INSIGHTS

WEEKLY COMPANY INSIGHT: GENTRACK

Roy Davidson, 10 May 2019

GTK100519 

Description

Gentrack (GTK) designs, develops, implements and supports specialist software for electricity, gas and water utilities. The company also provides operational software solutions for airports. GTK’s core software offering in the utilities space is designed to support the customer management, billing and collections processes. In the airport space, the company’s products provide real-time information flows and resources for a number of stakeholders, allowing for efficiency improvements.

Four revenue streams

GTK has four key revenue streams - licence revenue which the company receives for the initial sale of its software licences, annual fees that GTK charges for the use and support of its software, project revenues that are derived from the work the company does around software implementation for new customers and upgrades for existing customers, and support services revenue (which is the largest portion of GTK’s revenue).

FRE’s performance partly linked to the economic cycle

Transport activity is closely linked to the economic cycle, albeit a little more cyclical. FRE holds around 40% market share of the New Zealand parcel market. With the proliferation of online sales (accounting for around 10% of retail sales at present), parcel volumes are likely to continue to grow. While the company is exposed to the performance of the domestic economy, it is a quality name with a structural tailwind from e-commerce which is likely to help offset some of the impact of slower economic growth.

Broad range of customers and operating geographies

GTK now services over 220 utilities and airports in 30 countries, with the fundamental purpose of offering mission critical software, which allows its customers to lower their cost to serve, along with delivering an improved end customer experience. GTK’s revenue has grown from $42.1m in 2015 to $104.5m in 2018. While some of this has been acquisition driven, importantly, around 60% of these revenues are recurring in nature, which helps to reduce the impact of ‘lumpy’ new project wins. Despite GTK’s origins being in New Zealand, the company now generates over 85% of its revenues from outside New Zealand, with the UK being the largest contributor at around 40%.

Outlook

GTK has a comprehensive and growing list of clients in the utilities and airport space. The company’s airport information management software has added a degree of diversification to group revenues (20% of revenues). GTK is transitioning to a 'Software as a Service' revenue model, which will enable greater long-term value generation and flexibility to add new features. With leading positions in Australasia for both airports and utilities, further growth will be driven by international markets, initially the UK. GTK has accelerated its growth in the UK via the acquisition of Junifer Systems for $74.6m and Evolve Analytics for $44.2m. With further international energy markets expected to undergo reform in the future (including Singapore, Italy, Switzerland), opportunities for growth remain plentiful for GTK – and its solid recent execution suggests GTK is well placed to capitalise on these.

Risks

  1. product risk
  2. regulatory change
  3. increased competition
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