Sunday share tips: Blue Prism, TP Group
In his ‘Inside the City’ column for the Sunday Times, Ben Woods was looking at Warrington-based technology company Blue Prism, which was using technology to help automate the repetitive tasks of office workers.
The AIM-traded firm believed that by allowing robotics to deal with administrative tasks, such as processing orders, the actual human resource of the company could crack on with more creative and productive work.
It was an approach that had convinced some big names, including Ebay, Lloyds Banking Group and Siemens, to sign up as customers.
But investors had been harder to convince as of late, with its shares falling 30% last month, after some decent hype around its robotics saw the same shares ricket 70% between January and April.
Blue Prism’s shares closed at 1420p on Friday.
The firm had delivered some disappointments on the operational front in its half-year results in June, with its customer numbers rising 57% to 349 - much less than the 450 new customers picked by analysts.
Its losses had also swelled to £34.4m from £5.5m year-on-year for the six months period to the end of April.
But Woods reckoned that selling out of the company’s stock could be a mistake, describing Blue Prism as a “land grab” for investors similar to Netflix and Uber, with the firm sacrificing profits at this stage in a bid to swallow up as much market share as it could handle.
Most software companies spent between 20% and 30% of total sales on customer acquisition each year, but Blue Prism was currently spending around 130%, which a decent chunk of the £100m it raised in February being ploughed into sales and marketing.
Woods noted that it was a significant spending figure, adding that shareholders would be right to take a breather given customer growth was not matching analyst expectations.
However, as one of three dominant players in a very young market, Blue Prism was in a unique position, with just 3% of the market said to have been penetrated last year, and the industry was expected to grow to $3bn in 2022 from around $1bn now.
“Panmure Gordon has set a price target of £24.25, claiming Blue Prism’s ‘superior growth profile should more than outweigh its near-term profitability’,” Ben Woods wrote.
“Blue Prism may face competition from rivals UiPath and Automation Anywhere, but growth opportunities should keep sales advancing at a double-digit rate. Buy.”
Over in the Mail on Sunday, Joanne Hart was looking at TP Group, writing about its technology that cleaned excess carbon from the air in submarines, allowing crews to breathe, eat and sleep without risking their safety.
She said that the company went even further with its technology when it came to nuclear submarines, having developed a method to source oxygen from seawater and to store the remaining hydrogen until they returned to shore.
It meant the vessels could remain under water “indefinitely”, in theory, which would give them a “major advantage” in complex missions.
Hart described TP Group as a small British firm based in Reading, but said its technology and know-how was used by defence forces the world over, with its shares set to “rise considerably” from their current 6.4p.
In a trading update last week, TP Group had said that its pipeline of new orders was at its largest ever level, with chief executive Phil Cartmell described by Joanne Hart as “experienced” and “highly ambitious”.
Cartmell was installed to his post in 2009, when TP Group was called Corac, and it had a different business model based around both research and development.
He then spent several years getting the company out of its unprofitable ventures, and focussing its time and investment on revenue-generating, “mission-critical” technology and services.
That saw the firm make a number of key acquisitions, with it now playing a “key role” in defence, aerospace, energy, shipping, intelligence and space.
Hart said TP made specially-designed, rugged computers and data storage systems for use in military and commercial vehicles, as well as making refrigeration units designed to keep food, electronics and arms at the correct temperature.
It also created a way to recycle the hot water and steam that was produced in the refining of oil and gas, which had historically evaporated into the atmosphere.
The company was recently handed a UK Government grant to assess the potential for autonomous naval vessels, and was trialling the idea in the English Channel.
It was also said to be working with a US research organisation on carbon capture and storage technology, while on the continent, it was teaming up with the European Space Agency to work out how to best launch satellites.
Cartmell’s initial acquisition strategy was on technology firms, but in recent years it had developed a services arm, which had grown from nothing five years ago to accounting for almost half of TP’s annual sales.
Joanne Hart noted that it could appear that TP Group - a small business with a headcount of 450 - had its fingers in too many pies, but she said that they all involved engineering, technical and management expertise, and all centred around “mission-critical” equipment and operations.
Its approach was showing results, too, with profits expected to double to £3m in the current year, while sales should grow 41% to £55m, with further growth pencilled in for the 2020 financial year.
There was no dividend at the moment, with the company being focussed on growth, but Cartmell was reportedly reviewing that policy constantly, while its major institutional shareholders seemed content with the strategy.
Looking ahead, TP Group was said to be eyeing up even further acquisitions, and while it did have cash on its balance sheet, any major acquisition would require its board to approach shareholders, cap-in-hand.
Cartmell was known for his caution, according to Joanne Hart, having run listed aerospace and defence business Vega Group prior to joining TP, which was sold at a 40% premium to its market value in 2009.
There were no plans to put TP on the market, but Hart did not that it would make an “attractive morsel” for a larger, international rival.
“TP Group has come a long way over the past decade but, at 6.4p, the shares fail to reflect the company's achievements to date or its future prospects.
“In an increasingly unsettled world, TP's defence interests are particularly compelling.
“A strong, long-term buy.”