Business Overview
D4t4 Solutions Plc (LON:D4T4) is a Sunbury-on-Thames, United Kingdom-headquartered group that is focused on solutions that enable clients to get the most from their data, which includes providing data collection, management, and analytics solutions, with a focus on providing end-to-end management of the entire data lifecycle. The group offers comprehensive products and services that drive value from information assets and is also engaged in distribution, design, installation and support of computer hardware and software systems. D4t4 Solutions has more than thirty years of experience in delivering the importance of data in business. The company has developed technology in the field of data collection, collaborating with industry-leading partners that specialize in data management and analysis. The company focuses in the development of its own technology and in the resourceful delivery of partner solutions.

Key Statistics

‘


Top Shareholders
 
 

Marketplace Trends

Revenue model is shifting to a Service based model. It is largely driven by customers and partners whose preference is a subscription type recurring revenue stream. Revenues have become more predictable and less volatile. The emergence of higher quality revenues with an overall increase in sales. Improved ability to forecast and scale the business appropriately.

Major Growth Drivers


(Source: Interim Report, Company Website)

The major drivers for the growth of the company are New regulations, Behavioural data usage expansion, Client Maturity, Real-time analysis demand and Artificial Intelligence and Machine Learning data quality issues.

Revenue by Activity


(Source: Interim Report, Company Website)

In the H1 FY2020, the company witnessed a change in revenue pattern. The revenue from Products - own IP has decreased significantly from GBP 6.4 million in H1 FY2019 to GBP 1.8 million in H1 FY2020. Support & maintenance revenue and revenue from delivery services increased in the first half of the fiscal year 2020 as compared to H1 FY2019 from GBP 2.7 million and 1.25 million respectively to GBP 3 million and GBP 1.8 million respectively. Revenue from products 3^rd party decreased to GBP 2.2 million in H1 FY2020 as compared to GBP 3.6 million in H1 FY2019.

Support and maintenance (Recurring revenues)


(Source: Interim Report, Company Website)

The company has reported a significant increase in revenue in support and maintenance segment which are mainly recurring revenues. Recurring revenues from Data capture were up by 14 per cent and from Data platform up by 11 per cent in H1 FY2020 as compared to H1 FY2019.

Business intelligence & Analytics Market size


(Source: Interim Report, Company Website)

The above chart shows the potential of the Business intelligence & analytics market in the upcoming years. The market size is expected to grow at a growth rate of 13.2 per cent until 2022 from USD 189 billion (current) to USD 274 billion in 2022.

Business Strategy

The company’s strategy can be divided into 5 points.

(a) Highly focussed data centric product development.

(b) Influence industry’s analysts & opinion formers.

(c) Partner with technology companies around the globe.

(d) Execute account-based marketing to target clients.

(e) Ensure client success by strong customer support.
 

Business Partners


(Source: Interim Report, Company Website)

The company is engaged in a technology partnership with big companies such as Adobe, Microsoft, Dell, SAS, etc. Also, it is engaged with services partners such as Feldm, Corios, BIMA Consulting, OnMarc, etc.

Recent News

On 3^rd February 2020, the company announced that it had transferred 50,000 ordinary shares of 2 pence each out of treasury in order to satisfy an exercise of options by two employees.

Financial Highlights – H1 Financial Year 2020 (30 September 2019, £, million)


(Source: Interim Reports, Company Website)

Due to the effect of the anticipated H2 weighting, revenues from Products - Own IP during the first half were £1.81 million (HY2018-19: £6.39 million), while due to the lower level of revenue for hybrid cloud data platform business during the period, first half revenues from Products 3rd party of £2.21 million were lower than previous year (HY2018-19: £3.62 million). Total revenue in the first half was £8.84 million (HY 2018-19: £13.99 million), which reflected the anticipated HY 2^nd  weighting this year as a result of the timing of contract wins and was in line with management expectations. The company recorded an operating profit of £0.83 million compared to an operating profit of £3.91 million in HY2018-19, while gross profit during the period declined to £4.58 million against £7.13 million in the prior year. Against earnings per share of 7.37p in the comparable 2018-19 period, adjusted fully diluted earnings per share was 1.76p as the post-tax profit was £0.80 million versus a 2018-19 first half post-tax profit of £3.36 million. Net cash at the half-year stood at £11.24 million (HY 2018-19: £12.06 million), while net current assets rose to £11.65 million against £8.53 million in the prior year.

Key Performing Indicators

Total Revenue


(Source: Thomson Reuters)

The revenue of the company grew to GBP 25.24 million in FY2019 from GBP 12.84 million in FY2015, reflecting a growth of 18.40 per cent on a CAGR basis.

Gross profit


(Source: Thomson Reuters)

The gross profit of the company grew to GBP 14.31 million in FY2019 from GBP 4.67 million in FY2015, giving growth of 32.30 per cent on a CAGR basis.

Operating Income


(Source: Thomson Reuters)

The operating income of the company grew to GBP 6.34 million in FY2019 from GBP 0.69 million in FY2015, giving growth of 74.10 per cent on a CAGR basis.

Financial Ratios
 


The reported EBITDA margin in H1 FY20 was 12.50 per cent against the industry median of 14.20%. The reported operating margin was 9.40 per cent for the H1 FY20. Net margin reported was 9 per cent for the first half of 2020, higher from the industry median of 5%. Return on equity for the current first half stood at 3.1 per cent. On the liquidity front, D4T4 Solutions Plc’s current ratio stood at 4x. On leverage front, the debt-equity ratio of the D4T4 Solutions Plc’s was 0 i.e. the company is debt free.

Share Price Performance

Daily Chart as on 3^rdMarch 2020, before the market closed (Source: Thomson Reuters)

On March 3, 2020, at the time of writing (before the market close, at 10:15 AM GMT), D4t4 Solutions Plc shares were trading at GBX 187.50, up by 4.17 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 288/GBX 179.50. The group’s stock is reflecting lower volatility as against the benchmark index, based on the company’s beta of 0.78. The outstanding market capitalisation was around £72.93 million, with a dividend yield of 1.71 per cent.

From the technical standpoint, 14 days-Relative Strength Index of the stock is hovering near the oversold zone, which is strengthening the upside move.

Valuation Methodology

Method 1: EV to EBITDA Approach (NTM)



To compare D4t4 Solutions Plc with the industry, EV/EBITDA multiple has been used. The Average of EV/EBITDA (NTM) of the industry was 9.6x (approx.)

Method 2: Price to Earnings Approach (NTM)


To compare D4t4 Solutions Plc with its peers, P/E multiple has been used. The peers are 1Spatial Plc (NTM P/E was 19.47), mVISE AG (NTM P/E was 10.52), Softline AG (NTM P/E was 15.25), Panoply Holdings Plc (NTM P/E was 15.54) and Castleton Technology Plc (NTM P/E was 12.16). The Average of P/E (NTM) of the company’s peers was 14.59x (approx.)

Valuation Metrics

(Source: LSE)

As on 31^st January 2020, the Price to Earnings ratio of the D4t4 Solutions Plc’s was around 14which was lower as compared with the industry, which shows that the company is underpriced than the respective industry. The company’s EV/EBITDA multiple is 10.3x which was lower as compared with the industry, which shows that the company is underpriced than the industry.


(Source: LSE)

This analysis is a useful technique to decompose the different drivers of ROE. It can be further examined through three financial metrics which are: net profit margin, asset turnover and financial leverage. This analysis helps to deduce whether the company’s profitability, use of debt or assets that’s driving ROE. In 2020, the ROE is increasing as compared to its peers.
 
D4t4 Solutions V/S FTSE-AIM Price – 5 Years


(Source: Thomson Reuters)

In the last five years, D4t4 Solutions Plc share price has delivered 224.14 per cent return as compared to 21.48 per cent return of FTSE-AIM index, which shows that the stock has outperformed the index during the last 5 years.

Dividend Yield


(Source: Thomson Reuters)

D4t4 Solutions Plc has a dividend yield of 1.71 per cent which is slightly lower than the industry dividend yield of 2.31 per cent and sector dividend yield of 2.01 per cent.

D4t4 Solutions V/S Industry V/S Sector – 2 years


(Source: Thomson Reuters)

In the last two years, D4t4 Solutions Plc share price surged by 28.57 per cent which is significantly higher than the industry growth rate of 7.32 per cent and sector growth rate of 9.35 per cent.

D4t4 Solutions Total return- 2 years


(Source: Thomson Reuters)

In the last two years, D4t4 Solutions has delivered a total return of 32.52 per cent while the FTSE All share index has delivered a total return of 3.18 per cent.

Competitive Benchmarking






(Source: Thomson Reuters)

Risk Factors

The Group operates in a regulative environment, any change in regulations could impact the business performance of the company. Excessive competition in the industry could affect the revenue and profitability of the Group. Failure in cybersecurity and a critical data breach could hamper the operations as well as the reputation of the company. Fluctuations in foreign exchange rates could affect the financial performance of the D4t4 solutions.

Conclusion

The company continues to drive stated strategic initiative to earn high margin, recurring revenues by building the data platform solutions and developing its innovative customer data platform software, and the business is in a good position and together with a strong pipeline of opportunities and high level of contract renewals from new licences signed during the second half of last year. To provide with increasing numbers of new opportunities in a wide range of enterprise class customers, the company is focusing on selling with and via partners that have global reach and penetration in target market sectors, which augurs well for the future business.

The revenue of the company grew to GBP 25.24 million in FY2019 from GBP 12.84 million in FY2015, reflecting a growth of 18.40 per cent on a CAGR basis.
 
Based on the decent prospects and supported by valuation undertaken using the above two methods, we have given a “Speculative Buy” recommendation at the closing price of GBX 180 (as on 2nd March 2020) with lower double-digit upside potential based on 9.6x NTM EV/EBITDA (approx.) on FY20E EBITDA (approx.) and 14.59x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.). 
 
*All forecasted figures and Peers information has been taken from Thomson Reuters.
* The “Speculative Buy” recommendation is also valid for the current price as covered in the report as on 3rd March 2020.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.