Gentrack shares sink on its Brexit caution
By Jenny Ruth
Nov. 29 (BusinessDesk) - Gentrack says it’s cautious about how Brexit will affect its business in Britain and Europe in
the short-term, even though it remains confident it can grow organic operating earnings at 15 percent or more in the
The company’s shares fell as low as $6.08, and were recently down 57 cents at $6.15, or 7.5 percent, from Wednesday’s
close after it reported annual results in line with guidance, including a 17 percent increase in net profit to $13.9
Chief executive Ian Black told analysts on a conference call that it is realistic and appropriate to note the potential
impact of Brexit.
“Given that some of the energy suppliers are owned by European organisations, that means that there’s going to be a bit
of caution about making decisions rapidly in the next short while until things settle down,” Black said.
“We’re just calling out that we, as much as anybody else, want to see the outcome of that Brexit decision and the
potential impact on confidence in the UK and European markets,” he said.
“The mere fact that our platform is very sticky and is mission critical for our customers, means that the continued
underlying spend on software and our support services and regulatory compliance activities will go on regardless of the
political uncertainty,” he said.
“We’re just being cautious because we’re still dependent on projects and contracts to grow our business.”
The business in Britain is “very solid” with a broad customer base from tier one electricity companies to new entrants
and delivers a very strong recurring revenue stream, Black said.
Britain accounted for 53.8 percent of Gentrack’s $104.5 million in revenue in the year ended September, up from just
30.8 percent the previous year.
As well, total committed annualised revenue more than doubled to $51.8 million.
“We added 25 utilities and three airport customers during the year, lifting full-year subscription and software licence
revenues by 78 percent on last year to $48.9 million,” Black said.
“We have maintained our leading market share of the UK’s independent energy suppliers and our software has now been
selected by a number of the largest utilities in the UK including Npower, E.ON and SSE,” he said.
Gentrack is in the process of transitioning its business from selling upfront licences with recurring maintenance
contracts to a cloud-based subscription, software-as-a-service, business model.
Comparing the two models, “we see the total life-time value to Gentrack over seven years being at least 50 percent
greater,” Black said. “In reality, most of our customers stay with us much longer than that.”
The aftermath of Gentrack’s $99 million float in mid-2014 was marred by a profit downgrade by as much as 32 percent
shortly after it listed on NZX, largely reflecting timing issues with contracts.
In the event, earnings were 7.8 percent lower than the prospectus forecast at $13 million and the Financial Markets
Authority decided to take no action after investigating the situation, but that experience has doubtless made the
company more cautious about forecasting.
Gentrack’s final dividend of 8.7 cents per share, which takes the annual payout to 13.7 cents, up 8 percent on the
previous year, is based on the company’s current dividend policy of paying out 70 percent of net profit before
Black said that policy could be subject to review. “The business has changed quite considerably since that was put in
Gentrack has bought four businesses since March 2017, including the purchase of Evolve in June for $44.9 million, and
its recent $90 million rights issue has left it with $50 million of undrawn debt.