Basware annual results – glass half full or half empty?

We’re in the heart of company results season now and one of the big players in our market announced their 2012 figures recently.  Basware, the P2P and e-invoicing firm came in with results that - in classic hedging our bets fashion - we could take as glass half full or half empty.

At a headline level, sales of 113.7M Euros, up 5.5M on last year, were pretty static if we take into account the additional revenues that must have flowed from the acquisition of the German e-invoicing firm First Businesspost GmbH in early 2012. And operating income of 8.3M Euros, down a third (from 12.3 in 2011), was the smallest profit number since 2007.

That’s the negative interpretation. On the other hand, like a number of firms in this market, Basware have been going through transition from a traditional licence based sales model to SaaS (software as a service) which changes the way revenue for sales can be recognised. Less can be booked to the accounts at point of sale – but assuming you do a good job with your client, you should get a steadier flow of recurring revenue for years to come. Basware have also been expanding in their outsourcing offering in the invoicing area, which again is a good source of recurring revenues.

The numbers they’ve provided in terms of volume going through their supplier network also suggests much better growth than the headline figures, which were disguised by these business and accounting changes.

We have also connected an increasing number of suppliers and buyers to our open network with new products and delivery methods during the year. In 2012, the transaction volume was 34 million in total, up 63.5%”.

That is good news indeed, but the fall off in profit is slightly harder to explain than the revenue numbers, although costs around their two acquisitions in 2012 may be part of that steep decline. Whilst it’s not totally clear, the Businesspost acquisition seems to have brought quite a lot of staff and cost with it – it’s less obvious that it has been profitable to date. Certainly staff number have grown by over 50% during the last two years (913 to 1423), without sales or profit anywhere near keeping up with that.

It’s also worth noting that many software firms would love to be making 7% profit on revenues. It just doesn’t compare so well with 2010, say, when that number was 13%. Basware’s forecast for 2013 is a 15% increase in revenues and a rather vague “profit will be higher than in 2012”.

The share price has dropped over 10% in the past 4 months, in a rising market, indicating some disappointment at the performance.  The valuation is another conundrum – Basware is currently valued at  just over 2X revenue. Compare that with the close to 10X revenue SAP paid for Ariba! On the other hand, the price/earnings ratio is currently 42, which is a high-growth stock ratio - one could argue that’s hard to justify here given the lack of profit growth over the last five years.

But from a buyer’s point of view, there’s nothing in these figures to worry about if you’re considering Basware as a supplier. Indeed, they are still one of the most robust firms financially in his market and in summary, a strong P2P provider with particularly strengths in the invoicing end of the process.

Now clearly this isn’t a technical review of their products. However, you can find much more about Basware and their products on our sister site, Spend Matters US. And there will be a deeper analysis  of these recent results and what they mean for Basware, their competitors and customers, on our PRO subscription site shortly.

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