is still waiting for growth to justify the PE multiple. Revenue grew only 7.3 per cent and rising costs due to increased investment in the sales team meant adjusted profit before tax fell 25 per cent. The company explained this by saying the “global economic situation continued to slow buying decisions from prospective customers”, which suggests the product might be a “nice-to-have” rather than a “need-to-have”.
The good news though is that annual recurring revenue – the holy grail for software companies – grew 32 per cent to £14mn. It now accounts for 57 per cent total sales, up from 47 per cent last year. Management expects this ratio to improve to 65 per cent in the medium term. The company also made its first sale of the fraud product within six months of its launch when it was upsold to an existing banking customer.
The FactSet broker consensus is for EPS to grow to 11.45p by 2024. This would give a 2024 PE ratio of 21. However, the direction of travel isn’t favourable. The 2024 consensus has fallen from 13p in the past few months – presumably because of worsening economic conditions. Top-line growth is needed. Hold.
Last IC View: Hold, 320p, 1 December 2021
|ORD PRICE:||237p||MARKET VALUE:||£ 95mn|
|TOUCH:||237p – 240p||12-MONTH HIGH:||410p||LOW: 230p|
|DIVIDEND YIELD:||0.9%||PE RATIO:||56|
|NET ASSET VALUE:||79p*||NET CASH:||£11.2mn|
|Year to 31 Mar||Turnover (£mn)||Pre-tax profit (£mn)||Earnings per share (p)||Dividend per share (p)|
|*Includes intangible assets of £10.2mn or 25p a share. ^Excludes proposed special dividend of 12.5p a share.|