D4t4 Solutions PLC (LON: D4T4) – Board is confident of delivering a solid finish to FY21 with a high level of annual recurring revenue.

United Kingdom-based, D4t4 Solutions PLC is FTSE AIM All-Share index 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.

 (Source: Presentation, Company Website)

Growth Prospects and Risk Assessment

The Company, through its wide-ranging scope, has accelerated growth organically and through acquisitions. It 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 to expand its operations and to gain more market share. 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 understand 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. Furthermore, the 12-month recurring revenue has increased to 55%, while the Company has better liquidity by the end of H1 FY21 with £12.08 million in cash (FY20: £11.24 million).

 

However, being an IT company, the Company 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. Moreover, the change in exchange rates could also impact profitability. Also, any data loss due to cybercrimes can cause reputational risk.

Industry Outlook Dynamics

The technology sector is highly dominated by the Company based in the United States and China. However, the United Kingdom has been gaining a foothold at a global level, as the investment has increased since 2014. The UK tech sector is both diverse and broad as it is involved in the development, scaling, and implementation of various technologies, including the Internet of Things, 5G communications, and artificial intelligence. However, the two largest primary areas of employment expansion are Fintech and Insurtech.

As per the report from the Market Research Future, the market size of the global enterprise software market is expected to grow by 8% between 2017 and 2023 and reach US$634 billion by 2023. The major growth driver includes the growing trend of big data analytics and cloud computing, increasing adoption of database management systems, and increasing demand for business intelligence and analytics.

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of D4t4 Solutions Plc.

A Glimpse of Business Segments

(Source: Company Website, chart created by Kalkine Group) 

Trading Update (for the six months to 30 September 2020, as on 21 October 2020)

• In the first half of 2021, the Group’s revenue and adjusted profit were in line with the management expectations, with half-year revenue of £5.09 million and strong interim net cash position of £12.08 million.
• The Company is expected to close a number of significant new contracts at the end of the financial year 2021, while some contracts are taking a slightly longer time to close, due to the current environment.
• 12 monthly recurring revenue increased to more than 55% (as a percentage of total revenue) as compared with the previous period (March 2020: 45.2%).
• The Company has made strategic partnership with Teradata, Pegasystems and SAS, which will strengthen its relationship with these three firms.
• Overall, the Company is in a good position with several contracts in final negotiation. It has continued the investment in India, Europe and North America.

Financial and Operational Highlights (for the year ended 31 March 2020 (FY20), as on 30 June 2020)

 

 

Share Price Performance Analysis

 

On 3 November 2020, at the time of writing (before the market close, at 10:45 AM GMT), D4t4 Solutions Plc shares were trading at GBX 186.00, up by 1.36% against the previous day closing price. Stock 52-week High was GBX 248.00 and Low of GBX 120.00, respectively.

From the technical standpoint, 14-day RSI is currently supporting an upside move (around 38.09 level), which means the stock price could increase in the short term.

In the last five years, D4T4’s stock price has delivered a positive return of ~144.67% return as compared to ~27.99% of FTSE AIM All-Share index and ~18.94% return of FTSE All Share Software & Computer Services index, which shows that the stock has significantly outperformed the benchmark index and the sector during the five years.

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Business Outlook Scenario

The board of D4t4 is confident that the Company is performing in line with management expectations and will deliver a solid finish to FY21. The business prospects are bright, which are underpinned by a high level of recurring revenue and new licenses signed. Moreover, it has strong visibility of new contracts and has a significant pipeline of new businesses. It shall further be able to extend the use of the Celebrus hybrid Customer Data Management solution with existing and new clients. It has a substantial level of recurring revenue to mitigate the financial impact of the economic downturn. The market of D4T4 encompasses artificial intelligence, machine learning, 'big data' and the business intelligence market. D4T4 has created a niche market for its software products. The Company has recently introduced a new version of its customer data platform, Celebrus. The market for analytical capabilities is continuously evolving as organisations understand the need for data-driven insights over their products and services. It is continuously capturing the opportunities lying in fintech solutions and supporting the potential disruption of the financial services domain.

The global partnership shall allow them to increase the addressable market since it has been progressing well against strategic initiatives and increasing international offerings. It has continued focus on enhancing the enterprise software technology which shall create significant opportunities in the long-term.

Considering the new contract wins, robust cash position, decent profitability margins, sturdy signs of progress, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on D4t4 Solutions at the current price of GBX 186.00 (as on 3 November 2020, before the market close at 10:45 AM GMT), with lower-double digit upside potential based on 3.32x EV/NTM Sales (approx.) on FY21E sales (approx.). 

 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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