Proactis Results – Investors React Badly To Slowing Growth

We missed the announcement of half-year results from procurement software firm Proactis last week, but they are noteworthy enough to come back to now.

On the surface, the figures don’t look bad – sales up a whopping 124% to £26.4m in the six months to January 31st, and EBITDA of £8.4m.  There were also 35 “new name” deals.

But you have to remember that back in August 2017, Proactis announced the acquisition of US based Perfect Commerce – who themselves had recently bought Hubwoo, another major procurement tech firm (with French origins).  Now in recent years Proactis had built up a sold record of making small acquisitions (Due North, Millstream etc) which were successfully integrated, certainly from the financial point of view – the share price rose steadily through 2013-18 and £100 invested in 2013 would have been worth £800 a few weeks ago, which is pretty impressive growth.

However, the Perfect deal doubled the size of the business, and investors chipped in some £70 million in additional equity funding to support that. So expectations were high for these results, and Proactis fell somewhat short. In particular, the investors seemed to be spooked by the loss of two major clients – BP and Shell. (It is not clear which part of the business those firms dealt with – it may well have been the Hubwoo network.) In terms of clients generally, the firm had “a higher loss rate toward the end of the period than it has historically experienced”.

Underlying revenue growth excluding the benefit of acquisitions and currency translation related factors was 3%, compared to 12% for the same period a year ago. That would worry investors; a business growing at a double-digit rate is valued very differently (for obvious reasons) from one running at 3%.  £4.2 million of annualised cost savings have been realised post acquisition, which is impressive; but the market wants growth above all from software firms.

There was also some blaming of currency: “strengthening of Sterling against those two currencies (dollars and euros) since the date of the Acquisition has had the effect of reducing reported performance in Sterling and this is marginally beyond management's expectations during the period”. That might continue – but Sterling seems to be weakening again now which could be good news for the next results.

So, the outcome was that on the back of the announcement last week, the share price lost almost 50% of its value almost instantly. It has recovered a little but is currently at 109p, against a peak of 206p on March 12th. But remember that is still miles above where it was a few years ago.

To be clear, there is nothing immediate here for customers or prospective customers to worry about. The share price has no direct effect on anything really other than the wealth (on paper) of investors, and the firm is still comfortably profitable. But it will be worth keeping an eye on progress, and the full year results will be eagerly awaited in a few months’ time; the size of the challenge to integrate Perfect Commerce shouldn’t be under-estimated.


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