Redstoneconnect PLC (LON:REDS) is the topic of conversation when Whitman Howard Analyst Andy Smith caught up with DirectorsTalk for an exclusive interview
Q1: Redstoneconnect has recently confirmed that it’s trading in line, what are the expectations and will it impact the share price, do you think?
A1: Yes, the expectations that we’ve got in the market is an adjusted PBT of £2.2 million so that implies growth of around about 81% year-on-year so you can see that the group has had a very good second half to the year and I think they’ll be a bit of relief given the interims when they said that the results would be second half weighted.
So, clearly there’s been acceleration in contract wins and enhancement of some of the contracts that they’ve already got so with the shares having come off a high 170 I think last calendar year to trade now around about the £1 level. I think there’s considerable relief with the update last week and anticipate that some of that lost ground should be now made up.
Q2: Has this affected your target price in any way?
A2: Well, our target price now is £2.50 so you can see it’s considerably higher than the £1 that they trade at now in the market and that price target really is based on the three income streams and given the credibility of their software products.
What we’ve done is taken some of the past methodology and tried to value each income stream, you’ve now got SaaS, you’ve got licence fees, you’ve got consultancy and you’ve got both one-off and recurring revenues from the various contracts. So, given the in line statement, that has now given us comfort to now try and establish a value on each of the three revenue streams as we note that all of the revenue streams have performed strongly.
So, the £2.50, we’ve tried to allocate an appropriate multiple and as a result of that the £2.50 is the valuation that we’ve come up with. That’s considerably above where it currently trades so that does give us optimism that the shares are going to at least retrace some of the lost ground from last year.
Q3: What’s your view on the stock as a whole for Redstoneconnect?
A3: We’ve got a buyer recommendation on the stock, I think the market continues to misread it and the trading update substantiates that opinion. So, at the end of the day this is a company with a market cap of only £20 odd million, yet it’s got some cutting-edge software, but some blue-chip clients and these clients wouldn’t be going to the likes of Redstoneconnect had it not a viable product.
We take comfort from the client base, we take comfort from the trading update and also building software solutions, which is where this company now operates, is a growing market in that there’s a number of audiences now rather than just say Facilities Managers or IT Procurement. You’re now looking at building owners, you’re looking at tenants, you’re looking at manufacturers of building technology all now looking at software solutions for buildings. So, Redstone is in a market that’s very active and it’s very relative to today’s office environment so all in all, our view remains positive.