Gentrack Stumbles, But Confidence Remains High

Small Caps | May 21 2025

Despite a slightly disappointing interim result, analysts remain upbeat on the outlook for fast-growing Gentrack Group.

-Gentrack Group's interim result missed expectations
-Lower-than-expected first-time FY25 guidance
-Improved revenue quality with rising ARR
-Relative immunity to tariffs/lower IT spend

By Mark Woodruff 

Over the past two years, software solutions provider Gentrack Group ((GTK)) has delivered revenue growth of between 25-35%, driven largely by upselling to its existing customer base and supplemented by select new client wins, more than offsetting the loss of UK customers due to insolvency, notes UBS.

During the same period, the company's share price has surged from around $1.25 to $10.59 at the close of trade yesterday.

A key factor underpinning the group's appeal, according to Morgan Stanley, is a portfolio of large-scale contracts for mission-critical billing solutions, which create high switching costs and customer stickiness.

While such large contracts reinforce the long-term value of the group's platform, they also introduce short-term timing risks to revenue realisation. Net revenue retention (NRR) made up circa 33% of total revenue in the Utilities business in FY24, which creates a large gap to fill every year, highlights Jarden.

Unfortunately, such a revenue shortfall did occur in the first half of FY25, with the group experiencing delays in signing and ramping-up several deals, despite having already invested in the necessary infrastructure and resources.

While Canaccord Genuity notes improved revenue quality, with annual recurring revenue rising by 17% year-on-year, headline revenue growth and FY25 guidance came in slightly below market expectations.

Jarden sees both issues as transitory. Shaw and Partners concurs, emphasising lower-than-expected first-time FY25 earnings guidance primarily reflects the timing of non-recurring revenues and should not be seen as a measure of the group's underlying performance or long-term success.

Shaw is encouraged by the Utility division's 17% year-on-year growth in annual recurring revenue (ARR), viewing it as a key indicator that supports investor confidence in management's unchanged medium-term targets.

Wilsons notes management is "stepping on the gas" in ramping up sales and marketing (S&M) and R&D investment to capture emerging growth opportunities. During the period, Gentrack lifted R&D spend within its Utilities segment to 16% of divisional revenue, up from 14% a year earlier, while marketing expenditure increased by -$1.3m in the first half.

Adding to the positive outlook, Morgan Stanley highlights the signing of a dozen customer expansion agreements and continued growth across Veovo and Utilities billing, including UK-based multi-utility provider Utility Warehouse, which services approximately two million meter points.

Gentrack's core businesses

Founded in 1989 and headquartered in Auckland, New Zealand, Gentrack operates through two core segments: Utilities, which includes billing and customer relationship management software for energy and water providers, and specialised operational and management software for airport operators.

The company aims to accelerate "the world towards a net zero future by leading the global modernisation of energy and water retailers".

The Utilities platform (G2) is designed to support the core billing, customer care and collections processes with Salesforce integrated in the front-end. Veovo, the Aviation software Platform, includes passenger forecasting, queue management and flight and gate information.

UBS highlights the company appears to be relatively immune from macro weakness in terms of tariffs or a slowdown in IT spend.

Interim results

All regions grew year-on-year revenues despite a flat group net revenue retention (NRR) profile, indicating to Bell Potter broad-based annual recurring revenue (ARR) growth.

Group revenue rose by 9.8% to NZ$112m, including strong growth in recurring revenues of 16.7%, while earnings (EBITA) rose by 5% to NZ$13m on a margin of 12%, or 17% ex long-term incentive (LTI) payments.

UBS notes the company had a 7% earnings tailwind benefit from a weaker New Zealand dollar.

Displaying ongoing growth in the UK and Australia, Utilities revenue rose by 7.2% to NZ$92.8m (recurring up by 17%), partially offset by lower non-recurring revenues. This reflects the high level of project work last year and the inherently variable nature of such work, as explained by management.

New Zealand Utilities revenue was flat with the Genesis upgrade spanning FY24-26.

For Veovo, revenue grew by 24% to NZ$19.2m driven by customer wins last year in the UK and the Middle East, on top of upgrades in the APAC region.

This was the strongest period for Veovo project revenues which supports growth in ARR in future periods, points out Bell Potter. This performance was the highlight of the half for Moelis, with this broker noting Veovo now generates 36% of group earnings.

Sustaining 24% revenue growth at a margin of 24% would represent upside to Bell Potter's current forecast.

Across water, energy, and airports, the company's pipeline continues to strengthen and mature, noted management, highlighting "exciting" new project wins like multi-product retailer Utility Warehouse in the UK, which services around 2m meter points.

Indeed, UBS has upgraded its FY27 earnings forecast by 3% as contract wins like Utility Warehouse start contributing to recurring earnings. The analyst's higher 12-month target price also reflects faster growth and margins for Airports.

The group generated cash of $4.1m in the first half to finish March 30 at $70.7m with zero bank debt.

Management continues to monitor potential M&A opportunities, likely targeting bolt-on, capability or geographic expansions in its Utilities segment, suggests Canaccord.

Guidance

Inaugural FY25 guidance is for revenue to be at or above NZ$230m (consensus was at NZ$240m) suggesting to Moelis management has greater confidence in the near-term outlook. Earnings margins are expected to be above 12%.

UBS cautions guidance implies FY25 earnings of at least NZ$29m or -15% adrift of the consensus number of NZ$34m prior to first half results.

While noting FY25 is a period of transition into Asia, The Middle East and Europe, building on early wins and a maturing pipeline, management remains confident in its mid-term guidance of growing revenue at a more than 15% compound annual growth rate (CAGR) with an earnings (EBITDA) margin of between 15-20% after expensing all development costs.

If the group is to achieve its CAGR target over the coming years, then G2 (the combined new iteration of Junifer and Velocity platforms) has to be a strong commercial success, suggests Morgan Stanley.

Accordingly, this broker will be watching the implementation and customer experience for Genesis Energy ((GNE)) --one of New Zealand's largest energy retailers-- and Frank Energy, a subsidiary of Genesis, over the coming months.

Moelis points out delivering this project would provide the group with a valued reference customer.

In an ideal scenario, analysts at Wilsons believe a combination of initial UK B2C water contract wins and a major deal in Southeast Asia, on top of Gentrack's core business momentum, could enable the company to "blitz" its 15% CAGR target.