Globo - massive growth potential from a PE of 10
Globo announced their Dec 2011 results yesterday. They were excellent but the market marked them down a tad; its hard to see why. My initial take on their current position is extremely positive, particularly for those who have some risk appetite where the upside is massive.
This is not completely risk free but the underlying business looks to be of such quality the risk is limited. Having said that the opportunity looks massive, its currently my favourite 'the next ASOS' punt.
I was fortunate to attend a couple of investor presentations a little over a year ago and bought then for potential international growth in their existing business lines and the GO Enterprise Server potential. I had the strong feeling the board saw GO ES as the 'big one' for them. Looking at the state of RIM, the easier deployment of their technologies as well as the benefit of integration onto an existing smart (or feature) phone I could only agree. In fact my company tried to evaluate the GO ES service but the lines were so busy we could not get a response (hopefully this has been dealt with now).
The accounts paint an awesome picture:
1. if the international growth continues through the year at the same rate the Greek business will be almost irrelevant; 246% for goodness sake. It does not rely on rich markets either, so the potential for continued growth remains intact.
2. margin growth when they are launching a new project the size of ES GO is impressive - I would have expected a one year reduction.
3. EPS grew at 14%. On the face of it modest but again think of the time lag from receipt of the new capital to a ramp up in GO ES sales. I expect next year the earnings growth to increase faster.
4. the other financial stats are more impressive and are well flagged in the results.
5. An achilles heel in these companies can be debtors as many customers are large telecoms co's. These have increased just 15% against the turnover increase of 46% presumably back end loaded.
I don't actually know what their brokers have predicted for next year (anyone?) my money says they will beat it!
Disclaimer
This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
36 comments
very interesting.
The share price has almost doubled in the last month. Does somebody know something, or has a seller completed their disposal programme allowing the price to rise to a more normal looking valuation? Who knows but at these levels, still concerned about Ed's mediocre impression of the technology, I must confess the stock is less of a 'no brainer' now as the holder must have confidence in GBO's ability to keep the momentum going, in particular Go Enterprise product. With that in mind I notice Ruffer, who are very well regarded in the telecoms sector, hold 4%. I certainly hope they have done their tech diligence as, for the time being at least, I am holding on for the ride.
I have enquired a bit more and for an SME solution the cost is about $10/device/month which is quite expensive really what you think about it. They sent me a pdf which I'd be happy to upload to S'pedia if I could which gives a bit more info. I've not downloaded and played with the apps though.
I think the point though is that being in a container they can be centrally managed and it isolates them from the users phone and so adds a level of security. I think Ed you are missing the point here as to why they are attractive to a company. A native app is going to be richer but there are security issues and they can't be centrally managed hence the container.
No position.
It'll end in tears.
Hmmm - 100 million users! How many customers does, say, Sage have?
It's not that easy to do and they will obviously continue to innovate as the market changes. It's all down to scale as well. If they can sell it to say 100 million users quickly enough they'll make a considerable sum of money compared to their market cap. I can see the appeal for companies who can't and don't want to manage all these individual phones but still want to mobilize their employees. It also provides a good security wrapper as if the employee looses their phone the s/w can be removed remotely etc. etc.
One of the big s/w vendors like salesforce might render them obsolete in time but more likely they'd buy them out and improve on what they have so far if it was any good.
Log
The trouble with most Globo shareholders is they haven't actually downloaded Globo's GoEnterprise product. I did download it and it looked like a walled garden of apps that I'd definitely be reluctant to use.
The future of the enterprise is consumer driven - people with smartphones who download apps that are frankly awesome as standalone products - the challenge for the enterprise is to hook into these systems that people are actually using - not to rebuild inferior versions of them.
Anyone researching Globo should seriously research the app/enterprise area. A good place to start is here - http://techcrunch.com/2013/01/27/the-enterprise-cool-kids/ . Also read up on Marc Andreesen's thoughts on the subject (VC and Netscape founder)
100 million users is a huge number - and even the best standalone apps struggle to manage that.
The numbers look v. compelling, but I remain skeptical of some of the blue sky thinking on Globo.
That's worrying, I confess I haven't downloaded the software. Are you sure you downloaded the Go Enterprise software rather than the "Citron Business Operating System"? I think this has been around for some time. Also I don't think the Go Enterprise product is available for download from their website. As I understand it its more in the style of a well encrypted VPN giving wireless access to a corporate network and hence access to workplace apps. The user continues to use their own downloaded Apple and Android apps. The obvious target is the Blackberry service. Not saying GE is a slam dunk but it must have a decent open technical architecture for the integrators who have signed it so far to make the investment.
Hi Log - thanks
I don't know a great deal about IT - but if that's a good idea it just seem easy to replicate to me. It also doesn't seem to have legs. Technology is moving so fast that my guess is that this would all be history in 3/5 years time. And lastly, no-one knows what the competition are developing which may be better. And the competition is pretty serious and big in this field. It's a punt isn't it?
frogs its basically two components one on a server next to for example a companies email server usually exchange, The other is a special mobile app which is a container for other small apps like email, reports, calendar etc. These are contained and isolated in the container app on the users phone and let them get at company services like email, reports, calendar etc. by communicating with the server component on the companies server. An admin can add/remove services on the phones dynamically and quickly remotely without ever seeing the phones after the initial container app install.
Its a clever idea and I can see why its attractive to companies and users.
Log
Can anyone explain in plain English what GoEnterprise does exactly and why it has such a competitive advantage. Having just visited their website all I can glean is that it provides mobile solutions - Crowded and fast moving market methinks. Now Sage and SAP I can understand.
FWIW I'm very much warming to Globo's GoEnterprise offering. Talked to a good friend who runs an IT support company for lots of SME's during a nice cycle ride. He says it is exactly the sort of product that will sell well to small-medium companies.
I just can't stomach buying after it has run up so much and also put off that they are capitalising IT spend so much to flatter EBITDA. Might get round to it if they sell off a bit - no sign of that yet though.
Log
Thanks for the link loglorry - I think its a very good summary of the company.
Successful European inventions... wasn't the internet one of those? ;-)
A better analogy might be Google (I am discounting geography here and looking only at good small tech vs. giants).
Another, more relevant example, is Summit software who formed in 1990 to provide better OTC derivatives software to the banking community (initially Westpac of Australia). Within 3 years Misys had bought them for USD 36M. They were competing against Infinity, Rennaisance and other well backed USA offerings but with just one decent customer the quality of their software allowed them to compete eye to eye against the big players.
Occasionally a company that looks too good to be true is nevertheless true. I am not sure we can discount the possibility that Globo could be one of those few. Certainly if the earnings increases as forecast I wouldn't expect to see a decrease in PE to 6. Given the risks 15 is probably nearer the mark.
Even if Globo don't get quite the momentum to hit the big time I think they will be able to offer a decent service to the SME sector similar to AV networks - not what we want but a significant risk mitigator.
Very nice write up on Globo on TMF here http://boards.fool.co.uk/nfsc-2013-globo-gbo-12717692.aspx by greendaze big hat tip there.
Globo's challenge is to roll their product out fast enough and establish a strong foothold in facilitating cloud servers for SMEs.
Trouble is as far as I can see from the stuff on their site this isn't what they are selling at all. Seems like a bunch of software components which can be used to make a lot of the services that exist for an SME mobile along with an SDK and some adapters to plug into existing CRM systems etc.
That doesn't sound particularly niche to me and I'm sure there are plenty of other larger vendors doing something similar.
Very hard to know exactly what it is they offer from their marketing material though I'd need to actually use it a bit to understand what it is. Has anyone actually used their stuff in earnest. Normally I'd not care too much about the products but in this case I think it matters because it is software and its important to understand what it is and who they compete with.
Why only a p/e of 10 falling to what 6 next year if they have such an amazing future - can't just be the Greek angle?
Log
But is Sage used globally or has it grown out of UK based accountancy practice. I can see why a local company would do wellbwithin its own accountancy duristriction. Dont know much about SAP.
Thinking about it too but would like to know who have competing products Salesforce maybe?
German global ERP giant (vrtually invented ERP): market cap €73bn; big competitor to Oracle in ERP space. Looks like share price just hit a new record high.
Sage started in the UK, was brilliant at marketing (in its fullest sense) and has grown strongly by acquisition globally - similar strategy to Microsoft's but on a smaller scale, in a more specific niche. Last year's revenues of £1.3bn were segmented 58% Europe (not just UK), 31% Americas, 11% elsewhere.
The point is, if you can find a niche and dominate it, you can compete against the "big boys" (or the big boys might decide to buy you ;0)). Of course the odds are stacked against... but there's a lot to shoot for. Globo's challenge is to roll their product out fast enough and establish a strong foothold in facilitating cloud servers for SMEs.
Roger thanks for your comments. It's interesting that you mentioned Skype. They were very fortunate in being bought out by Microsoft (from memory) for an absolute fortune way more than made any sense at all. I doubt they'll ever make Microsoft much money and certainly unlikely to represent a good return on investment for Microsoft. Surely this example proves my point as a big US outfit did infact corner the market in Skype like VOIP by buying them out. This might happen to Globo too with a bit of luck for holders but I doubt very much they'll make it on their own otherwise. I thought Skype were Dutch owned though - the software might have been developed in Estonia though for cost reasons.
Can anyone come up with many examples of software companies (product based) that have made it big from Europe with their home grown products? They are surely few and far between. I'm sure some exist but its not something that we do that well in Europe compared to the US and in particular West Coast US companies. On that basis in order to maximise returns it seems sensible to avoid this sector in Europe for the reasons mentioned e.g. they do it better with more capita / knowhow / IP protectionl in the US and so tend to dominate this sector.
I didn't quite understand why you say "nobody would ever start up a new software business even in California" as surely that is the ideal place for a software start up. Access to lots of venture capital and know how and plenty of investors that are willing to back and promote product based software companies there.
I'm really not saying its impossible to succeed and there are examples that break the rule but I think it is far harder in UK/Europe than in the US and as such competition from the US is much fiercer especially in the area Globo wish to dominate. A great exit for Globo holders would be to sell out to a larger cash rich US based software vendor. The danger is that the predator might choose a competitor or go for a home grown solution and just compete them away by pure marketing might.
Almost to prove my point Globo is trading on a p/e of 10. A fast growing product based company on Nasdaq would probably trade on a p/e of more like 50-100 and as such they could raise new money to grow quickly much more easily than Globo ergo are much more likely to succeed. The upside is that Globo might be a very good aquistion target especially if paying in over-priced (IMHO) Nasdaq stock.
Does anyone have any insight on Globo's competitors and who might see them as an attractive bolt on aquistion and why?
Log
SAP springs to mind...; Sage haven't done too badly either. ;0) I'm sure other people can come up with further examples. With a market cap. of £70m, Globo doesn't have to make it into the "big league" (a la Skype, Facebook) to produce a handsome return for investors. [not currently holding but am thinking about it].
Mark
The issue of debtor days and cash collection certainly came up at the 2012 and 2011 AGMs if you read the reports on them on the ShareSoc members network. In essence it seemed to be down to old practices in Greece of lengthy payment periods, although it was stated that this was improving. Although there is more business outside Greece of late, there is also a lot in other similar slow paying countries which from my experience is a perennial problem in mediterrean and eastern European countries.
As regards for Loglorry's comments about competition from silicon valley, if one accepted that view nobody would ever start up a new software business, even in California. That obviously is not true in reality (for example Skype was developed in Estonia) and this is a very specialist market. Although there is some competition, it's not necessarily large or unbeatable.
GLOBO Is there a whiff of a take over? globo announcement today,saying wait for anything further,could be nothing,but their shares have risen recently.
Just trying to get my head around what this actually is. It looks like if you are a company you buy one of these Enterprise servers and the mobile client software with it. This allows users to connect to company exchange servers (for email calendars etc) and browse the company file system and also connect to popular CRM systems that exist. They also provide an API so that you can build your own mobile client apps to connect to things back at HQ and provide a corporate social media site for all mobile clients to access. Administration is all server based to allow one admin back at HQ to control access for all the mobile clients.
Seems like a clever bit of kit if it is selling well then it probably does what it says on the tin.
I'd be massively wary of competition though from much larger companies like Salesforce and the larger software vendors Microsoft etc. It seems a very natural thing for companies to want to do and they have much greater access to capital to develop much slicker sofware and the marketing power to blow away a tiny firm like this. Equally though they could get taken out by a bigger competitor so this mitigates the risk.
Sales are growing but are actually quite tiny still so we can't really be sure that they have something that will be adopted globally or if its just the case that a few large customers have bought their product.
Not one for me because I think the silicon valley crew with billions to throw at this problem will compete them out of the space. They might buy them out but I don't think its a good investment strategy to buy them in the hope that they are bought out.
Log
Have been looking at this one for a while - but haven't yet dipped a toe in the water*.
On looking at it again, I observe one factor that concerns me a bit: the level of trade creditors. As at 30th June 2012 these stood at €26.8m, vs 6 months revenue of €25.2m - equating to debtor days of 194. The good news is that this has been steadily reducing over the last couple of years: on 30th June 2010 it was 295 days. Progress on reducing debtors has been slowing, however, as the following table shows:
With the original business being Greek oriented, I am not surprised at slow payments. However, as the business has internationalised and is moving to a more subscription based model, I am surprised to see average debts still more than 6 months old.
Experience has taught me to be wary of businesses that, in effect, offer "vendor finance" to their clients. Leadcom was a classic example, which I managed to avoid. The need to offer extended credit terms to attract business suggests that the product/service may not be as wonderful as the company purports it to be.
What do shareholders think? What is the explanation for such a high level of trade creditors?
*I am currently already overweight my target asset allocation for "misc" investments (which this would fall under), so am reluctant to add another shareholding... but maybe I could justify classifying it as an "international/emerging markets equity" asset?
Mark
Its a relief to see the Greek debtors taken care of (or possibly frozen in the receivable for the purchase of the business). As far as the high residual debtor days go I doubt much can be done. Much of the revenue is from end users subscribing to the MNO, which will be collected and reconciled before the MNO credits Globo. They will probably insist on 60 days from that point in the agreement so about 120 is as low as it could go. Now the Greek business (mostly government I think) is gone I guess it will go to about 130 to 180 days. Normally that would be a serious constraint on growth but the product is essentially paid for and the services provided by 3rd party integrators. That level of debtor exposes the company to some risk but should not inhibit growth. Given the (non-Greek government) customers are currently the MNO's that risk is small.
Another very positive RNS out this morning - a major European distribution agreement and further hints of a USA development soon. Share price hardly moved - possibly due to the news coming out on Xmas eve.
Up 13% on following news release...
GLOBO signs major UK and Irish distribution agreement for GO!Enterprise product suite with COMPUTERLINKS
Globo Plc (LSE-AIM: GBO), the international mobile solutions and S.a.a.S provider, is delighted to announce a distribution agreement for GO!Enterprise products with COMPUTERLINKS, the next generation global distributor of IT security and Internet technology solutions.
This agreement is a significant development in the commercialisation of GO!Enterprise products in the European market. COMPUTERLINKS has been operating for over 20 years in 23 countries and is recognised as a next generation distributor that works closely with its channel partners to develop and deliver solutions that solve their customers' IT challenges.
Under the agreement, COMPUTERLINKS will offer the GO!Enterprise product suite to its channel partners in the UK and Irish markets, adding enterprise mobility solutions for any business in any vertical market to its existing portfolio of products and services.
GLOBO's CEO Costis Papadimitrakopoulos commented: "We are delighted to have established a partnership with COMPUTERLINKS which will enable GO!Enterprise to gain traction in fast growing and highly competitive markets. This is our first major move in the UK and Ireland, which are key markets for Globo, and represents a significant step in the roll-out of GO!Enterprise in Western Europe."
David Ellis, director of new technology and services at COMPUTERLINKS, added: "GO!Enterprise adds best of breed mobility solutions to the COMPUTERLINKS new technology portfolio. Enabling mobile access to enterprise applications is a real concern for UK businesses and one that we know our partners are currently looking to address. Having the ability to deliver mobility to businesses quickly and cost effectively, whilst embracing the Bring Your Own Device (BYOD) trend, is a key opportunity for the channel."
Globo presenting to UBS in New York on 15 Nov 12, the rating is so poor currently at around 8 historic, there is a chance of a good boost.
The building is in Athens I believe. I am not aware of any lease details. But even if the Greek general IT business is "disposed of", I think the intention is probably to keep the software development operations where they are so Globo would surely need to retain office space in Athens. Obviously this would need to be one issue wrapped up in any disposal - a transfer of the office lease, sub-letting that part being retained/transferred, whatever. If you think this is an issue, perhaps you should ask the CEO about this.
An extremely positive trading update this morning with a promise of more in the second half. I haven't studied it carefully yet but it may have reached the stage where the cash flow position can improve without unduly hampering the rate of investment in their technology. If the Enterprise GO Server performs as the company anticipates this just could be a major success story.
Here's a temporarily unlocked version of the Globo Stock Report for those that are interested to see it.
Re Ed's comments, I am not sure you can expect a software company that is just developing a major product to generate free cash flow in the early stages of its growth. I attended the Proactive Investors presentation and subsequently had a meeting with the CEO. As a result I think this company has a great opportunity although there are some issues that need to be understood. I just did a complete write-up on this company which is present on the ShareSoc Members web site and will probably be in our next newsletter.
Roger, the company write up show an impressive "new building" in the April 2012 (Share_Soc_15) but there is no indication of where this building is. Greece(?) or when the building was first occupied.
My concern is the current intent to "divese the Greek operation" verses the 2011AR which highlights building lease as a "risk" (granted, both positive and negative but in todays IMO negative unless sold as a going concern), does this bring into question the long term management stratergy?
As I comment above, I am not sure when this "new" building became a company leasing liablity nor what duration for, but non current liablities has increase over tha past 3 years
GBPm 3.9 -2010 ; 5.1-2011 ; 6.1-2012.
Have you any insight?
Kind regards
SG
At the presentation, according to the CEO, Greek operations contributed just 15% of the overall group profit. He seemed highly motivated to divest, and intimated that the likely outcome would be value enhancing for shareholders.
The turnover is roughly half international and half Greek, with the international income having grown 246% in the last year. The bull tack is that international income could easily do the same in 2012, and the GO ES initiative could blast it way beyond that. The Greek income becomes irrelevant in that scenario although for motivation and local support I think it would be a pity to divest it. However, the fact that they are physically based in Greece gives them access to highly qualified engineers who are delighted to work for them as a cost well below, say, London. For me the only serious issue with the Greek location is the possibility the situation might deteriorate to the point that the infrastructure they rely on for development and support fails; an unlikely outcome even now.
Turning to the lack of cash generation I accept that a year ago the debtors were quite scary. The ratio of debtors to sales is now much improved however. A cursory glance at the accounts shows they generated EUR5M of operational cash of which £4M was drawn into debtor increase as the operation expanded. If the business remained at this level it should produce EUR5M cash in 2012. A further EUR14M was invested in tangible and intangible assets. I don't know if that is capitalisation of the ES development or the acquisition but it won't be a cost of the current revenue which now provides a stable platform for continued investment in the future.
The worry that overseas companies have on occasion left UK investors high and dry is inevitable, unfortunately. If things don't go well I wouldn't expect to see much back, however, if they continue on the current trajectory they rewards for success accruing to the management will be optimised with a happy investor base. This investment is all about the size of the upside and hoping that will be several times the current valuation, its a risk I am happy to take.
I attended the Stockopedia presentation at end of March, and was impressed by the prospects for international growth, particularly for the out-of-the-box Go!Enterprise server. This is a huge potential market that they can address by bringing functionality to workers' own phones, irrespective of make/model. If they succeed in tapping even a tiny part of this potential market, they should do extremely well. Temper against this: the last time I got so positive following gung-ho Tech. company director-speak, was with the Israeli mobile video company "Emblaze". That turned out very badly in the end, with its CEO doing time in jail. I am no way comparing the two in a fraudulent sense, but the Emblaze-experience will reign in my clear enthusiasm for Globo to down to earth levels. I will not bet the farm here. I would expect great newsflow from the company in the coming months, and if they deliver on the stated intention to divest the Greek operation, this will at a stroke set the SP on a steep upwards path.
Regs,
Freddie
Brokers are showing a consensus estimate of €13.8m for 2012 which would equate to a 48% increase in eps. I believe Globo were presenting at the proactive event on Thursday, but I've not had time to check out any of the other boards - don't know if you were there?
Last time I looked at Globo my bugbear was the fact that it hadn't generated any free cashflow in the last 6 years - which is certainly the one black mark on its copybook from a Zulu Principle perspective. It may also be that the whole Greek association has been holding Globo back considerably in investors minds. A lot of AIM investors are more skeptical about investing in foreign domiciled companies than they used to be, given the amount of trouble some of them have given AIM / Nasdaq investors over the years - so there's naturally a discount being applied here. Globo is on an 18% discount to the average PE ratio in the market - certainly from the projected growth perspective there's many who think that's too steep.