Key Investment Highlights
 

1. D4t4 Solutions PLC (LON: D4T4) is a software & computer services company with a focus on providing solutions to its clients and enabling then to get the most from their data.

2. D4T4 provides services such as data collection, management, and analytics solutions, through a variety of products and services, which will help in driving value from the information assets.

3. The Company from the last 30 years has constantly evolved and developed pioneering technology, which can collect data with accuracy and completeness.

4. The Group continues to innovate and has developed a leading-edge technology, which provides resourceful delivery of partner solutions.

5. D4T4 has multiple long-term client relationships and passionate employees to deliver responsive and professional service.

6. The Company is actively seeking acquisitions to enhance its data capabilities and gain new skills to increase its market share and bring more technological advancements to operations.

7. The Group has a high cash generative business with the well-positioned balance sheet for the current period.

8. D4t4 Solutions launched Celebrus version 9.2 with natural language processing and machine learning capabilities for customer analytics on a real-time basis. It will boost up the capability of customer intent data in real-time. Being the first solution to deliver automated marketing signals through machine learning capabilities will provide them a competitive advantage.

9. D4T4 is expected to win new licensing contracts through Celebrus software and others in the pipeline, which underpins the future earnings potential.

10. Strategic partnerships with big players such as Microsoft, Abode and Teradata provides a key for future growth and geographic expansion.

11. The Group is confident towards its business model and management team to tackle the uncertain times created due to coronavirus pandemic.

12. The share price is currently trading near its 52-week low, which makes an excellent opportunity to buy this technology stock with high growth potential.

D4t4 Solutions PLC (LON: D4T4) - New Version of Celebrus Shall Capture Lucrative Opportunities Lying in FinTech and Consumer Sector.

D4t4 Solutions PLC is the United Kingdom-based company, which provides data solutions. It caters clients in around 22 countries from financial services and consumer sectors to extract meaningful information from data. The Company holds a security certification (ISO27001), which enable clients to trust its services. The Group was formed in 1985 as IS Solutions to provide facilities management and hardware reselling. IS Solution got listed on the LSE (London Stock Exchange) in 1997. In the year 2000, the Company embarked into real-time data delivery market by acquiring AXL Performance Solutions. In 2015, it acquired Celebrus and then in 2016, IS Solutions rebranded itself as D4t4 Solutions under the new stock ticker D4T4. It was incorporated in the United Kingdom and is listed on FTSE AIM All-Share.

In June, the Company will announce its full-year results (ending 31^st March 2020), while on 6^th August 2020, it will hold its annual general meeting.


(Source: Presentation, Company Website)

Key Fundamental Statistics



Segments at a Glance

The Group splits its revenue by the timing of Goods and Services transfer and further differentiate them as follows:
 

Goods and services transferred at a point in time

1. Products - Own IP

2. Products - 3rd party

3. Delivery services

Goods and services transferred over time: Support and maintenance

(Source: Presentation, Company Website)

Geographically, the business is segmented into the four major regions – the United States of America (US), Europe, Rest of World and Others, while most of its revenue comes from the US.
 
Key Milestones of Financial Year 2020

1. Expanded operations in the US through enhanced service delivery and tech support team.

2. Improved engagement through new partnerships such as capacity extension for Chinese and Taiwanese banks, new functionality for a European insurer and a new retail customer in Europe.
 

Recent Significant Developments – Product and Management Development
 

1. 15^th May 2020:The Company launched the Celebrus Version 9.2 with embedded capabilities of natural language processing and machine learning.

2. 5^th May 2020:Charles Irvine, who has been a Chief Financial Officer of D4t4 Solutions PLC, will now the join the Board as Executive Director since he has completed his probationary period.

3. 17^th March 2020:The Group commenced the share buy-back program of shares worth GBP 500,000, with immediate effect.
 

Top Shareholders Statistics

 

Trading Update for the year ended 31 March 2020 with New Contract Wins
 

1. On 8^th April 2020, D4t4 Solutions released an update on the trading performance for the full-year period ending 31^st March 2020.The grouprevenue is expected to be £21.7 million in FY20. The adjusted pre-tax profit for the financial year 2020 will be approximately £5.0 million.

2. During the year to March 2020, the amount of recurring revenue increased from 29.6% to 46% of the total Group revenue, representing a growth of 31% in absolute terms on the prior year, with further scope to grow this crucial metric. 

3. On 31st March 2020, the cash increased from £11 million in 2019 to approximately £12.7 million.

4. With new contracts win from both existing and new clients, the group made progress in commercial activities in the fourth quarter of the financial year 2020, despite Covid-19 uncertainty.The company wins three major new contracts: two within the banking and financial services sector in the Americas, and one with an international telecommunications company headquartered in APAC. 

5. D4T4 has been taking multiple actions to reduce the impact of Covid-19 pandemic. Regarding the current events, the company is reviewing both market guidance for FY 2020-21 and the full-year dividend payment for 2019-20.
 

Financial Highlights – H1 Financial Year 2020 (ended 30^th September 2019)


(Source: Interim Report, Company Website)
 

1. Total revenue in the first half was £8.84 million (HY 2018-19: £13.99 million), which reflected the anticipated HY2 weighting this year as a result of the timing of contract wins and was in line with management expectations.

2. The company recorded an operating profit of £0.83 million as 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.

3. 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. 

4. 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.
 

Financial Ratios – Decent Liquidity Position versus Industry Median

 

The reported Pretax Margin and Net Margin stood at 9.6 per cent and 9 per cent for the first half of the financial year 2020 and were higher than the industry median. On the liquidity front, D4T4 current ratio stood at 4.00x and was higher against the industry median metric of 1.31x. On leverage front, the assets-equity ratio of theD4t4 Solutions Plc’s was 1.16x, which was lower as compared to the industry median.

Share Price Performance Analysis


Daily Chart as on 19^th May 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On May 19, 2020, at the time of writing (before the market close, at 9:50 AM GMT+1), D4t4 Solutions Plc shares were trading at GBX 184.90, up by 2.72 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 278.00/GBX 120.00.

Bullish Technical Indicator

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

Valuation Methodology

Method 1 – Price to Earnings Approach (NTM)

 

To compare D4t4 Solutions Plc with its peers, Price/Earnings multiple has been used. The peers are 1Spatial Plc (NTM Price/Earnings was 14.12), Accenture Plc (NTM Price/Earnings was 24.35), Panoply Holdings Plc (NTM Price/Earnings was 19.52), Amdocs Ltd (NTM Price/Earnings was 13.68) and Castleton Technology Plc (NTM Price/Earnings was 16.05). The Average of Price/Earnings (NTM) of the company’s peers was 17.50x (approx.).

Method 2 – Enterprise Value to Sales Approach (NTM) 
 
 

To compare D4t4 Solutions Plc with its peers, EV/Sales multiple has been used. The peers are Eckoh Plc (NTM EV/Sales was 3.58), Accenture Plc (NTM EV/Sales was 2.67), Panoply Holdings Plc (NTM EV/Sales was 2.75), Capgemini SE (NTM EV/Sales was 0.97) and Precio Fishbone AB (NTM EV/Sales was 4.76). The Average of EV/Sales (NTM) of the company’s peers was 2.95x (approx.).

Valuation Metrics


(Source: London Stock Exchange)
 
As on 30th April 2020, the company’s EV/EBITDA multiple was 9.7x, which was lower as compared with the industry. It shows that the company is under-priced than the industry on EV/EBITDA metric basis.

Dividend Yield


(Source: Refinitiv, Thomson Reuters)

D4t4 Solutions Plc has a dividend yield of 1.71 per cent, which is higher than the sector dividend yield of 1.16 per cent. This needs to be considered in view of the recent correction in the stock price. The company is reviewing both market guidance for FY 2020-21 and the full-year dividend payment for 2019-20.

D4t4 Solutions Plc Vs FTSE AIM 100 Index (5 years)


(Source: Refinitiv, Thomson Reuters)

In the last five years, D4t4 Solutions Plc share price has delivered 215.79 per cent returns as compared to 23.54 per cent returns of FTSE-AIM 100 index, which shows that the stock has significantly outperformed the index during the last five years.

Total Return 5 Years


(Source: Refinitiv, Thomson Reuters)

D4t4 Solutions Plc has a total return of 252.89 per cent in the last five years versus the total return of FTSE All share of 5.94 per cent for five years period.
 
Industry Outlook

The market of D4T4 encompasses artificial intelligence, machine learning, 'big data' and the business intelligence market. As per the International Data Corporation (report published in April 2019), the market size of this industry is expected to reach around USD 274 billion by 2022, reflecting a compound annual growth rate of 13.2 per cent between 2018 to 2022. The market for data technology and analytical services is rapidly evolving majorly around these four emerging trends - Streaming data and analytics applications, Democratisation of data, Platform as a service, and Automated artificial intelligence & machine learning platform.

Growth Prospects and Risk Assessment

The Company keeps on launching new platforms and upgrade the old products and services with machine learning and natural language processing capabilities to become one of the market leaders in the Software & Computer Services 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. Being an IT company, the D4T4 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 is facing the most significant slowdown in productivity presently.

Business Outlook Scenario

The Company has ended the year strongly despite the current unprecedented crisis, securing several notable wins with multinational clients. The contribution of recurring revenues surged by almost 46 per cent from 29.6 per cent in total revenue with solid cash position. This shifts the business from providing the products on capital or perpetual based sales model to providing them as a service, with the associated upsurge in forwarding visibility. The Company continues to drive stated strategic initiatives to earn high margins, recurring revenues by building the data platform solutions and developing its innovative customer data platform software. Despite the given backdrop, the business is upbeat about the future growth prospects. The Group witnessed an acceleration in the sales activity from potential new and existing corporate clients.
 
D4T4 has created a niche market for its software products. The Group has recently introduced a new version of its customer data platform, Celebrus. The market for analytical capabilities is continuously evolving as organisations are understanding the need for data-driven insights over their products and services. The Company is continuously capturing the opportunities lying in fintech solutions and supporting the potential disruption of the financial services domain. Moreover, the Group’s capability to derive real-time data regarding customer intent holds substantial upside potential in the consumer sector.

Over the course of 4 years (FY15 - FY19), the company’s revenue surged from GBP 12.84 million in FY15 to GBP 25.24 million in FY19. Compounded annual growth rate (CAGR) stood at 18.41 per cent.

Based on the decent growth prospects and support from the valuation as done using the above two methods, we have given a “Speculative Buy” recommendation at the current market price of GBX 178.51 (as on 19^th May 2020, before the market close at 9:25 AM GMT+1), with lower-double digit upside potential based on 17.50x Price/Earnings (approx.) on FY20E earnings per share (approx.) and 2.95x NTM EV/Sales (approx.) on FY20E sales (approx.). 
 
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters and some estimates.

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.