One I bought at a $1.20 two months ago and wish I had held and built a bigger position - now up close to 100%! Clear turnaround in what should be a high quality business. Still some risks but appear to be executing.
Shaw and Partenrs - Gentrack Group (GTK)
Rating: Buy | Risk: High | Price Target: $4.50. A high-quality growth stock on a sub 10x EBITDA multiple. Reiterate Buy.
Event: GTK has delivered an impressive FY22 result. While the beat and FY23/24 raise was welcome, what really caught Shaw’s attention, was management see double-digit growth persisting through FY27. This firmly positions GTK as a growth stock. Management have shown their hand, investors can now either view these forecasts as fanciful or start pricing the stock appropriately. With GTK trading on just 9x FY24 Cash EBITDA Shaw’s believe a massive re-rate is coming. Shaw’s increase their PT to $4.50 (was $2.90) and believe a multiple of 23x is more reasonable for GTK’s growth and margin profile. GTK is a top pick. Reiterate Buy.
Recommendation: Shaw’s reiterate their Buy rating and increase their PT to $4.50 (was $2.90). The key driver of their upgrade is higher medium-term cashflows. On Shaw’s forecasts, which are now in-line with guidance, GTK is trading on 9x FY24 Cash EBITDA multiple. Shaw’s PT implies 23x which Shaw’s believe is reasonable for GTK’s growth and margin profile through FY27.
Nice to see an earnings upgrade after years of falling earnings.
I have just started researching GTK so have not formed an opinion and don’t own any shares. My interest was piqued by just how far the company has fallen for what should be a relatively stable business – similar to Hansen Technologies. It is probably one of the most hated tech stocks and in a clear downtrend on the share price. There was a large cross trade today which could mean the big seller is out.
The difference between Hansen and GTK appears to be that GTK has usually served the smaller utility providers, who are of course more vulnerable to energy market fluctuations. In fact the UK has been a particular headwind due to government imposed price caps which look to be about to be reversed as numerous utilities enter bankruptcy including one of GTK’s large customers – Bulb. Bulb is looking to be sold and is in special administration with the government so this could be major hit to earnings near term. The other headwind was in the aviation sector which of course was hit by COVID impacting ‘Veovo’ product. The product also appears to have been recently revamped. These two headwinds appear on the verge of reversing.
Reading through many glassdoor reviews the issue has been the legacy and outdated tech stack which as @Strawman has pointed out in the past is what tech developers hate the most. This appears to being corrected under the new management team and indeed a recent ASX announcement they launched a next generation platform built on AWS – announcement here pdf (markitdigital.com).
NZ power company Mercury which is majority owned by the NZ government has already signed up as a customer and is migrating their customers across Gentrack partners with Mercury and launches g2.0 solution (itbrief.co.nz) One customer does not make a trend but it is promising.
Keen to know if anyone knows anymore on the company as it is exceptionally cheap if they can turn margins around and would be great to meet the CEO.
Poor Gentrack, i havent checked in with it for a while but it's clearly not been doing well.
Shares are down ~80% since 2018, and EBITDA (operating profit) has dropped from $28m in FY18 to an expected $11m for the current FY20 (its financial year ends in September).
In today's ASX announcement, Gentrack said the second half was ahead of the first and that cash flow would be positive for the full year.
But they also said that increased costs and added competitive pressure would mean the revenue run rate for FY21 would be "well below" the H2 FY20 run rate, and that EBITDA would be closer to break even.
COVID is clearly having an impact and it seems industry conditions remain tough. There's a new CEO coming on board who will try and turn things around, but it looks like it could be a tough job.
Assuming around $100m in FY20 revenue, shares are on only 1.4 times that. Pretty cheap if they can revive margins. If not, and the top line remains stagnant, the current 12x EBITDA isn't cheap at all.
Until things can be shown to improve, it's an avoid for me. But I do think there's a good business here, just don't have a good handle on the competive landscape and direction of the major profit drivers at this point in time.