While March results and the subsequent reporting in April/May are quite subdued compared to the chaos of earlier months, we are still subject to a number of high quality companies reporting their earnings.
Last week, two of the TAMIM holdings reported impressive numbers which enthused the market. We take a deeper dive into what drove the investor reaction and the performance below.
Gentrack Group’s Strong Tailwinds and Future Prospects
Gentrack Group Limited (ASX: GTK) reported strong financial results for the first half of FY24, with revenue increasing by 21% to $102 million compared to the same period last year.
We discussed the idea of Gentrack being a future tech darling here.
Excluding one-off revenues from insolvent customers in the prior period, the underlying revenue growth was an impressive 58%. The company’s operating earnings stood at $12.3 million, tracking well against its full-year guidance. However, the statutory net profit after tax declined to $5.3 million from $7.9 million in H1’23, primarily due to the absence of one-off profits from the exit of a high-margin customer in the previous period. Gentrack’s Utilities segment experienced a 17% increase in revenue to $86.5 million, with underlying revenue growth of 60% when excluding the one-off revenues from the prior year.
The company secured new customers, including in Saudi Arabia, and witnessed strong growth in its core markets of New Zealand, Australia, and the UK. Annual recurring revenue in the Utilities segment grew by 49%.
The Veovo division, which serves airports, saw a 49.4% increase in revenue to $15.5 million, driven by new customer wins in the UK and the Middle East. Non-recurring revenues more than doubled, fueled by project implementations and hardware sales. Annual recurring revenue in Veovo grew by 16%. Gentrack invested $12.9 million in a 10% stake in Amber, an Australian energy technology company, to develop innovative solutions for household batteries, EV chargers, and smart devices.
The company’s cash balance stood at $39.3 million as of March 31, 2024.
Looking ahead, Gentrack has upgraded its revenue guidance for FY24 to approximately $200 million, up from the previous guidance of at least $170 million. The company expects operating earnings to range between $23.5 million and $26.5 million (12%-13% margin), reflecting continued investment in strategic R&D and international expansion. Overall, Gentrack’s results demonstrate strong growth across its Utilities and Veovo businesses, driven by new customer acquisitions, upselling, and upgrades.
We feel that Gentrack has some of the strongest tailwinds and revenue growth potential for the next 5 plus years. In our view all global utilities have to upgrade their billing systems with the Gentrack tech stack resonating well with customers. This is now the fifth upgrade to earnings this year.
The company is well-positioned to capitalise on the transformative trends in the utilities and airports industries, with a focus on innovation and international expansion.
OFX Group’s Solid FY24 Performance and Promising Outlook
OFX Group Limited (ASX: OFX), a leading provider of online international payment and foreign exchange services, reported strong financial results for the year ended 31 March 2024, in line with its guidance.
The company’s performance was underpinned by strong execution, synergies from acquisitions, and a strategic pivot towards the lucrative B2B segments. The company’s net operating income (NOI) rose 6.3% year-over-year to $227.5 million, driven by a 2.1% increase in fee and trading income to $229.7 million. Underlying operating earnings grew 3.4% to $64.6 million, and excluding the Paytron acquisition, it increased by 8.2%.
However, underlying net profit after tax (NPAT) declined 10.1% to $33.8 million, primarily due to higher operating expenses associated with the Paytron integration and core business growth.
The B2B segment emerged as a key growth driver, with revenue increasing by 4.8% to $146.1 million, fueled by a 3 basis point margin expansion and a 5.2% rise in transactions. The Enterprise segment, in particular, witnessed a remarkable 32.8% revenue growth, and the pipeline of prospects increased from 67 to 77. The Consumer segment, however, experienced a 4.4% revenue decline due to lower transaction volumes and average transaction values (ATV).
Geographically, the US market remained resilient, with transaction volumes up 19.6% and revenues up 14.2%, supported by a strong economy and favourable USD exchange rates.
The UK market also performed well, with an 18.7% revenue increase driven by a 9 basis point margin improvement and higher transactions. Additionally, European revenues skyrocketed 140.6%, with active clients increasing by 16.3%.
OFX continued its on-market share buy-back program, acquiring 8.6 million shares for approximately $14.3 million, demonstrating its commitment to enhancing shareholder value.
The company plans to launch a new integrated Corporate platform in Q1 FY25, offering accounts payable, invoicing, expense management, and Corporate card services globally, unlocking new revenue streams beyond FX services.
Looking ahead, OFX expects to grow NOI by at least 10% per annum, with an underlying operating earnings margin of 28%-30% over the next three years. The company is well-positioned to benefit from further industry consolidation, leveraging its strong balance sheet and cash generation capabilities.
For FY25, OFX is confident in achieving its goals through organic growth, margin expansion, new client revenue, contribution from new revenue streams, and additional trading days.
With implied forecast operating earnings of $70-$75 million OFX trades on a multiple of 5.5 whilst also trading on a price to earnings multiple of 13. With a bullish medium and long term outlook, net cash of $25 million and growing, we believe there is significant merger and acquisition potential. Discover valuable insights on our top three stocks to watch for potential takeovers here.
The TAMIM Takeaway
Gentrack and OFX have delivered impressive financial results, underscoring strong tailwinds in their respective industries.
We believe the two TAMIM holdings are well-positioned to leverage industry trends, with Gentrack focusing on utilities and airport innovations and OFX on expanding its corporate platform.
With net cash positions and promising growth prospects, both companies present exciting futures for both long term investors and strategic investments.
