In a preview note issued last week, Forsyth Barr analysts said Veovo had “a long runway for growth” as airports modernised and the Gentrack unit up-sold its existing customers and signed new ones.
Machine learning (a form of AI) had made Veovo’s cloud product more appealing against competitors. The pair also increased the total addressable market for Veovo by 23% to $1.6 billion as they maintained their “outperform” rating.
But the analysts dropped their 12-month target price down to $14.70 from $14.90 based on peer valuations.
(Shares have to stay above $10 for chief executive Gary Miles to land his full market-leading remuneration).
In a “first impression” note immediately following the result, Hooper rated Gentrack “underweight” with a target price of $7.65.
“Three things will likely be why the stock is down today,” Forsyth Barr’s James Lindsay told the Herald soon after the result.
“The lack of announcement of material new contracts, a soft first-half utility revenue performance and their full-year guidance being below market expectations.”
Research and development spending was up.
“Messaging around the contract pipeline was solid but not overly confident,” Lindsay said.
“[But] it was good to see medium-term guidance reiterated for 15%-plus revenue growth per year and ebitda margins of 15% to 20%.”
Miles stuck by the 15% to 20% figure under sustained questioning from analysts on the conference call.
Guidance: Limited and behind consensus
No profit/loss forecast was given.
Gentrack guided to a full-year ebitda margin of 12% - which Hooper said equated to operating earnings of at least $28m or 18% below the consensus $34m.
Full-year revenue guidance of “at or above $230m” was 4% shy of the analyst consensus of $240m.
The first half saw the operational launch of Gentrack’s first Saudi Arabian airport and “the successful completion of an important part of the first phase of our contract with the Manchester Airports Group”.
Upgrades were also delivered to two unnamed major Australasian airports.
Gentrack said Veovo had also “won London Gatwick’s Integrated Airport Control project following a highly competitive process”.
Gatwick already used Veovo for queue management. It would now add AI and machine-learning-based features.
In utilities, Miles earlier told the Herald his firm was well-positioned to pick up work from the latest water reforms after not even being invited to pitch for Three Waters contracts.
A major Genesis Energy upgrade in NZ was in the second of three years.
“We are putting in more resource to make sure it’s landed successfully,” Miles said on a conference call. The first upgrade, with the power retailer’s Frank brand, was scheduled to go live by the end of this year.
In the UK, the first half saw Gentrack win a billing software contract with Utility Warehouse, which it says supplies energy and telecom products to nearly two million meter points.
Net cash increased by 80.1% to $70.7m.
Recurring revenue was up 16.4% to $76.4M.
The firm does not pay a dividend.
Tariffs, green backlash
“At a time of global uncertainty, the energy and water industries are a good place to be,” Miles said on a conference call. The essential services were undergoing transformation and modernisation worldwide, which would continue.
“Gentrack provides essential services with little direct impact from global tariff uncertainties,” the firm said in a market filing.
“In case of a global downturn, we do not expect the rate of transformation of utility companies to slow. However, passenger travel numbers could slow the rate of airport transformations.”
It added, “There is some pull-back against net-zero targets which could potentially affect change programs for utilities. We do not see this as a current risk in our target utility markets of Europe, the Middle East and Asia.”
In the US, the Trump administration has pushed a policy of what it calls “energy realism” as it scales down or eliminates clean energy subsidies.
The weakening of the New Zealand and Australian dollars had “benefited Gentrack due to our global customer base and operating theatres”.
In constant currency terms, Gentrack’s net profit was $6.7m or 6.8% lower than the reported $7.2m, and revenue 4.2% lower than the reported $112.0m.
Chris Keall is an Auckland-based member of the Herald‘s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
