Serko shares hit record as profit, positive cash flow pave way for global growth
By Paul McBeth
Nov. 23 (BusinessDesk) - Serko shares hit a record yesterday after the online travel booking software developer reported
a net profit and positive cash flow, supporting its launch into Northern Hemisphere markets.
The stock climbed as high as $1.47 and ended the day at $1.44, extending this year's rally to 397 percent and making it
the best performer on the S/NZX All Index. Auckland-based Serko reported a first-half net profit of $1.1 million on a 30 percent gain in operating
revenue to $9.1 million while affirming annual guidance for sales to be between $18 million and $19 million.
The firm also stepped up plans to launch into new international markets, using its Zeno booking platform to spearhead
the campaign. Serko found favour among investors this year as it raised earnings expectations and signed up new
partners, which support its expansion overseas.
"The result was strong in that they executed - they did exactly what they set out to do and guided the market," said Sam
Trethewey, a portfolio manager at Milford Asset Management which holds an 8.5 percent stake in Serko. "The opportunity
in North America is large, but it’s up to them to execute and pull it off."
Serko raised $17 million of new capital in 2014 when it sold shares at $1.10 apiece in an initial public offering, with
existing shareholders selling a further $5 million into the float, and went back to market in late 2015, raising $8.1
million from institutional and eligible investors at 84 cents apiece.
The company generated a positive operating cash flow in the latest six-month period and had cash and equivalents of $4.6
million as at Sept. 30.
Chief executive Darrin Grafton says the company has "no intention" of returning to the market and has "enough capital to
execute on our strategy".
"Having free cash flow gives you options for how much you invest and how quickly we do it," Grafton told BusinessDesk in
an interview. "We had to be operationally-ready and product-ready. To sell into those markets, you need to be able to
support them."
Serko can leverage its partnerships in its global launch, and this month entered into a non-binding memorandum of
understanding with ATPI Group, which if it proceeds would be licensed to deploy the Zeno platform globally, including in
the US, Europe, UK, and Asia.
Milford's Trethewey said Serko doesn't face the same drain on its funds to enter new markets as Xero, which had to build
a big sales force on the ground. Still, the travel software developer still faces costs in deploying sales people to
educate travel agents and will have research and development spending to integrate its product into new systems.
Serko is a stock that needs some work to understand, Trethewey said.
"It’s in a niche that sits between corporate travellers, travel companies, and aggregators of content like Expedia and
those sort of platforms," he said. "Understanding its position and competitive advantages does take time."
(BusinessDesk)
ends