Gentrack chairman says its a long-term game to win back investor confidence

LATEST: Gentrack boss says he learned lesson from earnings downgrade

UPDATED: Gentrack Group [NZX: GTK] chairman John Clifford said the software company’s share price, still trading 35 cents below its listing price, will take care of itself once it starts delivering projected profits over time.

The Auckland-based company, which develops utilities and airports software, posted a 49 percent drop in annual profit, ahead of its most recent guidance in August. Net income declined to $3.4 million, or 5 cents per share, in the 12 months ended Sept. 30, from $6.6 million, or 12 cents, a year earlier, the Auckland-based company said in a statement. The decline in annual earnings included one-off costs from the initial public offer of $3.85 million. 

The profit was above the range of $2.5 million to $2.8 million it flagged in a profit downgrade in August, which came just five weeks after the company's IPO, but $360,000 below its prospectus forecast of $3.7 million. Both the Financial Markets and Authority and NZX Regulation decided to take no action over the profit downgrade although the FMA said the company could have been clearer when flagging certain risks.

Gentrack’s shares rose 4.7 percent to $2.25, below its $2.40 listing price. Clifford said at a briefing in Auckland today that the company’s job was to produce good results over time and investors would then have confidence it could deliver on its projections.

“It’s a long game to build profits and cash generation and our ability to pay dividends. I’m very confident in the long-term investors will value that but I can’t speculate when that will happen,” he said.

Clifford said the results came under the IPO forecast because of the high dollar and two disclosed contract issues. The anticipated signing of a large upgrade contract in Australia was delayed by two months but it had now been signed on Sept.1 and was due to go live late next year. There was also a disputed payment with another customer for additional services against an extended project of which some revenue had been paid, and negotiations for the rest were expected to be continued by the end of March. 

The company reported a 4 percent drop in operating revenue for the year ended Sept. 30, 2014 of $38.5 million, $2.1 million under the $40.6 million in its prospectus forecast and underlying earnings before interest, depreciation and amortisation (Ebitda) of $13 million, $1.1 million shy of its prospectus forecast.

Gentrack chief executive James Docking said operationally 2014 had been a good year with four new customers won, 12 implementation projects underway and three new systems taken live, one of which was cloud-based.

He said the company had also just landed its largest contract ever – A$7 million, for the upgrade of a billing system in Australia. About 55 per cent of Gentrack’s revenue is now derived from Australia compared to 27 percent in New Zealand, and 13 percent in the UK.

Australian revenue was flat due to the two contract issues while UK revenues were up by 40 percent due to sales in both the utility and airport sides of the business. The company has just doubled the size of its London office where it has 15 staff. Docking said the biggest growth was still expected in Australia and the UK and they’d continue to focus on expanding these two markets.

Worldwide water management was undergoing change which created opportunity for Gentrack, he said.  Australia was pulling water billing and customer management out of councils to create larger water entities similar to Auckland’s Watercare and the UK was creating a competitive water market to enable consumers to buy from multiple retailers.

The company would deliver a final dividend of 3.6 cents per share as forecast in the prospectus paid out Dec.19, on top of the 32 cents per share special dividend paid in March.

Clifford said in line with the prospectus, solid growth is expected for the 2015 financial year with a forecast 16 percent revenue increase to $44.7 million, net profit of $9.3 million, and a 11.3 cents per share dividend. Achieving this requires the company to win several new projects in the first half of next year though, he said.

(BusinessDesk)

EARLIER: Gentrack profit falls 49%, beating downgraded guidance

Gentrack Group [NZX: GTK], which develops utilities and airports software, reported a 49 percent drop in full-year profit, missing its initial public offer forecast, but beating the downgraded guidance it gave just five weeks after listing on the share market.

Net profit dropped to $3.4 million, or 5 cents per share, in the 12 months ended Sept. 30, from $6.9 million, or 12 cents, a year earlier, the Auckland based company said in a statement. That was ahead of the downgraded guidance for annual earnings to be between $2.5 million and $2.8 million it gave in May, though still below the $3.7 million it initially flagged in its prospectus.

Operating revenue fell 4 percent to $38.5 million, short of the prospectus forecast for sales of $40.6 million, while underlying earnings before interest, depreciation and amortisation (Ebitda) of $13 million was $1.1 million shy of the offer document's expectations. .

Gentrack chief executive James Docking said operationally 2014 was a good year for Gentrack although a couple of unforeseen project issues impacted the results. Its first water billing project in the UK had gone well and will go live early next year while its profitable UK business had grown by 40 per cent. It also successfully completed a complex enterprise implementation of its first network billing product in Australia, establishing its credentials in that market, Docking said.

In May the company warned it had to downgrade its profit forecast following a dispute with a customer over the delayed completion of a project. That came just weeks after it had raised $101.8 million from its IPO. Both the Financial Markets Authority and the NZX Regulation investigated the changed profit guidance but decided not to take any action although the FMA said the company could have been clearer when flagging certain risks.

Gentrack's board declared a final dividend of 3.6 cents per share in line with the prospectus paid out Dec.19, on top of the 32 cents per share special dividend paid in March.

Chairman John Clifford said in line with the prospectus, solid growth is expected for the 2015 financial year with an expected 16 percent revenue increase to $44.7 million and net profit of $9.3 million. Achieving this requires the company to win several new projects in the first half of next year though, he said.

The shares last traded at $2.15, below the $2.40 offer price, and the stock is rated a 'hold' by one analyst recommendation compiled by Reuters, with a price target of $2.35.

(BusinessDesk)

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