GCIFadel Partners' H1 revenue decline offset by service gains, strong H2 growth projected
One thing I've learnt over my three-decade career is that investing requires patience and shares rarely go up in a straight line.
This is especially true of innovative smallcap firms that are disrupting industries and/or benefitting from new secular trends, such as () - an IP management, brand compliance and media content software developer.
Today, in a mixed H1'24 trading update, the company said that - like many of its B2B software peers - it had experienced some short-term headwinds, including delays to contract renewals, some IPM customers transitioning to their own hosted environments, and longer sales cycles.
Nonetheless, H1 ARR still climbed 3% to $9.3m vs $9.0m in Dec'23, whilst house broker Cavendish is forecasting to be EBITDA-positive in H2'24 at $1.3m on revenues of $9.5m vs H1 EBITDA of -$3.6m (-$2.0m H1'23) and $5.3m in turnover ($5.4m LY).
All told, leading to a reduction in est. FY'24 sales (H2 weighted) and EBITDA of $14.8m (-9%, $16.3m B4) and -$2.3m (-$1.9m) respectively compared to revised management guidance of $14.8m-$15.8m and -$1.9 to -$2.3m. Similarly delivering 66% gross margins and ending Dec'24 with net cash of between $1.3m-$1.9m ($3.0m LY).
Elsewhere, Cavendish have held their 260p/share target price, based on a 5x EV/revenue multiple. Plus, I suspect this setback is simply a temporary bump along a much longer road to success. You see, the world has entered a new era of consuming media, education, music, video, and professional content. Indeed, the pandemic only accelerated this trend as evidenced by the unprecedented growth in streaming and subscription services.
The problem for publishers is efficiently handling this vast quantity of digital content that is often created by thousands of external 3rd parties who each require payment and partnership management - in turn necessitating the deployment of sophisticated software in order to automate the complexity.
This is where Fadel fits in - already serving a host of blue chip clients such as Hasbro, Whirlpool, Marvel, L’Oreal, Sanofi, Philip Morris, Coca Cola, Pearson, and Sanoma
CEO Tarek Fadel commenting: "The investments in Product, Sales and Marketing made since the IPO are beginning to yield positive results in terms of pipeline quality and expansion, as well as growth in ARR. I am confident that our expanded product set is providing increased value to customers, and an expansion in our TAM. I am also cautiously optimistic that customers and prospects are starting to release budget for our products and services.
It is nonetheless clear though that progress in growing revenue and moving towards adjusted EBITDA profitability is taking longer than was anticipated at the time of the IPO. "
Time to be patient.
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