GETB.L - Getbusy PLC

[A Dhandho Investor]

GetBusy is a London Stock Exchange AIM listed (LON:GETB) small cap (£29m) with approx. 120 employees that serves about 65,000+ customers with 2 products that are monetized. A third product is in the beta phase.

 

Their products are:

- Virtual Cabinet: The most established product of the company with 45k paying users. It concerns a document management and client portal software for medium to enterprise customers. According to the company, their customer list includes 27 of the top 100 accounting firms in the United Kingdom, and 22 of the top 100 accounting firms in Australia and NZ.

- Smartvault: a document management & portal software for small to medium businesses with 20k paying users.

- Getbusy: A tool (that is in the beta phase) that enables teams to cooperate in a more efficient way.

 

Their most recent investor presentation https://assets.website-files.com/591a4598e2508a2bc89c4aee/5d366ac80eef9b6a56218b2a_GetBusy%20H1%202019%20Presentation.pdf provides some more colour on the company.

 

The company has not yet reached profitability due to a combination of the investments in the new Getbusy product (R&D expense was £2,5m in 2018, of which only 16% was capitalized), growth investments in the existing products and corporate overhead. Those costs have masked the actual profitability of the company. For instance, the most established product, Virtual Cabinet, will probably deliver £9m in revenues in 2020 with operating profit margins of about 40%.

 

The basic premise of the investment thesis is that it concerns a company with:

- high recurring revenues (88% of total LTM revenues as per H1 2019 of £11.9m are recurring)

- Increasing revenues (revenues increased 20% in H1 2019)

- Growth potential: they can further increase revenues via new customers, upselling to existing customer, new products (Getbusy product), etc

- Low customer concentration (65k customers)

- increasing ARPU (ARPU increased 12% last year to 174£ / year)

- No debt (£1.9m net cash)

- tightly held stock (+60% of the stock is owned by insiders and institutional investors).

 

I don't expect the company to be profitable in 2020 due to further investments in Smartvault and the Getbusy product, which I believe is the correct long term strategy.

 

 

[ratiman]

Thanks for posting this idea. 

 

The product line appears to be split between the more mature enterprise desktop and the faster-growing SMB cloud. The enterprise suite (Virtual Cabinet) is growing OK but it's a desktop product and only 85% or so is recurring revenue. Makes me wonder if the marketing expense of replacing churn via outbound sales is eating into the profitability of that product. The SMB product (SmartVault - by the way, the names are virtually identical and hard to keep apart) has near 100% recurring revenue, higher ARPU and better economics. Can they ultimately transfer the enterprise customers to the SmartVault and save on development expense? And GetBusy is hard to evaluate because there are no paying customers.

 

So it's definitely interesting but the fact that the biggest suite has so much non-MRR makes me wonder how profitable it is. Any idea what happened between 2018 and 2019 to account for the share price decline? Another concern is the low cash on the balance sheet. It's losing money and has just $3M US on the balance sheet. And any idea what the slide about share register rationalisation means?

[A Dhandho Investor]

Thanks for the comments, really appreciated!

 

Hereby you can find my remarks:

- On the names of the products: I had the same reflection that the names of the product are hard to keep apart, especially since Virtual Cabinet is actually the desktop based product and Smartvault the cloud product.

- On the percentage of recurring revenues for Virtual Cabinet: They previously had the combination of an upfront licence and a subscription model in the UK, where 22% of revenues were non-recurring. In 2019 they moved to a pure subscription model, but had some GDPR consultancy projects (non recurring revenues), so going forward I expect the percentage of recurring revenues to further increase.

- On transferring customers from Virtual Cabinet to Smartvault: imo your impression is incorrect that Smartvault is the better product with better economics. I talked about the recurring revenues in the previous bullet point. On the higher ARPU of Smartvault compared to Virtual Cabinet: you have to take into account the fact that Virtual Cabinet customers are larger enterprises with more employees, and, as a consequence, more users. So while ARPU is lower, total revenues for acquiring a Virtual Cabinet customer will be higher than total revenues for acquiring a Smartvault customer given the larger number of users per customer. That is also the reason why they work with an outbound sales team for Virtual Cabinet. For Smartvault, it makes less economic sense to have an outbound sales team. 

- On the "low" cash: The company announced a cash position of £1.9m as per 31/10/2019, which was in line with the cash position as per 30/06/2019. Investments in the Smartvault product expansion in the US and the UK should however lead to a lower cash at year-end. I don't expect them to have cash issues before 2021. Management hinted that a capital raise is possible once they have a further proof of concept for the GetBusy product.

- On the share register rationalisation: You can read more about it here https://polaris.brighterir.com/public/getbusy/news/rns/story/xqj4knw/export. Long story short: Getbusy was spun off from Reckon in 2017 (each RKN shareholder received 1 Getb share for each 3 RKN shares they owned). As a consequence, there were 3.300 individuals owning less than 5.000 shares with an average holding value of £300 for whom the cost of trading exceeded the cost of their shares. The company has executed a capital raise with institutional investors to provide these shareholders with an exit opportunity.

[DW1234]

I have taken a position, couple reasons why I think this is undervalued.

 

1. Virtual Cabinet segment is currently profitable and has been consistenly growing since 2012. This unit alone could be worth close to current marketcap with conservative growth/margins assumptions.

 

2. Clean balance sheet, no debt, very low churn, very low customer concentration. Insiders own about 25% of the company.

 

3. LTV:CAC ratio's are promising. Increasing ARPU's is a good sign. They also have a high % of recurring revenue in combination with low churn.

 

All of the above wouldn't necessarily excite me unless the price is good. What I really like is that I can use quite conservative growth and margins estimations and still end up with a valuation a lot higher than the current one. However, these type of growth investments are based on more moving parts than a typical 'value' investment, which makes me a bit uneasy.  This will definitely be interesting to see how this plays out.

[_JJ_]

FY2019 results are out

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/GETB/14445067.html

 

VirtualCabinet 3.4M GBP EBIT, margin improved from 31% to 41%. They expect further improvement to the 42-45% range and a modest growth rate. I expect 3.8M - 4M EBIT for 2020.

 

SmartVault ARR grew 25% at constant currency in 2019. Growth rate has accelerated to 32% by December 2019. And, I quote CEO Rabie, "SmartVault's recurring revenue growth has been very strong on the back of the significant ongoing investments in customer acquisition and product capabilities.  The new year has started very well; the level of new sales achieved in January was a record by a substantial margin."

 

What I found interesting is that they are examining product initiatives aimed at monetizing Smartvault's base of 1 million portal users, who currently interact with the product for no charge. Really curious what they come up with.

 

Net Monthly Recurring Revenue churn for the products were 0.1% and 0.0% respectively.

 

They expect to receive 600k in R&D credits for the years 2017 and 2018, with further credits expected for the year 2019.

 

All of this available for a market cap of only 32M GBP...