accesso Technology Group PLC (LON: ACSO) – Strengthening Liquidity and Adopting Cash Preservatives to Emerge Strongly in Future

accesso Technology Group PLC operates as a software company, which is involved in the application and development of ticketing, mobile and eCommerce technologies, licensing, and operation of virtual queuing solutions for the attractions and leisure industry. The Company operates through two segments - Ticketing & Distribution, and Guest Experience. Its ticketing and distribution consist of accesso Passport™, accesso Siriuswaresm, accesso ShoWaresm and Ingresso™; while the Guest Experience division comprises virtual queuing solution (accesso LoQueuessm) and experience management platform (TE2™). The Company was admitted to the LSE (London Stock Exchange) on 24^th April 2002, and presently, a constituent of FTSE AIM All-Share index.

 
(Source: Presentation, Company Website)

Key Fundamental Statistics



Segments at a Glance

As discussed earlier, the Group operates through two segments - Ticketing and distribution, and Guest experience. The revenue is further divided into four parts - Transactional, Non-Repeatable, Other Repeatable and Others.

Geographically, the Group has operations in the US & Canada, Mexico, South America, United Kingdom, and the Asia Pacific. Most of its revenue comes from North America (the US and Canada) region.

 
(Source: Presentation, Company Website)

Impact and Actions for COVID-19
 

1. As around 74 per cent of Company is transactional in nature; hence, the revenue of FY20 is expected to be impacted significantly.

2. To contain the financial impact, the Group has taken several actions such as salary reduction across all staff, suspension of non-discretionary spend, headcount freezing and reviewing opportunities to stop or pause the capital expenditure.
 

Recent Regulatory Updates – Strengthening the Financial Position

22^nd May 2020: The Group raised £32.3 million in gross proceeds by issuing 11,138,179 new ordinary shares, placed by Numis Securities Limited.

21^st May 2020: The Company made a pre-emptive open offer to raise nearly £6 million and an additional debt facility of £8 million, together with the amendment and waiver of certain financial covenants.

27^th April 2020: Fern MacDonald was appointed as Chief Financial Officer of the Company, with immediate effect. He has been serving as Senior Vice President of Finance since May 2018.

Top Shareholders Statistics

 

Trading Update, Banking Agreement and Proposed Fundraise

On 21^st May 2020, accesso Technology Group announced an update on the proposed fundraising, banking agreement and trading update. The Group proposed placing of around GBP 32 million or USD 39.1 million to strengthen the liquidity position during the uncertain period. ACSO has sufficient cash balance to support businesses until 2020 autumn. As on 8^th May 2020 after the completion of placing, the net debt stood at USD 12.8 million, and liquidity position (on pro forma basis) stood at USD 24.7 million approximately. The company started the financial year 2020 with strong momentum and revenue in February 2020 stood 12.9 per cent higher than February 2019. Due to imposed lockdown globally to control the spread of the virus in March resulted in revenue for Q1 FY2020 to decline by 11.9 per cent versus Q1 FY2019 and revenue in April 2020 declined by 80 per cent versus April 2019. Due to event postponements and venue closures, which comprised around 73 per cent of the total revenue, the revenue declined sharply.  During the lockdown, the group’s revenue from events has reduced close to zero and revenue from professional services has also reduced as group is looking to preserve cash. ACSO is working in sync with core customers to prepare an operational plan to re-open venues in coming weeks and months in a phased manner with reduced capacity and with safety & health measures. The Company has secured partnerships with Splashin' Safari, Holiday World and Walibi Holland for virtual queueing. The Group has taken steps to reduce the cost base and preserve cash. ACSO has concluded a banking agreement with Lloyds to raise additional facility of GBP 8 million under CLBILS (Coronavirus Large Business Interruption Loan Scheme).

Financial Highlights – Improved Financial Performance in FY2019 (31^st December 2019)

 
(Source: Annual Report, Company Website)
 
In the financial year ending 31^st December 2019, led by lower than expected new customer wins and a reduction in non-repeatable revenue recognised in the year, the Group’s revenue stood at USD 117.2 million versus USD 118.7 million in FY2018. The repeatable revenues on a constant currency basis surged by 10.8 per cent to USD 95.5 million for the period. The adjusted EBITDA of 2019 was impacted materially by the product integration plan and costs from expanded staffing alongside lower than expected revenues, with USD 28.2 million of adjusted EBITDA, which represents a decline of 18.8 per cent year on year. The adjusted earnings per share for the financial year 2019 was 30.78 cents per share. In the Ticketing & Distribution segment, the company has implemented a total of 99 new customer venues.

Financial Ratios – Decent Liquidity Position despite Heightened Uncertainty


(Source: Refinitiv, Thomson Reuters)

The reported Gross Margin and EBITDA Margin stood at 73.1 per cent and 21.3 per cent, respectively, for the financial year 2019 and was lower than the industry median. On the liquidity front, accesso Technology Group Plc’s current ratio stood at 1.05x and was lower than theindustry median. On leverage front, the debt-equity ratio of accesso Technology Group Plc’s was 0.17x, which was lower as compared to the industry median.

Share Price Performance Analysis


Daily Chart as on 9^th June 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On June 9, 2020, at the time of writing (before the market close, at 10:06 AM GMT+1), accesso Technology Group Plcshares were trading at GBX 355.75, up by 1.64 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,361.81/GBX 81.72.

Bullish Technical Indicator
From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

Method 1 – Enterprise Value to Sales Approach (NTM)




To compare accesso Technology Group Plc with its peers, EV/Sales multiple has been used. The peers are Aptitude Software Group Plc(NTM EV/Sales was 3.44), Seeing Machines Ltd(NTM EV/Sales was 2.86), Proactis Holdings Plc(NTM EV/Sales was 1.53), SDL Plc(NTM EV/Sales was 1.32) and Innofactor Plc(NTM EV/Sales was 0.72). The Average of EV/Sales (NTM) of the company’s peers was 2.00x (approx.).

Method 2 – Enterprise Value to EBITDA Approach (NTM)
 


To compare accesso Technology Group Plc with its peers, EV/EBITDA multiple has been used. The peers are Crealogix Holding AG (NTM EV/EBITDA was 30.72), Nucleus Financial Group Plc (NTM EV/EBITDA was 19.84), Aptitude Software Group Plc (NTM EV/EBITDA was 17.47), dotDigital Group Plc (NTM EV/EBITDA was 15.60) and IAR Systems Group AB (NTM EV/EBITDA was 11.33). The Average of EV/EBITDA (NTM) of the company’s peers was 18.99x (approx.).

Valuation Metrics


(Source: London Stock Exchange)
 
As on 29^th May 2020, Price to Cash Flow multiple of the accesso Technology Group Plc was around 5.2x, which was lower as compared to the industry. It reflects, shares are undervalued against its peers. 
 
Industry Outlook Dynamics

As per the Grand view research, the market size of the global business software and services is estimated to grow at a compounding annual growth rate of 10.7 per cent from 2019 to 2025, which was valued at USD 322.91 billion in 2018. The key drivers are the adoption of software and data insights in decision making, inventory management and improving market positioning using consumer data. As per the FY19 presentation of the Company, the ACSO has an addressable market size of USD 3.4 billion, wherein the Guest experience market valued at USD 1.5 billion and Ticketing & Distribution market was valued at USD 1.9 billion.

Growth Prospects and Risk Assessment

The Group has completed the development of TE2 Marketplace product, to provide third-party travel experience through Ingresso, which holds upside potential for future growth. The Group has reappointed its CEO to Steve Brown and has been taking several cost-efficiency measures to contain the COVID-19 impact. Further, the Group has a clear roadmap to bring operational efficiency and cross-product integrations. The Company has significant operations in North America, and hence, it is relatively not likely to get impacted with Brexit. The Company keeps on launching new platforms and upgrade the old products and services related to leisure, entertainment and cultural markets to become one of the market leaders in the technology sector. The new business in the pipeline will help the company to expand its operations and to gain more market share.The Company, through its wide-ranging scope, had accelerated growth organically and through acquisitions and strategic partnerships.
 
However, the Group performance is exposed to several kinds of risks such as exchange rate movements can impact international visitation patterns, while transactional revenue has been getting affected with COVID-19 disruption. Being an IT company, the ACSO needs to invest heavily in innovation and system maintenance and, any failure to do so will impact the brand royalty and may affect the company’s financial performance. Excessive competition in the industry could affect the revenue and profitability of the Group. Furthermore, the United Kingdom, due to coronavirus pandemic, is facing the most significant slowdown in productivity presently. The Company operates inmultiple geographies, and its profits can be impacted negatively due to foreign exchange rate fluctuations.

Business Outlook Scenario

In 2020, the company’s main focus will continue to be on building the revenue base from recurring, additional integration of the product suite, and supporting the clients during the uncertain and challenging market environment in the context of the Coronavirus (COVID-19) mayhem. The Company started the financial year 2020 with strong momentum and revenue in February 2020 stood 12.9 per cent higher than February 2019, driven by the typical seasonal activity in European and North American winter months. From a medium to long term basis, the group’s board is clear that the Company has the right plan in place to deliver sustainable attractive organic progress, while focusing on the operating efficiency opportunities, reorganisation of the technology development teams, and redefining the go-to-market strategy. The Group has a strong customer base, which will bring opportunities for long term growth. To tackle the covid-19 impact, ACSO has increased the adoption of technologies, which could help them to return to normalised operations once the situation stabilises.

Over the course of 3 years (FY16 - FY19), the company’s revenue surged from USD 102.50 million in FY16 to USD 117.2 million in FY2019. Compounded annual growth rate (CAGR) stood at 4.57 per cent.
 
Based on the decent fundamental prospects and support from the valuation as done using the above two methods, we have given a “Speculative Buy” recommendation at the current price of GBX 355.75 (as on 9^th June 2020, before the market close at 10:06 AM GMT+1) with lower double-digit upside potential based on 2.00x NTM EV/Sales (approx.) on FY20E sales (approx.) and 18.99x NTM EV/EBITDA (approx.) on FY20E EBITDA (approx.).
 
*All forecasted figures and Peer information have been taken Refinitiv, Thomson Reuters.

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