Small Caps | 11:15 AM
Gentrack's FY25 results calmed investor concerns with the future stock re-rating reliant on converting a robust pipeline to new contract wins, albeit delayed.
- Global software valuations slide as investors price in disruption risk
- FY25 a transition year, FY26 sets up the real proof point
- Veovo keeps delivering steady growth while utilities reposition for the next leg
- Genesis Energy’s g2.0 rollout is becoming the key reference site
- Investor Day should sharpen the market’s view on execution
By Danielle Ecuyer
SaaS stocks have been under pressure over AI impact fears
Artificial intelligence is coming for enterprise software companies, apparently, or so the narrative goes. As AI large language models become increasingly intelligent, there is a pervasive school of thought (story) that global software companies will be significantly disrupted by AI.
Who needs a company or sector specific software as a service subscription when everything can be done internally on ChatGPT or Gemini 3?
Might sound a bit far fetched at this stage. At the very least, there has been a growing tide of anxiety around the more horizontal enterprise software services.
Think big companies like Salesforce or SAP. These provide generic software solutions across multiple enterprises, as well as more sector specific software, such as the likes of schools and councils, as serviced by TechnologyOne ((TNE)).
Globally, software as a service stocks have been de-rated, largely through a downgrade in valuations ascribed. Some companies have also been hit with a double whammy of a lower valuation and hiccups around financial metrics.
The iShares Expanded Tech Software Sector ETF (US listed) is down -11% over the last month and only up 2% year to date.
Stocks like Palantir and Applovin are in the top 10 holdings and have done a lot of the heavy lifting in terms of performance, versus the likes of Salesforce and ServiceNow, which are down almost -40% and -32%, respectively.
A "transition" year added more fuel to the de-rating story
Gentrack Group ((GTK)) has not been immune from the enterprise software de-rating. This has been compounded by what analysts describe as a “transition” period over FY25 and into FY26. Moelis points to a more moderate start into FY26.
In the run up to the recent FY25 results announcement, the stock had declined to a 52-week low around $6.30 from a high around $12 in late June, before some clarity and future earnings visibility brought the buyers back out of the woods.
Canaccord Genuity believes the fall in the share price over the past six months, while the Small Ords gained 12%, is most likely the result of investor perception of slower revenue growth as well as limited new contract announcements. Reinvestment for growth was also noted as a potential negative for margins.
As highlighted by UBS, the stock rallied over 18% post FY25 result, but this only returned it to levels seen at the end of October. Management addressed market concerns by sharing more details.
By way of context, “Gentrack provides a meter data services, meter data management platform that ingests, validates, stores, and processes data from smart (and legacy) meters at scale”, as depicted by the company.
The meter data are collated and feeded into the core “meter to cash” and billing, customer platform. Billing is at the centre of Gentrack’s latest upgrade g2.0.
It manages the “full customer life cycle of utility customers from exploration, acquisition, and onboarding to consuming, meter data services, distribution management, billing, debt management, payment, forecasting, analytics and more”.
Salesforce and Einstein AI are used, and it is cloud native on Amazon’s AWS. Gentrack g2.0 is designed as the number one billing, customer relationship, customer service, and cloud provider in one single solution and is now live with Genesis Energy ((GNE)), a large NZ customer.
Latest results confirmed ongoing growth
The FY25 results showed a rise in revenue of 8% and earnings growth (EBITDA) of 18%, with an earnings (EBITDA) margin of 12%. UBS pointed to an earnings miss of -6% on its forecast, but an in line result compared to consensus expectations.
The 'miss' was attributed to weaker recurring utility revenues, which were somewhat countered by improved non recurring revenues, although still down -5%.
Regionally, EMEA utilities was the only contributor to revenue growth, up 13%, with APAC flat.
Higher utility costs by -NZ$4m were also a factor, arising from a rise in sales and marketing costs around g2.0 and geographic expansion.
Airports, Veovo revenue advanced 15% on a combination of growth in annual recurring revenue and net recurring revenue, or 27% growth ex hardware sales, as pointed out by Bell Potter. Veovo benefitted from further new contract wins in the UK, Middle East and APAC expansion.
Management stated the division has started FY26 with a “very strong backlog of projects and strong pipeline”.
Available cash on hand of NZ$85m also permits some optionality for add-on acquisitions. As noted at the call, acquisitions “add products and capacity for even stronger growth”.
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