On 15 January 2020, Gentrack Group Limited (ASX: GTK) reported a significant fall in its share price post the release of a market update. The shares opened at a price $0.86 below its previous close of $3.73. The highest price recorded for the day was $2.96. By the end of the trading session, the shares dropped by 24.933% and reached near its 52-week low price. The shares closed at $2.80 per share and has a market cap of $367.95 million. Around 536,125 shares were traded on ASX.
Gentrack is a technology company that offers essential software for essential services. Gentrack pairs its powerful platforms based on its rich market knowledge to assist utilities & airports lower service costs, encourage innovation & confidently navigate market reform.
On 15 January 2020, Gentrack advised that it continues to experience tough market situations in its main utility markets. As a result of which the sales pipeline of the company is getting impacted to a greater extent than what was expected earlier.
Other than this, E. ON, which is a significant UK utility client had indicated to company about its intentions to suspend implementation of the company’s new Gentrack billing platform to concentrate resources on the integration of the newly acquired Npower business.
At present, GTK is accessing the financial implications of the broader adverse market conditions as well as E. ON’s decision for which a thorough re-forecasting exercise has been introduced. Any further announcement plus an updated FY2020 outlook will be provided to the market after the process gets completed.
Let’s take a look at GTK’s FY2019 performance.
For FY2019 ended 30 September 2019, the company reported a 7% growth in its revenue to NZ$111.7 million as compared to the previous corresponding period. However, the EBITDA dropped by 19.8% to NZ$24.8 million and adjusted NPAT by 31% to NZ$9.6 million on FY2018. NPAT after NZ$14.6m impairment resulted in a loss of NZ$3.3 million. The company declared a final dividend of 3 NZ cents per shares. This brought the full-year dividend to 8 NZ cents per share.
The company from 2016 till 2018 has consistently provided its shareholders with an increasing dividend. However, in 2019, the dividend distribution per share declined.
In the company’s Annual Report for FY2019, the Chairman, John Clifford and CEO, Ian Black had highlighted to shareholders that 2019 was a challenging year for many of its energy clients with government involvement in pricing resulting in reduced margins for energy retailers in the UK & Australia. In spite of this, it was noted by the company that its customers were using GTK’s latest solutions to support their business success, and in turn, their growth has resulted in an increase in the annual recurring revenue for utilities during the year. The annual recurring revenue for FY2019 went up by 22% to NZ$78.2 million on FY2018. The UK business attained a 36% growth in revenue with the addition of 4 new energy retail customers, a water utility customer and three new Evolve projects.
The debt provision of NZ$1.8 million pertaining to 4 small UK utilities clients going into administration, & deferral of project revenues resulted in lower EBITDA. The company was actively engaged with its clients with respect to their businesses and confirmed that it would remain to be committed to delivering its solutions as well as skills to allow them to pass through this period of uncertainty with success.
The company in FY2019 continued with its investment in product development with NZ$13.5 million expenditure in research and development, of which NZ$5.1 million was capitalised. GTK’s product development program delivered Gentrack Cloud solutions for energy and water retail markets this year, thus opening new opportunities in 2020.
Other than this, the company also provided productised solutions related to billing & customer management for energy retail in the UK, Australia & Singapore as well as business water retailing in the UK. A new cloud-based Meter Data Services was also offered to the utility clients with a cloud-service to process unprecedented volumes of meter data produced by smart meters. This data is then used to make targeted energy supply offers to clients as well as businesses depending on the time of use.
GTK, in its annual report, highlighted that due to continuing uncertainty in its core markets, the investment decisions for its customers are getting delayed. As a result, the company expected its results in FY2020 to be broadly flat. Apart from this, the company expected a positive shift in recurring revenues in FY2020 as it continues to boost the penetration of its SaaS offering.
Market Conditions Creating Headwinds for Utilities and Gentrack:
- Energy price caps in the UK & Australia are influencing the energy retailer profits.
- Uncertain UK political conditions.
- Financial pressure growing for energy retailers.
- Challenges with a high-level of system transformation with the roll-out of smart meters.
- Consolidation, along with the failure of some UK utility businesses.
- Budding billing & customer information suppliers.
2020 Power and Utilities Industry Outlook:
As per a report published by Deloitte, in 2019, natural gas dominated the US power generation mix accompanied by a rise in capacity in wind and solar. In 2020, the power and utilities industry trends that could be expected, are:
- Power and utility companies likely to raise the bar on climate change goals in 2020.
- New opportunities are expected from distributed energy resource (DER) strategies.
- Companies from the Power companies would be looking for growth via new business model.
- Utilities are grabbing chances to build cleaner, smarter cities.
- Utility sectors are preparing themselves for growth and opportunities in electric vehicles.
With these upcoming trends, cyber risk, inspection from regulators, natural disasters are expected to be witnessed in FY2020.
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