Trading Update

ServicePower Technologies has announced a trading update for the current financial year ended 31st December 2015. The key points include revenues that are £0.3 million lower than our forecast, a lower than expected level of higher margin sales and operating costs that are £0.3m higher than its expectations. The UK-listed technology company also announced that it will repay the unsecured short term loan facility from Herald Investment Trust (£750k+interest) and that following the repayment, net cash is expected to be c.£1.4m as at 31st December 2015. While the trading update is slightly below our expectations, we remain positive and focus on the progress made on a year earlier - namely the improvement in both revenues and profits as well as the repayment on the loan – and the long-term opportunity. We have updated our forecasts for the current year and maintained our forecasts for the following year. With the shares offering investors exposure to the high growth mobile workforce and field service management software market, we continue to classify the shares as a growth stock.  

Trading Update

The company now expects total revenue to be c.£13m as professional services came in lower than expected. Product revenues, on the other hand, saw significant growth, with scheduling/mobile licence and SAAS sales expected to be up more than 35%, dispatch and claims SAAS up more than 20% and managed services up around 8%. The additional expenses incurred relate to IT expenditure and cloud transition costs. It added that it is still negotiating a number of licence sales which may improve revenue and gross margin. The purpose of the loan was for ongoing working capital and in order to continue R&D investment. 

Forecasts

For FY15, we are now forecasting revenue of £13.0m (previously £13.3m), gross profit of £6.4m (previously £6.8m) and EBITDA of £31k (previously £282k). We are also forecasting a net cash position of £1.4m. For FY16, we maintain our forecast of revenue of £14.40m, gross profit of £7.34m and EBITDA of £755k.

Valuation

If ServicePower was to be acquired on a similar ratio to that recently paid for a comparable company, ClickSoftware, then the suggested price paid would be £39.37m (or 17.30p). We feel that a potential catalyst of the stock is a further uptake in its offerings, with higher revenue generating companies within the SaaS space typically commanding a higher EV/sales multiple (source: Software Equity Group). The main risk is a slower than expected uptake in its offerings as it continues to migrate to more of a SaaS model.