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Nasstar Plc: THE INVESTMENT CASE

First-half revenues surge at Nasstar as new strategic plan starts to kick in

“The "Nasstar 10-19" programme has gained significant traction in H1 and I am delighted that we have seen the results of the initiatives materialise in these positive results"
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INVESTMENT OVERVIEW: NASA The Big Picture
A possible £2+mln contract could be on the cards if a proof of concept trial goes well in the second half

Computing services provider Nasstar Plc (LON:NASA) saw its shares advance today as it reported an almost 50% jump in revenue for the first half as it starts to see the benefits of its recently-introduced strategic plan.

In late afternoon trading, Nasstar shares were up 5.1%, or 0.48p at 9.98p.

‘Nasstar 10-19’ is a plan to increase underlying profit [EBITDA] margins from 20% to 25% of revenue by the end of 2019 and concentrate on the strategic focus.

WATCH: Strategic refocus beginning to bear fruit for Nasstar

Part of the plan is to also boost its own product range and consolidate some of its data centres to reduce costs and increase stability.

One of its seven UK data centres has closed post-period end and two more will follow suit before the end of the year, while Nasstar has already shifted all out of hours support to New Zealand.

Revenues jump 47%

With the benefits of the new plan starting to be seen coupled with “encouraging” feedback from clients and prospects, group revenues in the six months ended 30 June 2017 surged 47% to £11.9mln (H1 2016: £8.1mln).

Importantly for visibility, recurring revenues make up 90% of that figure now (H1 2016: 88%).

Adjusted underlying profit margins increased to 22% during the period, leaving Nasstar well placed to hit its 25% target by the end of 2019.

That helped adjusted profit before tax – which excludes things like share-based payments and exceptional items – to more than double to £1.54mln (H1 2016: £0.74mln).

Net debt also improved to £1mln (H1 2016: £4.9mln).

‘Positive results’

“The "Nasstar 10-19" programme has gained significant traction in H1 and I am delighted that we have seen the results of the initiatives materialise in these positive results, with Nasstar truly becoming one company in structure and name,” said chief executive Nigel Redwood.

READ: Nasstar on track in 2017

“As a result the first half of the year has progressed positively with trading in line with management expectations.

“New business has been strong and I am pleased to see contracted recurring revenue continue to grow and especially encouraged by the proof of concept that we are currently engaged in for a 1,000 user organisation.

“This demonstrates further that our delivery model is becoming increasingly attractive to the upper quartile of the SME market place.”

Possible £2+mln contract in the pipeline

As Redwood mentioned, Nasstar is currently in the proof of concept stage for delivering a hosted desktop solution to a public company with 1,000 users.

If that goes well in the second half, Nasstar hopes to secure a contract worth at least £2mln over the next three years.

The second half of this year will also see an extra £115,000 of recurring revenues come through thanks to contracts won earlier in the year.

Away from the core business activities, Nasstar's progress was also shown recently when CEO Redwood was asked to give his industry insight in the technology edition of the Parliamentary Review.

“Growth and efficiency” are the key words for City broker

“Nasstar has delivered interims in line with unchanged expectations,” said finnCap analyst Andrew Darley.

“Growth in monthly recurring revenue run rate to £1.8mln demonstrates the visibility and resulting quality of the mode, while the ‘Nasstar 10-19’ initiative has already delivered EBITDA margin improvement to already achieve our full-year margin expectation of 22%.

“Cash flow is strong, with working capital normalised, generating £1.8mln free cash from £1.5mln adjusted PBT, exceeding free cash generation for the whole of FY16.”

Darley has reiterated his 13p target price given management’s “tick-box delivery of investor expectations”.

Nasstar named among UK's top 1,000 inspirational companies

Earlier this year, Nasstar was named as one of '1000 Companies to Inspire Britain' by the London Stock Exchange in its 2017 report.

A showcase for the UK's fastest-growing and most dynamic small and medium sized businesses, companies need to show consistent revenue growth over a minimum of three years that significantly outperforms industry peers to be included. 

Nasstar boss Redwood said: “It is a real honour to be named on such a prestigious list of growing SMEs by the London Stock Exchange.

“This accolade reinforces our confidence in our acquisitive growth strategy, having acquired four businesses in the last three years.

 -- Adds video link, share price, broker comment --

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Nasstar Plc Timeline

Newswire
July 24 2017

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