When it comes to shares, investors mostly associate the UK with value, rather than cutting-edge tech. But outside the FTSE 100 and FTSE 250 I think there are some really interesting names.
Celebrus Technologies (LSE:CLBS) is a name I own in my portfolio. I’m impressed with the way the business has been performing and the outlook looks positive from here.
Revenue growth… sort of
Earlier this week, Celebrus released its trading update for the six months leading up to the end of September. A 40% revenue decline looks alarming, but it’s not quite what it seems.
Those results are distorted by a change in the firm’s accounting practices. Instead of booking revenues in full when it makes a sale, it spreads them over the life of the contract. This change is the result of Celebrus shifting from reselling third-party products to focusing on its own software.
So a better number to focus on is annual recurring revenues (ARR). This was 20% higher than a year ago, which is a very positive result. And it’s why the stock climbed 7% when trading opened on Tuesday (21 October) as the report was released.
Valuation
UK stocks often trade at a discount to their US counterparts. And while Celebrus doesn’t have an obvious analogue across the Atlantic, it does look like unusually good value.
The firm has a market value of just under £59m. But it has £20m in excess cash on its balance sheet, which brings its enterprise value to £39m.
With ARR reaching £11.5m during the first half of the year, the stock’s currently trading at just over three times sales. For a software company, that’s very low.
Pre-tax profits were negative during the first half of the year. But with the firm expected to generate £3.3m in free cash flows, an enterprise value of £39m doesn’t look demanding.
Artificial intelligence
Celebrus provides software that allows businesses to see what visitors to their websites or users of their apps are doing in real time. Importantly, it does this without using cookies.
That sets it apart from competitors offering similar products. But it’s important to note that the company gives away a lot in terms of scale against the likes of Adobe and Salesforce.
Artificial intelligence (AI) has cut into their competitive positions of both businesses recently, so this can’t be ruled out with Celebrus. But I see AI as a good thing for the UK firm. Unlike Adobe and Salesforce, Celebrus has an AI-native product. And this has increased the value of quality data, which is exactly what its platform provides.
Investment thesis
I think the stock market’s overlooking Celebrus shares at the moment and I don’t have any idea when that might change. So investors need to focus on the underlying business.
The stock isn’t one to buy with a view to trying to sell it over the next couple of years. It might well still be going under the radar of the majority of investors.
If the business keeps growing though, I expect to do very well with my investment. And I think investors looking for AI opportunities should consider adding it to their portfolios.
