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Transition to rental and microservices is on track

Update | Technology | 25 Sep 2017

Brady’s H1 results reveal the initial impact of the group’s transformation. While revenues slipped, reflecting the planned shift to software rental, recurring revenue rose to 68% of total revenues, up from 60% a year earlier. The move into microservices is gaining traction, with three proof of concept trials taking place in H2. Four new licences were sold in H1, all on a rental format, of which three are hosted. With nearly four months remaining in FY17, the group has 93% of revenue in the bag, including several software renewals and services business. Given the attractive long-term growth opportunities in the E/CTRM space, we believe the shares look attractive on 14x our maintained cash-adjusted FY19 EPS.


Steady as she goes

Update | Technology | 13 May 2016

In an in-line trading update, Brady says each of the group's three divisions have signed deals in the year to date. This includes the first new business from energycredit, which the group acquired in January. The brief trading update indicates that the group is stabilising after the difficult FY15, which saw business being deferred in the wake of the turmoil in the commodities space. Nevertheless, the outcome for the year will depend on the busier Q2 and Q4. We are maintaining our forecasts and continue to believe the shares look attractive, trading on c 14x our cash-adjusted FY17e earnings.


Disposal simplifies the group structure

Update | Technology | 02 Feb 2018

Brady is selling its US-based recycling business for an initial c GBP 3.3m with c GBP 1m balance in 18 months. The disposal will simplify the group, boost cash resources towards GBP 8m and enable management to focus on its core physical trading commodity and energy businesses. Additionally, the company has said that FY17 revenues will be c GBP 2m lower than consensus at GBP 27m due to a faster-than-anticipated switch to the recurring revenue model and two projects slipping into H118. We have cut our FY18 forecasts for the disposal and the lower trading guidance. Nevertheless, if management can successfully transition the business to the cloud, there is a lot to go for as E/CTRM is an attractive growth industry and Brady has a very high quality customer base.


Transitioning continues

Update | Technology | 07 Aug 2017

We have revised our forecasts following the newsflow over the last few months. While management has completed its strategic review, the transitioning process is continuing. The group has switched from operating on a divisional basis to global functions. The development team has been unified, and development work has shifted from platforms to ‘microservices’, so that new products can be leveraged across the group. Further, Brady is evolving to a recurring revenue model. We have cut our FY17 forecasts to reflect the current transitioning but forecast revenue and margins to improve significantly thereafter. Given the long-term growth opportunities, notably in agriculture, natural gas and power, we believe the shares look attractive on 14x our cash-adjusted FY19 EPS.


In line, focus has been on customer success

Update | Technology | 17 Jan 2017

In a brief trading update, Brady says that trading is in line with market expectations. FY16 saw of a lot of internal change, with a new chairman and COO while the CEO left the group. While commodity markets have seen some improvements, the backdrop remains challenging. The main focus over the last few months has been on improving efficiencies, including a shift away from the old divisions to global functions. We make no major changes to our forecasts and, given the strong balance sheet and scope for recovery, continue to believe the shares look attractive, trading on c 18x our cash-adjusted FY17e earnings.


Acquisitions return business to growth

Update | Technology | 20 Jul 2016

In another in-line trading update, Brady has reported that H1 revenues grew by 4%, which includes the impact from acquisitions (energycredit and ScrapRunner) and currency movements. New business was spread across the three divisions, with nine new contracts signed. The trading update reveals that the group is continuing to stabilise in spite of a tough commodities-related backdrop. The outcome for the year will depend on the busy Q4. We are maintaining our forecasts and continue to believe the shares look attractive, trading on c 15x our cash-adjusted FY17e earnings.


Investment case remains sound

Outlook | Technology | 08 Apr 2016

Brady had a difficult FY15, as turmoil in the commodities space resulted in business being deferred. Nevertheless, the commodities markets are showing signs of recovery and the commodities software sector benefits from broader business drivers such as regulatory changes while the sector remains underinvested in IT. Further, the group continues to use its position as a quoted company to consolidate the sector and in our view the acquisition of energycredit is a bold one, as it creates significant cross-selling opportunities and provides an opportunity to leverage energycredit's offshore development facility. Hence, we believe the shares look attractive, tracing on c 12x our cash-adjusted FY17e earnings.


FY15 profits in line, cash comfortably ahead

Update | Technology | 22 Jan 2016

FY15 trading was in line with expectations, which were revised downwards in late November due to lengthening sales cycles, relating to the deteriorating market conditions in the commodity sector. The group retains a strong balance sheet with year-end cash comfortably ahead of expectations at £6.5m (we forecast £5.0m). The shares have made a partial recovery in recent weeks on the back of four licence wins and an interesting small acquisition. The licence wins show Brady can still win new business despite the ongoing turmoil in the commodity markets, as participants require the modern software for their business processes.


Contract deferrals

Update | Technology | 17 Dec 2015

In its recent update, Brady said that it was seeing a lengthening of sales cycles, due to a deterioration of market conditions in the commodity sector. Consequently, FY15 revenues and EBITDA will be materially below market expectations. While volatile commodity prices can help to drive software sales, the commodity selloff has been persistent and severe as to force restructurings across the commodity trading sphere, and hence players are deferring deals and conserving cash. Nevertheless, Brady says the deals have been deferred rather than cancelled, and as participants require modern software for their business processes, a bounce back in FY16 with a stabilising commodity sector looks fair in our view.


Activity remains brisk

Update | Technology | 17 Sep 2015

In H115, Brady signed two highly significant new contracts in its Commodities and Recycling divisions, while the Energy business unit continues to build momentum with six contracts signed. The company has also made a neat bolt-on in its Recycling unit, at a very attractive price. In light of falling commodity prices, Brady says it is not seeing any slowdown in its end markets, despite the economic backdrop. The group has 80% of FY15 revenues in the bag and a strong pipeline. Hence, we believe the stock looks attractive at c 12.5x our maintained cash-adjusted FY16 EPS.


Strong performance across the three divisions

Update | Technology | 20 Jul 2015

Brady had a very busy first half, signing a number of substantial deals withhigh-quality names, including one of the world's largest commodity tradersand a world-leading metals recycling company. Additionally, the Energydivision has continued to build momentum, with six new deals signed. Thehealthy deal flow and strong pipeline is in spite of the recent high volatilityin the commodity markets. While H1 sales are slightly below expectationsdue to timing factors, bookings are higher than expected and we anticipatea stronger than typical H2. Hence, we believe the stock continues to lookattractive at c 15.5x our maintained cash-adjusted FY16 earnings.


Strong earnings growth

Outlook | Technology | 27 Mar 2015

Brady reported record FY14 profitability, with adjusted EBITDA up 79%, as revenue grew 13% at constant currencies. Cash generation was strong (the £9.6m cash pile equates to 12p per share) and the dividend was lifted by a higher-than-expected 9%. The strong numbers demonstrate the resilience of the business to volatile commodities. While falling commodities prices hurt producers, they are beneficial to traders and manufacturers who also purchase the group's software. Activity remains busy with the group close to signing another substantial deal, and hence we believe the stock continues to look attractive at c 16x our FY16e earnings.