Aptitude Software Group PLC

Aptitude Software Group PLC (LON: APTD) provides financial management software to over 500 million end customers. It operates with six locations around the world.

On May 2020, the company will do its Annual General Meeting. The group will also release its Interim Results in July 2020.

COVID-19 Update (as on 21^st April 2020)
At this time of unprecedented crisis caused by COVID-19, the management is reassured that the company is financially healthy benefitting from a cash balance of £31.2 million at 31 March 2020 and no bank loans. Moreover, the business is cash generative and profitable, reporting Adjusted Operating Profit for 2019 was £10.5 million.

In the first quarter ending 31 March 2020, the Coronavirus did not impact the Group's financial performance, with revenue and profit marginally ahead of the Board's anticipations for the period. On 31^st March 2020, the company's Annual Recurring Revenue increased to £30.3 million (31 December 2019: £28.6 million), driven by some benefit from the strengthening of Sterling vs. US Dollar since the year-end and new licence sales signed in Q1. Consulting utilisation also stayed high in Q1 with all projects continuing to progress and consultants operating remotely and charging their time while working on clients' implementations.

Financial highlights (for the Year Ended 31^st December 2019)

(Source: Annual Report, Company Website)

In FY19, the group revenue surged 14% to £59.7m(FY18: £52.3m) while balance sheet looked strong with cash of £33.0m (2018: £29.2m) and net funds of £30.8m (FY18: £17.3m). The software and subscription revenue represented 48% of the total revenue in FY19. The strategic milestone was the disposal of Microgen Financial Systems on 28 June 2019 for cash consideration of £51.4m. Consequently, a final dividend of 3.60 pence per share was recommended in FY19 (FY18: 4.40 pence), making a total ordinary dividend of 5.40 pence per share in FY19 (FY18: 6.60 pence).

Share Price Performance
 
Daily Chart as of April 21st, 2020, after the market closed (Source: Thomson Reuters)

On April 21, 2020, Aptitude Software Group PLC’s shares closed at GBX 410, up by 2.50% against the previous day closing price. Stock's 52 weeks High is GBX 670.00, and 52 weeks Low is GBX 247.00.

Key Risks
Demand for the Group’s products may be adversely affected if economic and market conditions are unfavourable. There is substantial competition in the Group’s markets which could adversely affect the Group. The risk that COVID-19 (Coronavirus) impacts on new business activities and the implementation of the software and the support provision.

Conclusion
In FY19, the company has shown significant performancealong with the transition into new business platforms including - Aptitude Insurance Calculation Engine, Aptitude Revenue Management and the Aptitude Accounting Hub. Moreover, the Group has started FY20 with a substantial subscription sale of Aptitude Revenue Management to a North American technology enterprise. However, the performance of the company, in the long run, is subject to several risks including – technological change and its ability to adapt it with the new product offering, macroeconomic fluctuations and risk pertinent to client’s confidentiality, data security and compliance with regulatory policies. Due to Covid-19 crisis, the group’s business would be negatively impacted since it required frequent international travel to tap international opportunities. Such travel bans would slow down the agreements and growth in the Group’s Annual Recurring Revenue. With no clear timescale for a return to more normal business activity, the impact to Aptitude Software of the economic uncertainty caused by COVID-19 is difficult to gauge with any certainty at this early stage.

Based on the factors highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 410 (as on 21^st April 2020), with support from new catalysts to be evaluated at a later stage.

Pendragon PLC

Pendragon PLC (LON: PDG) is the motor retailer company, which is headquartered in Annesley, Nottingham. The group has four businesses, namely UK motor division, independent software vendor (Pinewood), Fleet and Leasing (Pendragon Vehicle Management) and US motor division.

Recent News
On 20^th April 2020, the company announced the appointment of Dietmar Exler, as an independent non-executive director. He will serve on the Company’s Nomination Committee, Remuneration Committee and Audit Committee.
On 8^th April 2020,the Coronavirus is impacting all Pendragon owned companies with several operations closed or severely reduced in each of these businesses. Due to COVID-19 impact, the Company has taken several actions to protect the financial position and flexibility of the Company during this difficult time, which comprises Furloughing more than 80% of U.K. operating and staff employees for a 21-day period; salary reductions of up to 20% for Board Members and Senior Leadership; 15% for Upper management, and 10% for other corporate and field support personnel.

On 24^th March 2020,the company will be temporarily closing all of its retail sites across the UK, driven by the current situation with COVID-19.

Financial Highlights for the period 31st December 2019
Led by the significant underlying losses in the first half of the year, the Group’s revenue for the financial year ending 31st December 2019 stood at £4,506.1 million as against £4,627.0 million in FY2018. Overall underlying loss before tax in FY2019 to £16.4 million from profit before tax of £47.8 million in FY2018. The loss after tax stood at £117.4 million at IFRS 16 basis versus the loss of £50.5 million at IAS 18 basis in FY2018. The financial performance was improved significantly in Q4 FY2019 such that underlying operating losses for Car Store reduced from £5.0 million in Q3 2019 to £1.1 million in Q4 FY2019, giving a £6.1 million underlying operating loss in the second half of the year. Consequently, Pendragon has suspended the dividend for FY2019 from the dividend of 0.7 pence in FY2018.

Share Price Performance

Daily Chart as of April 21st, 2020, after the market closed (Source: Thomson Reuters)

On April 21, 2020, Pendragon PLC’s shares closed at GBX 6.50, down by 3.56% against the previous day closing price. Stock's 52 weeks High is GBX 24.80, and 52 weeks Low is GBX 4.02.

Growth Prospects
In FY19, the group has transformed their business model amidst challenging market conditions and yielded profitability in H2 FY19, making their stance secure for the upcoming year. Their four-pillar strategy is focussed on creating stand-alone used car brand, stable platform in Franchised UK Motor division, generating growth in Pinewood and further powering their leasing business. Over the five years (FY14 - FY19), the company’s revenue surged from GBP 4,000.40 million in FY14 to GBP 4,506.1 million in FY19. Compounded annual growth rate (CAGR) stood at 2.41 per cent.

Conclusion
There are some principal risks which are faced by the company. Excessive dependence on vehicle manufacturers for the success of the company’s business is one of the principal risks faced by the company. The Group has been cautious during ongoing economic uncertainty post the UK's exit from the EU and threat pertinent to Covid-19 pandemic scenario and its economic implications.

The company is expecting a significant and attractive market opportunity for the car store.The group is expecting a recovery in profitability during the second half, due to the reduction in the excess used car inventory. The company’s management is fully focussed on maximising performance in the near term. Subsequently, the Company has deferred its commitments related to capital expenditures, marketing spends programme and monitoring inventory level.
Based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 6.50 (as on 21^st April 2020).

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