Contracts Wins

ServicePower has announced five contract wins and renewals, extending across three years with a minimum estimated value of $1.75m. The UK technology company has also announced the resignation of Tajinder Sandhu as CFO and the subsequent appointment of Simon Evans as the new CFO. We note Simon’s extensive experience in the technology sector in various finance roles (in excess of 20 years) and accounting qualification. With the contract wins further demonstrating the popularity of ServicePower’s offerings, we maintain our forecasts and continue to classify the shares as a growth stock.

New contract wins and renewals

ServicePower Technologies has announced a contract win with Kambio, an automotive services company that provides a range of mobile services, including oil and tire changes, maintenance and car wash. Under the contract, ServicePower will supply its field service management software Nexus FS. As part of the agreement, Kambio will also act as a re-seller of Nexus FS, expanding ServicePower’s sales reach to the automotive and North America market. Separately, ServicePower Technologies announced two contract wins and one renewal with a combined estimated value of in excess of $1 million, extending across multiple years. It also announced a contract renewal with an estimated value of $750k, extending across three years. No further financial details were provided as to the contract wins and renewals and re-seller agreement.

Forecasts

We are forecasting revenue of £13.6 million for FY16, growing to £14.4 million for FY17 and £16.2 million for FY18. A 49% gross margin would suggest a gross profit of £6.7m for FY16, growing to £7.0m for FY17 and £8.0m in FY18. We are forecasting a decline in the proportion of revenue invested in SG&A to 50% in FY16 and FY17, decreasing further to 45% in FY18. This translates to an operating loss of £136k and EBITDA of £573k for FY16, an operating loss of £144k and EBITDA of £466k for FY17, and an operating profit of £649k and EBITDA of £1.2m for FY18.

Valuation

Peer company ClickSoftware was acquired for an all-cash price of $438m, equating to an EV/sales multiple of 3.1x and representing a 40% premium to its previous share price. The main risk to our forecasts is a slower than expected uptake in the offerings as ServicePower continues to migrate to more of a SaaS model. In addition, we note that the loan of £1m will require refinancing in December 2016.