GetBusy Plc - attractive SaaS business at 1.5x ARR, downside protected, new products provide substantial potential upside as “free” options
Workiro NetSuite integration to be shown at Suite World 2022 this week
Listed on London Stock Exchange, AIM - ticker GETB.
Share Price £0.52 / 52p
Market Cap. £26m including option dilution £30m.
GetBusy Plc shares provide a particularly attractive investment opportunity with strong downside protection, a decent base return in line with revenue growth of 10-20% per year (given the low starting valuation), and potential for substantially greater upside through valuation uplift and / or success in new products with big potential.
I find this type of setup to be particularly compelling, and may expand on the setup type in another post.
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Business Characteristics & Ambition
Attractive SaaS business model, supplying productivity (primarily document management) software to professional services firms (primarily accountants). Key attributes of the business model include: recurring revenue comprising 94% of total revenue; positive working capital with growth due to annual subscriptions often paid in advance; monthly net revenue retention of 100.6%; gross margin c. 90%; potential for strong operating margins at scale (as demonstrated from Virtual Cabinet product).
Decent record of reliable growth, with revenue compounding at 13% per year from 2017 to 2021, or 66% in total. GetBusy are generally conservative in their guidance, and are aiming to double ARR from 2021 to 2026, hitting £30m ARR. At of August 2022 ARR has already reached c. £20m (partly helped by GBP weakness against USD) and I would suggest their 2026 target is eminently achievable given the solid base to grow from, large addressable market, and new products.
While profitability is to some extent ‘configurable’ by the company, as they balance spend for growth against profitability, the model itself clearly supports strong cash generation at the appropriate time (e.g. their Virtual Cabinet product makes operating profit of c. £4.4m / year, at c. 50% margin). Per the FY 2021 results call the company’s infrastructure is now quite mature, and therefore should see smaller incremental investment in relation to future revenue growth. Sales and marketing expenses are tracked against return, with LTV:CAC typically 4:1. It is possible, although subject to how they configure for growth, that the company moves from the current position of approximately cashflow breakeven, to significant profitability & cash generation within the next few years.
SmartVault provides cloud document management, with client portals and secure file sharing, to professional services clients. It competes against much larger generic products through focussing on the end client, and particularly developing software integrations to relevant applications e.g. Intuit Lacerte, TaxCalc. The SmartVault team is primarily located in the US, and historically customers were mainly located in the US too. This product is growing strongly, and for FY 2021 saw continued investment with small losses sustained to support growth.
FY 2021 closing ARR £7.9m, Revenue £6.8m (+28% constant CCY), Adj. Loss £1m, paying users 28k, ARPU £276.
August 2022 ARR $12.2m (c. £11m), 30.1k users, 6.7k customers.
Virtual Cabinet is a primarily on-premise document management solution, again suited to professional services clients with relevant software integrations. Historically customers were mainly in the UK & Australia. Recently some of the development work for Workiro has been used to release a pure cloud version, which has been adopted by 4% of the user base; this is a positive step to re-invigorate the product and extend its life. The company has moved to a transparent pricing model (competitor pricing is opaque), and pushed Virtual Cabinet Unlimited as a solution including all modules, this is part of a wider monetisation piece where price rises are being achieved. Virtual Cabinet has limited growth but achieves a very strong operating profit margin c. 50%.
FY 2021 closing ARR £7.9m, Revenue £8.6m (+1% constant CCY), Adj. Profit £4.4m, paying users 45k, ARPU £178.
August 2022 ARR £8.9m, 44k users, 1.4k customers.
In 2021 they acquired various software products at limited upfront cost: Quoters for sales proposals / quotes; Docdown for form fill and document generation; Plann3r for meeting scheduling. Quoters and Docdown are now being beta launched with SmartVault, and could lead to ARPU growth. They will subsequently be launched for Virtual Cabinet. The meeting planner application is to focus on the requirements of professionals who are having low volume but high value meetings.
Note: Post FY 2021 GetBusy does not report detailed financials by product.
Note: The company metric Adj. Profit / Loss before Tax effectively expenses all development spend, even that which is capitalised. This is a useful metric, and is what is referenced in this note as Operating Profit or Adj. Profit / Loss.
Workiro (previously called GetBusy) is a product billed as “the future of work”, providing various productivity features such as document storage, e-signatures, communication, and task management. My understanding is that while no individual feature is unique to the product, the key is how they are combined to enable a better way to work. Historic investment in this product has cost c. £2m / year, without gaining significant traction. Recently focus has shifted to cloud ERP integration, starting with NetSuite. Having seen the functionality and integration with NetSuite at the Capital Markets Day it looks very useful. They are “hard” launching the NetSuite integrated product at Suite World 2022 this week (session: 10 Simple NetSuite Extensions That Shouldn’t Be Such A Secret), which will give them exposure to 3,000 end users and 2,000 partners. By year end 2022 it should be apparent whether there is real interest within the NetSuite user community. The company’s previous broker Liberum sized the Netsuite annual revenue opportunity at £14.4m at the low end of pricing; based on 24,000 enterprises using Netsuite, 5% as customers, average 100 users, price at £10 - 30 / user / month. I am not endorsing this view, but it is clear this is a major opportunity which could create substantial value.
CertifiedVault provides secure vaulting and custody of authoritative copies of digital assets (compliant with section 9-105 of the Uniform Commercial Code), in the large US asset finance industry. This product solves a very specific problem, allowing the asset finance industry to move from paper based chattel documents to digital. They launched the product in 2021, had some initial success, but then pulled back to develop the product further and determine optimal routes to market. This seems a conservative approach, but it is the type of software and industry where it is crucial to have a strong security reputation and avoid issues. Commercial launch is expected in 2023. eOriginal is a competing product in this area and was acquired by Wolters Kluwer in December 2020 for €231m (7.5x 2020 revenue of c. €31m), showing the value of products in this area. There is a huge opportunity in this space, being a large market, mainly using paper based documents.
Either Workiro or Certified Vault could in future alone be worth more than the current market capitalisation of GetBusy; these options are essentially included for free at the current valuation.
Undemanding valuation protects downside:
Low revenue multiple for a high quality growing SaaS business of 1.5x ARR (using diluted market cap.)
Mature product Virtual Cabinet has FY 2021 revenue £8.6m and Adj. Profit £4.4m, with stable revenue. To a strategic acquirer who already has established corporate functions, this product could be worth the £30m diluted market cap. (3.5x sales; 6.8x operating profit). Note that August 2022 ARR has grown to £8.9m.
Smart Vault has FY 2021 revenue £6.8m, Adj. Loss £1m, grew ARR at 33% in constant CCY. This business is likely more valuable than Virtual Cabinet given the strong growth rate, greater ARR (August 2022 £11m) and cloud (as opposed to primarily on premise) nature of the product.
Low-risk of major downside, due to: Resilient business model (94% recurring revenue, with strong retention), sufficient liquidity (£2.1m cash at June 2022, plus £2m undrawn loan facility), operating around cashflow breakeven, history of sustained growth and recent growth momentum, ambitious yet conservative management with significant insider alignment (CEO Daniel Rabie owns 3.2%, Director Clive Rabie owns 18.6%, Greg Wilkinson founder of Reckon Ltd whom the company demerged from owns 7.4%, significant incentive plan for CEO & CFO), and an undemanding valuation.
High upside potential over medium term, with a base level return of 10 - 20% per year in line with revenue growth (given the current low revenue multiple). Note that the faster growing SmartVault product (c. +30%) recently overtook the more mature Virtual Cabinet product, such that group revenue growth has accelerated recently. This return can be significantly enhanced with either a higher multiple being obtained, 3 to 4x ARR is not aggressive and would indicate share price of £1.05 +102% to £1.40 +170%. Enhanced further (as discussed above), with success from either Workiro NetSuite integration or Certified Vault, either of which could alone be worth more than the current market capitalisation.
Since listing in 2017 the shares have been quite volatile, trading between c. £0.23 and £1.12. This contrasts with the business progress which has been quite steady with revenue growth between 9 and 20% (including 2017) per year. The shares are down over 50% from the high reached in February 2021, and in my opinion provide an attractive entry point.
Management & Incentive
At the recent Capital Markets Day it was striking how long the CEO spent explaining the company culture, and how valued employees were. I rate management highly, and think they are steering the company in a very thoughtful way. They are conservative in approach and have only ever upgraded market expectations.
There are c. 7.3m options outstanding, c. 15% of the current share count. While this is high, the vast majority relate to the EMI & VCP schemes from 2020, themselves a re-cut version of options cancelled from the 2017 & 2018 LTIP schemes. My concerns regarding the level of dilution are mitigated due to the following factors: Max. dilution is 15% in any 10 year period (amounts above this can be cash settled); view the main EMI & VCP schemes as ‘one-off’ substantial incentive amounts that would not expect to be repeated anytime soon; valuation considered against the diluted market cap.; and of course the substantial incentive particularly for the CEO & CFO. Note that in order to obtain the maximum reward from the VCP (value creation plan) the share price needs to be £1.20 (+131% vs current) during H1 2024 (1.5 years away).
It is worth noting that GetBusy changed corporate broker to Panmure Gordon in June 2022, and also held a Capital Markets Day in September 2022 - perhaps aiming to highlight the company and achieve a more appropriate valuation.
In 2017 GetBusy was formed by the demerger of the document management software business from Australian company Reckon Ltd, who provide software for areas such as accounting, payroll, and practice management. CEO Daniel Rabie worked for Reckon since 2010, and Director Clive Rabie worked for Reckon for many years, including being CEO from 2006 to 2018 and then Managing Director. At the point of demerger and listing of GetBusy on LSE AIM, £3m was raised to fund GetBusy by a rights issue underwritten by Daniel Rabie, Clive Rabie, and Greg Wilkinson at AUD 0.48 (£0.28) per share.
Long GetBusy Plc at time of posting.
This post is not investment advice & may contain errors.
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