Portfolio Updates

Gresham’s continued strong growth; revenues, earnings and cash ahead of market consensus

Gresham Technologies, which provides data integrity and control, banking integration, payments, and cash management solutions to the financial services sector, has announced a glowing trading update for the year ended 31 December 2021.

Clareti annual recurring revenues (ARR) were up 95% to £24m, with 20% organic growth and 75% from the Electra acquisition in June 2021.  Net retention levels, a measure of how sticky the Clareti platform is with customers, are well over 100%.

Adjusted EBITDA was up 58% to £7.1m and free cash flow moved into positive territory, notwithstanding the ongoing investment in Clareti technology.  Net cash stands at £9.1m with no debt.

Looking into the future, Gresham’s CEO, Ian Manocha, referred to a £37m contracted revenue pipeline for FY22 covering c.90% of forecast FY22 revenues.


Kestrel Insight

Growth in ARR

Gresham’s 20% organic growth in Clareti ARR for FY21 builds on its 17% organic growth in FY20 and confirms Gresham’s strong growth trajectory. Impressive net retention levels at well over 100%  confirm our view that Gresham’s mission critical business software, aimed predominantly at financial markets, provides a stable and secure source of cash flow. Given how integral these solutions are to Gresham’s banking clients, and the very long replacement cycles in these types of institution, it is quite possible that they will remain in place for 20 years or more – something investors should value highly.

Electra integration confirmed

Electra is now fully integrated within the core business through Gresham’s tried and tested methodology. In our experience, failure to properly integrate acquisitions is a common feature of public company M&A, leading to inefficient cost structures and poor revenue synergies – and storing up problems for the future.

With this in mind, we’re pleased to see full integration of Electra at an early stage, demonstrating Gresham management team’s disciplined approach. We expect to see the benefits of this acquisition (as highlighted in Kestrel’s insight feature in June 2021) start to come through in new business streams, internationalisation benefits and cross synergies – all positive for FY22 and beyond.

Visibility of revenues

Gresham recently shifted its business model to focus on growing recurring revenue streams (expressed largely within ARR) and increasing visibility of future orders.  It’s reassuring to see Gresham report c.90% of forecast FY22 revenues are already contracted: these are a combination of ARR and contracts for other services such as licenses and professional services.

Given Gresham’s long-standing position as a trusted supplier to many global customers, this 90% coverage is likely to increase with repeat orders during FY22.  Gresham is clearly finding its stride in winning new customers, enhanced with the Electra acquisition and an increased North American presence.

With such a high level of revenue visibility, combined with Gresham’s track record of organic growth over the past two years, we believe FY22 will be a year of significant outperformance for the company as it secures new logo wins and successfully cross-sells to existing customers.

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