D4T4 Solutions – little virus disruption

Yesterday’s trading update from D4T4 Solutions, the AIM listed data solutions provider, left plenty of room for optimism, writes Mark Watson-Mitchell. 

If there is one thing that I really like to see when I look at quoted companies to select and then profile, it is ‘recurring revenue’, a magical term as far as I am concerned.

With recurring revenue, the revenue is predictable, stable and likely to continue in the future.

Revenue realisation takes place over the lifetime of the customer, there is less customer churn, it maintains and engenders customer relationships. It also provides continual potential to up sell to the client company.

However, if you are selling ‘one-off’ services to a customer it can be difficult to get them to enrol in a contracted provision.

In the software sector a lot of companies sell their clients a service on a ‘perpetual licence’ basis. So, it can be a slow process to convince them not to take out such a licence but instead sign up for a contracted service.

For the customer the biggest ‘come-on’ is that it does not have such a large amount to pay to get the service it requires, while breaking its operating costs down to more manageable and less capital committing amounts. Plus, it also has ‘on the tap’ advice on implementing and adding to its requirement.

For its customers this model is one of ‘opex’ rather than ‘capex’.

So yesterday’s Trading Update from D4T4 Solutions (LON:D4T4), the AIM listed data solutions provider, bears relevance to my comments.

The group is operating in what is becoming one of the fastest growing software markets, in business intelligence and data analytics.

The Customer Data Platform Institute reckons that its overall market has more than trebled in the last four years, to around £1bn value.

Mainly for the finance, retail and consumer sectors, it is involved in the real time collection of data for its clients. They want – indeed need to know – how consumers interact with digital channels as they try to help them to get real value from their data assets.

The group services a multitude of clients in over 22 countries. Its clients include, amongst hundreds of others, companies such as HSBC, Bank of America, DNB, BNP Paribas, Citibank, Hang Seng Bank, Danske Bank, UBS and Qantas.

The range of its analytic solution models covers risk, fraud, market decisioning, compliance, and credit screening. It helps to collect the data from the web, mobiles, ATMs, card readers and the general internet of things.

When the group announces its finals in June, we will see how the switching of its business model from licence to ongoing contract has impacted its results for the year to end-March 2020. That will have chopped about 15% off its revenue figures, to £21.5m.

Pre-tax profits of £5m could see earnings coming out at 11.2p per share, with a more than triple-covered 3.3p dividend.

With the obvious impact of Covid-19 hitting every business, it would not be right to make any predictions for the current year. However, we do know that the group is long of some £13m of cash, that it has already secured, when required, additional bank credit. It has also implemented work from home.

Earlier this year it scored several significant new contract wins. Nearly 50% of its revenue is now on a recurring basis, which gives it a firmer operating belly.

The shares at 170p, up 16p yesterday, which dipped to 120p two weeks ago, were trading at 282p a year ago.

I see them up at my end-year target of 215p very soon.