Morning!

Updates I've noticed today (with your help in the comments!) are as follows:

I will be writing through the afternoon, due to other demands on my time this morning - please check back soon.

Best,

Graham




Castleton Technology (LON:CTP)

  • Share price: 82.75p (unch.)
  • No. of shares: 79 million
  • Market cap: £65 million

Final Results

Acquisition of Financial Modelling Platform IP

This is a new one for me.

Checking the archives, Paul has covered it twice previously.

Most recently, in November 2017, he was not overly excited by it.

Having a listen to the management interview published at PIworld this morning, the CEO describes the company as "a complete one stop shop when it comes to providing basically all the key solutions that a housing association would require to deliver business functions to the tenants".

In the UK, its target market is the 700 housing associations with over one thousand properties. It also has a small Australian business.

Nearly all of the large UK housing associations are already customers. So for growth, it is looking to cross-sell to these HAs its entire range of software and services products. 40% of its customers used more than one product in the latest financial year, up from 35% last year.

The government is looking to reduce the net rents charged by HAs to their tenants every year. While that should motivate some HAs to increase efficiency using Castleton's products, doesn't it also negatively affect their budgets for spending on support services?

In general, you want your company's customers to be getting richer and having more money to spend, not the opposite! So I can't see why rent reductions are necessarily positive for the investment case.

The positive features of this stock on my initial view are:

  • Strong cash conversion, enabling settlement of defcon (deferred consideration) and debt reduction
  • Very well positioned among its customer base.
  • Good forward visibility on sales…

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