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BIG PICTURE - Brady sitting comfortably in chaotic commodity market

Last updated: 10:16 16 Mar 2015 EDT, First published: 11:16 16 Mar 2015 EDT

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It’s easy to get caught up in the constant whirlwind which seems to rattle through commodity markets.

Two years ago, prices of metals and minerals were sailing along nicely, the market was booming.

Fast forward to today, gold and oil have been battered, along with most of their commodity cousins.

In short, commodity trading in general is becoming increasingly volatile and complex.

But if there’s calm to be found – it comes in the form of Brady Plc (LON:BRY).

Put simply, the business offers trading and risk management solutions for metals, recycling, energy and soft commodities.

And, rather uniquely, it’s established a track record of reliability in a market that is anything but.

In the past year, as most commodity prices have fallen off a cliff, shares in the firm have climbed 20% to 96p. It also sits on a comfy cash pile of £9.5mln.

The reasons are fairly straightforward.

When commodity prices head north, trading desks are willing to pay more for the firm’s sophisticated systems.

And, when they go south, other clients, such as miners, refiners, producers, will look to Brady’s risk management and compliance software to mitigate the downside.

All in all it means Brady, as a business, can steer a smooth course through choppy waters.

“We’re not anchored to volatility,” chief executive Gavin Lavelle told Proactive Investors. “These are good markets to be in, especially when there is volatility.

“Trading conditions are good, volumes are up, so there’s a need for our sophisticated systems.

“Yes, it’s tough for producers, but for us, that means there’s a need for risk and compliance software and we can help here too.”

It’s clear to see Brady is weathering the storm well.

Ahead of its final results, city broker Panmure said the firm had become “dependable” and expected no surprises from the firm’s full year results. It’s a prediction that turned out to be correct.

Last year, revenue rose to £31mln from £29.3mln in 2013, and was up 13% on a constant currency (CC) basis.

Recurring revenue eased to £15.85mln from £16.63mln, but would have been up 2.4% at constant currencies.

The group signed 20 contracts with leading names in commodities, energy and recycling companies across the globe.

The scale of contract size is increasing and licence revenue was £7.5mln, with good visibility for 2015 and beyond, Brady’s chairman Paul Fullagar revealed.

Underlying earnings (EBITDA) before exceptional costs surged to £6.29mln from £3.54mln in 2013, giving adjusted earnings per share of 5.31p, up from 2.78p.

The EBITDA margin moved back above the group’s target of a level above 20%.

Lavelle is optimistic for the future. Going forward, he points to three things: risk, recycling and renewables.

“Financing to resource firms is tight, so lenders want to know a business has its risks in check. Our systems allow companies to do just that.

“The other big drivers are recycling and renewable energy,” he adds.

“These are growing trends and will lead to greater volatility in commodity prices in general. We’re well placed to benefit from these changes.”

Cloud services – where the software is held remotely rather than installed on the customer’s own systems – is also an exciting area of growth.

Revenue from its Cloud-based platform more than doubled in 2014, with 30% of new licences being delivered via the Cloud last year.

Another major strength is the business operates globally. A total of 32% of revenues are now coming from outside Europe, it’s traditional heartland, with 23% from the Americas and 9% from Asia.

Today, house broker Cenkos reiterated its ‘buy’ recommendation, saying margins have been rebuilt despite the difficult sector backdrop, while cash conversion has improved considerably.

“Management reports a strong pipeline and the company is well positioned to trade successfully through what might be the bottom of the commodity cycle,” the broker said.

“Trading organisations and fabricators in the supply chain are seeing positive trading conditions. Regulations are stimulating demand for Brady’s products so net, we see overall favourable market conditions despite headlines about the commodity cycle,” it added.

The broker is forecasting a rise in EBITDA this year to £6.7mln and an increase in the full-year dividend to 2.0p from 1.9p.

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