Like many other investors, I am largely sitting on my hands at present - holding on to what I have - with some cash sitting on the side earning next to nothing, but waiting to be deployed.
Obviously, with inflation roaring ahead and the markets under the hold of the bear, it can be both frustrating and depressing, although at some point we will enjoy a change as history tells us.
Unlike others though, I’m not expecting a sharp bounce that gathers momentum with a swing to the bull, not least as I feel we are currently mirroring what happened during the 1970’s bear market.
I have commented on this elsewhere a few times now, so it is worth checking out the similarities, not just in both the macro and domestic similarities, but the graph on the market performance.
Back then, the bear really held sway for close to two years, before the market began to gradually revert northwards again, as the economic headwinds started to reduce.
Still, it isn’t all doom and gloom as there are companies that are still performing well and proving more resilient than others, whilst some that are witnessing a slowdown already look attractive, having arguably been oversold.
To this end and in the former camp, I have taken a look at Gresham Technologies, which has been and seemingly continues to look an attractive growth proposition that is arguably operating in a more favourable and insulated area of business.
The company is headquartered in London and is a SAAS business that is focused on providing real-time transaction control and specialist data solutions to the financial services market.
Customers include the likes of Banks, Insurance Companies and Asset Managers, where, assisted by its own enterprise-grade SaaS platform known as Clareti, enables its customers to perform more efficiently in this digital age.
As a part of my taking a look at the business, I have been fortunate enough to catch up with both the CEO Ian Manocha and CFO Tom Mullan to hear more on its increasing footprint and the prospects for growth.
Manocha, despite the economic turbulence sounds as upbeat as one could expect and points out that Gresham earlier this month announced a very positive update to the market.
This saw the company delivering new contract wins which now translates into an expected beat on previous guidance for the full year 2022, with broker Singer forecasting total revenue of £46m and adjusted pre-tax profits of £6.2m.
Speaking on those new contract wins and the current environment Manocha says that the prevailing high interest rate situation plays well with banks, which in turn means they have more money to reinvest in supporting their technical infrastructure, which is where Gresham comes into play.
Additionally, market volatility isn’t such a bad thing for the company as it can thrive under such circumstances as its technology comes into its own.
The company currently has some 270 customers world wide, which now takes in some 30 countries, so it is a real global player that is arguably disrupting the market with its core technology.
Although operating in a somewhat fragmented market place with numerous smaller players performing in various aspects of that, Manocha says it is and has been, largely been dominated by two major players.
Whilst these are massive players in their own right, the CEO points out that much of their offerings are now considered legacy products, which in a fast changing industry with increased regulatory controls and a need for fast and effective transactions means Gresham is well placed to compete and win further business.
As one would expect from a successful SaaS business, the company’s offering is, says the CEO, very sticky which sees a highly commendable level of annual recurring revenue (ARR) that is increasing.
Indeed, the CEO has a target goal of achieving £100m ARR per year as it looks to tap into what is a massive opportunity across a growing space.
Organic growth, is also another key component from an investment perspective and this is also highly impressive, where after a 19% H1 figure being achieved, the CEO tells me that they are continuing to target a total figure of 20% per year, sounding a confident note on that.
Management here, is clearly intent on driving the business forwards and this is being achieved with not only the organic targeted growth but through acquisition means too.
On this front, there have been a few additions to the business in recent years, the most recent coming in the form of Electra which was bought for 3x ARR, which appears to have been executed at a very good multiple.
This business is primarily focused on N. America and Manocha is delighted with how it has performed since being purchased and the opportunities now presenting themselves.
He sees cross selling prospects within the wider business, as Electra provides a real step up for Gresham into the massive N. American market.
The company has clearly been making positive strides on performance in recent years and as is so often the case with a SaaS business, years of investment in R&D and product development can take time to feed through into positive numbers.
Additionally, software companies typically capitalise R&D so the financial numbers can often be muddied or flattered.
In Gresham’s case it appears that it has now reached a key point in terms of cash generation and an acceleration of growth, despite continued investment across its architecture.
Manocha confirms that the bulk of its R&D is undertaken here in the UK in Bristol and nothing is outsourced to other parties.
In terms of its financial performance, revenues have been increasing, (apart from the Covid induced hiatus), growing from £25m in 2019 to the forecast of £46m for full year 2022.
Adjusted pre-tax profits are now also beginning to build, moving from £1.9m in 2019 to £4m last year with an expectation of £6.2m this year.
On the EBITDA front, it is worth noting that as ARR builds on the back of a successful and growing subscription model ahead of costs, then Gresham should begin to generate significant cash EBITDA, which as a measure would further highlight and underpin the attractions here.
One thing to note, is that Gresham has one major customer in the form of the Australian and N. Zealand Bank (ANZ) which such exposure may be worrying to some investors.
However, Manocha says that although most of that is of a legacy nature business, Gresham is actually continuing to win new business from ANZ where it also has a very long standing and strong relationship with the client.
So, there doesn’t appear to be any concerns on that front, whilst boasting such a client can also lend its self to strengthening its position with new potential customers in what is an increasing pipeline.
And in term of contract longevity, CFO Mullan tells me that these have been increasing in length and are now moving more to spans of five years which provides for an level increased visibility and predictability.
Mullan also touches on the balance sheet where there is net cash expected to come out at £7.6m for the year end, with no debt.
With cash predominantly paid up front for services, Gresham is already in a decent financial spot and a solid net position on the balance sheet provides the company with further fire power for additional acquisitions which Manocha says will likely be at the smaller end in monetary terms.
He doesn’t rule out a larger proposition that would probably require a raise to support it, but feels that for the foreseeable future at least, something at that lower end will be the way they go.
At present, Gresham shares stand at £1.39p per share giving a market cap of £116m, where it trades on a forward PER of 20, falling to 19.
That may, given the current turbulent times look high enough at present, particularly given the various unknowns, not least the ongoing Ukraine conflict.
That said, Gresham looks like one to keep close tabs on to me, as it is clearly in a growth spot that even in the near term looks better placed than many.
Further contract wins look to be on the cards and it clearly has opportunities across the globe with an ability to scale up not only in existing markets, but new areas too, which could single it out as a strong future growth candidate.