Synety. Software & Computer Services

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1 Software & Computer Services Speculative Buy, 93.5p, Market Cap. 7.8m* is an AIM quoted cloud software and telecoms company. It develops and provides a suite of cloud based software products and services known as CloudCall. Typically, many CRM platforms do not log telephony voice calls and call recordings are usually run on separate systems. The company s CloudCall services are based on the premise that businesses wish to use CRM software to log, analyse and track their electronic and paper communications, but these systems are not well-adapted to process voice calls in the same way. However, represent a speculative investment opportunity given its early stage of development and hence is not without risk. On 18 March 2015, the company announced full year 2014 results showing revenues growing 198% to 1.63m with the operating loss (before non-recurring items) increasing to 5.35m, noting that the latter was in line with its revised expectations and reflecting its ongoing investment in the UK and launch in the US. It also separately announced that it had raised 2.82m (gross) in a conditional placing at 90p per share with certain institutional and other investors. The proceeds will be used for investment in the UK and US and for working capital purposes. There is also an open offer of up to 750,000. The fundraise is subject to shareholder approval in General Meeting on 7 April Application will be made for the new shares to be admitted to trading on AIM and it is expected that dealings in the new shares will commence on 8 April In addition, announced Peter Simmonds as a Proposed Non-Executive Director effective from, and conditional upon the above admission, the current Deputy CEO of dotdigital. Key Strengths CloudCall provides a solution to a known problem by integrating CRM platforms with existing telephony infrastructure via a tiered product suite. Has a number of income streams but majority of visible revenues from SaaS and telecoms. CRM market is large with Gartner s 2014 CRM Market Share Update forecasting global CRM software revenues of US$23.9bn in Key Weaknesses Early stage SaaS/telco company and growth in revenues to point of profitability dependent on customers adopting CloudCall. Pace of technological change, competition advances with greater operational and financial resources and is reliant on third parties for network, equipment and associated services. Set to remain loss making short-term as continues to expand the business. Important Notice This is a marketing communication. The report has not been prepared in accordance with the FCA rules on independent research. See also page 5. Shares in issue Pre* 8,432,956 Post placing TBA AIM Ticker SNTY 52 week high/low p/92.02p Year end 31 Dec. m LBT m (3.0) (5.3) Loss per share (p) (0.54) (0.64) Price spread (p) NMS Analys Date 92p/95p 1,000 Trisha Reay 18 March 2015 SVS Securities Plc is Authorised and Regulated by the Financial Conduct Authority (Reg No ) and is a Member of the London Stock Exchange. Registered in England and Wales. Company number Registered Office: 110 Fenchurch Street, London, EC3M 5JT 1

2 Backdrop is an AIM quoted cloud based software and telco company. It develops and provides a suite of cloud based software products and services known as CloudCall which are aimed at enabling organisations to use their communications more effectively. In April 2014, shareholders approved a placing and open offer to raise 5m (gross) to expand the company s UK operations, increase the CloudCall platform s resilience, capacity and territorial reach and initiate entry into the US market. launched its US spoke in July Typically, contacts, calls and recordings use multiple systems with s CloudCall solution providing a tiered service offering from a simple click-to-call to call centre functionality. This CloudCall suite of products thus enables companies to integrate their telephony systems into their existing software allowing calls to be made, recorded, logged, categorised and reports generated. In brief CloudCall: Represents four elements in one -- telco, PBX*, call recording and CRM. Can operate as an overlay on an existing phone system. Cloud based service -- No capex and easy to deploy. API** driven any CRM platform can integrate. * PBX private branch exchange or switchboard ** API applications programming interface operates a hub and spoke structure which also benefits from shared resource cost efficiencies. The hub reflects centralised core services in a single location, including its 24/7 global platform management, customer support, provisioning and support functions. The hub optimises customer services through its support of the spokes (both UK and US) which focus on sales, marketing and partner management. Furthermore, through this cloud-based model, the company is able to minimise the deployment costs of new product features as these can be rolled out instantly via the cloud. The company has two main visible recurring revenue streams namely recurring SaaS service fees and telecoms income with additional recurring revenues via add-ons such as enhanced support and one-off income such as set up fees and telephony hardware sales. Currently, the overall gross margin from these combined revenue streams is 73%. The company believes that the market dynamics in which it operates in continues to remain attractive. Currently, it estimates that the addressable UK market from integrated CRM platforms has approximately 1.7m end users and the US has approximately 20m end users. In addition, Gartner s 2014 CRM Market Share Update stated that global CRM software revenues were forecast to be US$23.9bn in 2014, with the US representing 54% of those revenues, enforcing the company s belief that the US represents a significant market opportunity. SaaS Offering The company currently provides the following CloudCall tiered service offering: CloudCall Click ( Click ) This is the company s basic call-control solution: Allows click-to-call and call recording from within existing business software such as Microsoft Outlook, Salesforce and other CRM platforms. Streamlines the processes of calling contacts/customers and logging call notes for review at a later date. Recorded conversations can be recalled from the user s CRM platform. Includes analytics tools enabling an activity review from a web portal. CloudCall Enterprise ( Enterprise ) An on-demand communications system replacing traditional PBX and phone lines. Allows customers wanting both CloudCall Click call control functionality and a hosted PBX to source both services. CloudCall Contact Centre ( Contact Centre ) All features of Click and Enterprise as well as adding in-bound call functions, such as screen pop-ups, and conference calling. Introduced CloudCall Campaigns in April 2014 to help manage in-bound call flows and automate the outbound calling process Launched CloudCall Chrome in December a plug-in that works from within the Google Chrome web browser and with any browser-based software. The company plans further enhancements in 2015 for CloudCall. Financial Results On 18 March 2015, the company announced its full year 2014 results having provided a Trading Update in mid-january. s rose 198% to 1.63m and the operating loss (before non-recurring items) increased to 5.35m. noted that the latter was in line with its revised expectations and reflected the continuing investment in the business. Recurring revenue continued to build throughout 2014, albeit not as quickly as the company s original estimates, due in the main to implementation on-boarding times lengthening as customers became larger and more complex. Cash and cash equivalents as at 31 December 2014 stood at 2.36m with a remaining R&D tax credit of 60,000 outstanding with having received over 133,000 in early February

3 In addition, also announced the following key performance indicators: Annualised Recurring No. of end users Recurring per user Av. New users per month No. of licences Av. Users per customer 31/12/ m /12/ m 2, , /12/ m 7, , Growth in /2/ % +188% +26% +87% +272% +16% 3.46m 8, , The company noted that it is encouraged by current trading and believes that the added investment that the placing (see Fundraising section below) will provide will further enhance its longer term growth prospects. Fundraising On 18 March 2015, announced it had conditionally raised 2.82m (gross) in a placing of 3,129,084 new ordinary shares at 90p a share from certain institutional and other investors. It is proposed that the net proceeds from the placing ( 2.57m) will be used as follows: Key Strengths CloudCall provides a solution to a known problem by integrating CRM platforms with existing telephony infrastructure via a tiered product suite. Has a number of income streams but majority of visible revenues from SaaS and telecoms. CRM market is large with Gartner s 2014 CRM Market Share Update forecasting global CRM software revenues of US$23.9bn in Key Weaknesses Early stage SaaS/telco company and growth in revenues to point of profitability dependent on customers adopting CloudCall. Pace of technological change, competition advances with greater operational and financial resources and is reliant on third parties for network, equipment and associated services. Set to remain loss making short-term as continues to expand the business. Conclusion The company represents a speculative investment opportunity and hence is not without risk given it is still at an early stage of development. The conditional placing and open offer is subject to approval in General Meeting as looks to build on its progress and continue to expand its UK and US business. Increase sales, pre-sales and marketing personnel in the UK as well as fund further product development ( 1m). Gradual expansion of the US sales and marketing operations ( 750,000). General working capital purposes ( 820,000). In addition, there is an open offer to raise up to a further 750,000 with any proceeds received under the open offer element to be used to further expand the sales and marketing teams in both the UK and US and for working capital. This fundraise is subject to shareholder approval in General Meeting which will be held on 7 April Application will be made for the new shares to be admitted to trading on AIM with dealings expected to commence on 8 April Board Composition On 18 March 2015, announced Peter Simmonds as a Proposed Non-Executive Director, whose appointment to the Board would take effect from, and is conditional on, the above admission. A Chartered Accountant, he has over 20 years experience at senior management and board level, principally in technology, amongst other areas. Between 2009 and 2015, he was the CEO of dotdigital, the AIM-quoted provider of intuitive SaaS and managed services to digital marketing professionals, where he remains now as Deputy CEO. 3

4 Group Financial Summary Income Statement 547 1,629 Core Activities AIM quoted cloud software and telecoms company. It develops and provides a suite of communications software known as CloudCall. Cost of sales Gross profit Sales & marketing expenses Total administrative expenses R&D expenses Operating loss before recurring items , ,041 1,184-1,505-4,004-1,026-5,351 Financial Diary Year end Finals Interims AGM December March September May Net finance income 9 25 Loss before tax Tax Loss for the year Weighted number of shares in issue -3, ,873 5,363,000-5, ,069 not available Executive Directors S Cleaver M Seemann P Williams Chairman Chief Executive Chief Financial Officer Basic loss per share (p) Balance Sheet Non current assets 1,715 1,786 Non-Executive D Whelan A Ward G Oehm Current assets Total assets Current liabilities Net current assets Total assets - current liabilities Non current liabilities Total liabilities Net assets 2,573 4, ,106 3,821-1,450-1,917 2,371 3,103 4,889-2, , ,621 2,268 Shareholders above 3% notifiable interest level (1) &, (2) M Seemann Mellinckrodt 2 Herald Investment Management Aquaglow J Kendall Commerz Real S Cleaver Investec Wealth & Management Cashflow Statement 1. Source: Company 2. Pre-placing Net cash absorbed by operating activities -2,224-4,407 Net cash absorbed by investing activities Net cash from financing activities 1,914 4,893 Cash at start of period 2,704 2,300 Cash at end of period 2,300 2,359 Decrease/increase in cash

5 Disclosure List Author: Trisha Reay, Analyst. Material sources: Any facts historical or present relating to the Company, its senior management team or market conditions contained within this report have been obtained from public sources and sources of information that are made available to market professionals such as SVS Securities. The price quoted on page 1 of this report represents the mid-price on 18 March Publication date: 18 March Recommendations: During the 3 months ended 31 December 2014, 0 of SVS Securities principal recommendations have been on a hold basis and 2 of SVS Securities principal recommendations has been on a speculative buy basis. Important Notes: This report is solely intended for clients of SVS Securities as defined under the FCA rules. It is not to be distributed to any other parties. SVS Securities is to be under no responsibility or liability if this document is distributed to other individuals or parties, who have not been invited by the company to receive such information, since our research is not directed at, may not be suitable for and should not be relied upon by any other person. The information presented in this report has not been presented on an independent basis, and is not covered by a policy of independence. SVS Securities may actually or may seek to do business with companies covered in its research reports. Investors should be aware and take into consideration that the firm may have a conflict of interest that could affect the objectivity, independence and impartiality of this report. All statements made and opinions expressed are made as at the date on the face of the material and are subject to change without notice. The facts and opinions in this report have been verified to the best of our ability. SVS Securities conflict management policy and definitions of analyst ratings can be viewed on our website in the section entitled conflicts policy. See Risk warning: The Alternative Investment Market (AIM) is a market designed primarily for emerging or smaller companies. The rules of this market are less demanding than those of the official List of the London Stock Exchange and therefore carry a greater risk than a company with a full listing. A prospective investor should be aware of the risks of investing in AIM securities and should make the decision to invest only after careful consideration and, if appropriate, consultation with an independent financial adviser authorised under the Financial Services and Markets Act 2000 who specialises in advising on the acquisition of shares and other securities. Forecasts are not a reliable indicator of future performance. You should carefully consider your own financial circumstances before dealing in the stock market. There is an extra risk of losing money when shares are bought in a period of high volatility. The price of shares may change quickly and it may go down as well as up. You may not get back the full amount invested. Past performance is no guarantee of future success. This marketing communication does not constitute an offer to buy or sell such securities. It is presented solely for your information and is provided on the basis and understanding that SVS Securities Plc is to be under no responsibility or liability whatsoever except that which it has under the regulatory system. Comments made represent the opinion of SVS Securities Plc and have been arrived at in good faith. No representation or warranty either actual or implied is made to the accuracy, precision, completeness or correctness of the statements, opinions and judgements contained within this marketing communication. This information does not have regard to your specific investment objectives, investment risk profile or financial background. For this reason, this information may not be suitable for all investors, and if you have any doubts, you should consult your SVS Investment Advisor or an Independent Financial Advisor. SVS Securities Plc is Authorised and Regulated by the Financial Conduct Authority (registration no ) and is a Member of the London Stock Exchange CONTACT US FOR MORE INFORMATION Phone: Fax : info@svssecurities.com 5