Proactis Holdings (PHD ) said progress against its strategy during the six-month period to 31 January 2021 continues to be ‘encouraging’ with its performance in line with expectations.
The Group, which operates as a business spend management solution provider, described the period’s total contract value ("TCV") as ‘healthy’ at £6.7m compared to £7.5m in 1H120.
Proactis reported revenues down at £23.8m (1H20: £24.5m) which it largely attributes to net customer losses in prior years and the impact of COVID-19 on its implementation services revenues and volume-based subscription contracts. Looking ahead, the Board informed investors that it expects this to normalise following the end of the pandemic.
Meanwhile, the group’s adjusted EBITDA was £6.2m is £0.6m - or 10.7% - higher than the comparative period (1H20: £5.6m) which Proactis achieved, despite lower revenue levels, through cost control and a reduced level of investment in its marketing and sales capacity.
The Board considers this financial performance to be in line with expectations, adding that it believes Proactis is well-positioned to continue to capitalise on the opportunities available.
Proactis said it is encouraged by the underlying performance of its non-volume-based business with a 1.1% increase in non-volume related ARR from the previous reporting period and expects to grow this number substantially over the coming months and years.
Over the period, Proactis unveiled its first contract for its early payment service, bePayd, under the buyer-funded model with Experbuy in France. Post-period, it signed a contract for bePayd with Denbighshire County Council (“DCC”). The Board said it believes that the Group can now push forward ‘with confidence to pursue the market opportunity in this area.’
Post-period, Proactis signed its first deal in the US on its mid-market platform, meaning that the single platform solution has now been sold under the revised go to market strategy in all targeted territories.
Proactis said it continues to progress its go to market strategy and that it has now met all of its primary strategic milestones. This includes a return to normal levels, selling the mid-market focused single platform business spend management solution in all of its territories, and having early adopters for bePayd in the buyer-funded and Proactis-funded models.
While the ongoing COVID-19 pandemic has been impacting the Group’s rate of progression, the Board told investors that it is confident that this will be demonstrable in the short-term.
“It is encouraging to see the progression of the Group over recent periods. Churn has stabilised and is demonstrably back to normal. Furthermore, excluding the impact of HRAs (which is now only small at £0.7m) and, despite the impact of COVID-19 on new business intake, we are continuing to grow the business again,” said CEO of Proactis, Tim Sykes.
“We are now executing our commercial business processes well in each of France, Germany and North America and new business momentum is accelerating for those teams. As this continues to progress, our forward momentum will start to reflect market rates of growth.
I am delighted that we have also sold our bePayd solution into two early adopters, one under the buyer-funded model and one under the Proactis-funded model,” Sykes added.
View from Vox
Last week, Gartner predicted growth of 19% pa ($123bn) for enterprise cloud apps, thus providing a strong tailwind behind Proactis’s Saas-based B2B spend mgt software.
The Group has proved resilient during the pandemic, with numerous new orders being signed and churn falling dramatically. This activity not only suggests that these cutting-edge products are ‘essential’ to clients, but that the Board’s turnaround plan and strategies are working.
Shares stand at 44p - trading on 1.7x EV/turnover vs peers at 6x while underlying ARR growth (+1.1% to £40.1m) is also positive - representing 79% of est FY21 sales (£51m) - this should generate more than enough cash to pay down net debt of £45.7m (or 3.6x EBITDA).
In addition, the Company’s two largest shareholders have been adding to their stakes over the past year. Indicating, there’s significant upside potential for patient investors.
Reasons to PHD
Proactis creates, sells and maintains software and services, which enables organisations to streamline, control and monitor all indirect expenditure. Its solutions are used in around 1,100 buying organisations globally from the commercial, public and not-for-profit sectors.
Proactis previously adopted a new go-to market strategy for each of its US, France and Germany territories which is designed to replicate that of the UK and Netherlands.
In its recent FY20 results, Proactis noted that it had made ‘substantial headway’ after seeing the first sales of its mid-market single platform solution in Germany and France.
The group cited a ‘record year’ in new business total contract value ("TCV") after securing an aggregate of £14.6m (FY19: £11.3m), a 29% increase secured in ‘virtually all markets.’
Proactis said this demonstrates ‘the effectiveness of its strategy, the resilience of the business model and the ability of its teams to deliver despite a change in working practices.’
In recent weeks, the company announced that it has signed a 3-year contract with an unnamed major German DIY retailer to provide its business spend management solution.
The business spend management provider said the win represents ‘a strategically important milestone’ as the second new German customer to sign up under that new strategy.
Proactis, whose solutions are used in around 1,000 global buying organisations from the commercial, public and not-for-profit sectors, said the solution will be deployed in Germany initially before being rolled out into new territories through Central and Eastern Europe.
On 10 February, Proactis said it had signed a three-year contract with an oil and gas services business in North America which it said represents “a strategically important milestone.”
While the name of the customer and value of the contract remain undisclosed, the business spend management solution provider said the contract win is significant because the client is the first in North America to sign up under the Group's new go-to market strategy. The contract marks entry into a new significant territory, which is a stated objective for Proactis.
Compelling Valuation Metrics
While it remains undetermined of how much today’s contract could generate, consultancy firm, PMH Capital, highlighted to investors that “we would guess a firm like Experbuy might generate £50k-£100k pa for Proactis – dependent on transactional volumes.”
It added, “Plus, multiply this a few 100x, & you end up with a substantial, high margin & very valuable, recurring revenue stream. bePayd has the potential to be enormous, given its 1st mover advantage in providing cash flow benefits to SMEs within this ‘low value’ space.”
Furthermore, research from PMH Capital suggests Proactis is currently trading at a significant discount to its peers on an EV/Sales multiple of 1.6x, against an average of 6.5x for the sector.
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