Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: kab60 on February 18, 2020, 12:52:15 PM

Title: CAS:FP - Cast SA
Post by: kab60 on February 18, 2020, 12:52:15 PM
Cast SA is a french software company which has disappointed in recent years as product development, re-focusing of sales (from doing it inhouse to doing it through partners like BCG, EY, Deloitte etc.) and a transition from perpetual licenses to SAAS has taken longer than anticipated.

Inflection point: I believe the Company might be at an inflection point with SAAS sales growth of almost 200 pct. in Q4. Their leading product, Cast Highlight, is a “SAAS application portfolio analysis platform that delivers software intelligence”. Not sure exactly what that means, but it smells like structural growth (have only found good reviews so far).

Profitability: Start february company acknowledged the transition (perpetual licenses to SAAS, sales approach etc.) has taken longer than anticipated (after raising 10m euro in 2018 at around 3,8 euro/share versus some 3/share today) and at the same time called for “excellent outlook for 2020”. Guidance is for 20 pct. profitable revenue growth. Considering the high gross margin of software and largely fixed costs, if they can keep up the sales growth, cash should start gushing in. Also, note that 20 pct. revenue growth somewhat understates their earnings potential due to the nature of SAAS (in 2019, they booked 2,4m of SAAS revenue - but signed contracts worth 2m in Q4 alone).

Hidden cheapness: With a market cap of 55m euro and 40m in mostly software sales (including perpetual licenses) Cast is cheaper than it seems initially. Company has 2,2m in cash but 23m receivables of which 80 pct. is expected to be collected in Q1 accoring to recent update. With neglible net debt enterprise value should be around 35m post Q1 vs. guidance of 48m revenue FY20 of which some 18m should be recurring revenue (SAAS, limited time licences, maintenance). Not taking eventual profitabilty into account that should get us to around ev/recurring revenue of 2x 0r 0,72xrevenue (all revenue) while growth seems to finally accelerate.

Skin in the game: They’ve spent some 150m on R&D since the Company was founded in 1996. The founder is still CEO and together with other insiders own 20 pct. of the shares. ESW Capital/Trilogy - one of the largest private SW companies - owns around 30 pct. After ESW came onboard they seem to have done the right things (improve and focus product offering, transition to SAAS and changed their sales model) but obviously it has taken some time and given the large $ nature of their offerings revenue and backlog has been lumpy.

Cash gusher or takeover: If Cast SA turns profitable in 2020 as guided, delivers 20 pct. growth, and SAAS becomes a more meaningful part of their numbers and the narrative, it’s pretty easy to imagine some fat gains. If not and the thing continues to chug along I’d assume it gets taken over - either by ESW or another SW company. Shares have been dead money for years, imagine management/insiders finally wants to succeed and get their payday.

Illiquidity/obscurity: Aside from management/insiders and ESW, a couple of funds own pretty large stakes, so liquidity and float is very low. It only trades some 3000 shares/day or worth just 9000 euro making it mostly suitable for PA’s. Company used to report only in French but in the last year or so started giving English details every half year.
Nuggets: Decent VIC write up: https://www.valueinvestorsclub.com/idea/CAST_SA/7781389024, last revenue update: https://www.castsoftware.com/docs/financial/pr_ca_2019_en.pdf

Disclaimer: I have a position
Title: Re: CAS:FP - Cast SA
Post by: kab60 on May 26, 2020, 06:22:34 AM
Just wanted to give a quick update. Stock has fallen by around 1/3 and hasn't taken part in the recent rebound. I sold during March to invest in ideas with higher upside but am back in.

Company did 1m SAAS revenue in Q1 (57 pct. growth y/o/y). They expect some clients might postpone their decision to sign contracts, so they probably won't reach their target of exceeding 20 pct. growth this year, but they still expect to be profitable even if growth is cut in half due to savings.

So you have a marketcap of 33m and receivables of 25,4m @ FY2019. Some of it was collected during Q1, so cash position was 6,2m at the end of March.

So let's say they collect a further 6,8m during FY20 just to keep it real simple, and we've got an EV of around 20m versus 4m in SAAS revenue (Q1 annualized) and something like 44m in total software revenue (between SAAS, licenses, maintenance etc.).

Equity is low, those receivables are offset by some liabilities, but their liquidity is good, so I can't see imagine they would have to raise equity. At the same time, it seems like they'll get to an inflection point and turn profitable in FY20 despite covid-19.

They've disappointed for a long time, and companies doing that tend to continue doing that, but I think a lot of negativity is priced in, and if they show just a glimmer of promise I'd expect the stock to take the escalator back up.
Title: Re: CAS:FP - Cast SA
Post by: awindenberger on May 26, 2020, 12:08:57 PM

So you have a marketcap of 33m and receivables of 25,4m @ FY2019. Some of it was collected during Q1, so cash position was 6,2m at the end of March.

So let's say they collect a further 6,8m during FY20 just to keep it real simple, and we've got an EV of around 20m versus 4m in SAAS revenue (Q1 annualized) and something like 44m in total software revenue (between SAAS, licenses, maintenance etc.).



Where did you see the updated cash position at end of March? Not seeing it in the press release.

Update: NM, I found it in their annual numbers release in mid-April
Title: Re: CAS:FP - Cast SA
Post by: neil9327 on May 26, 2020, 12:43:07 PM
They've been loss-making for the last few years, due to significant operating costs. Sure you have explained how they are replacing one-off sales with regular income (saas), but is there any evidence in overall growth of business?
Also presumably they charge less per year than for a perpetual licence - Isn't that going to short-term depress revenues,  putting cashflow at risk?

https://finance.yahoo.com/quote/CAS.PA?p=CAS.PA
Title: Re: CAS:FP - Cast SA
Post by: kab60 on May 26, 2020, 01:22:30 PM
They've been loss-making for the last few years, due to significant operating costs. Sure you have explained how they are replacing one-off sales with regular income (saas), but is there any evidence in overall growth of business?
Also presumably they charge less per year than for a perpetual licence - Isn't that going to short-term depress revenues,  putting cashflow at risk?

https://finance.yahoo.com/quote/CAS.PA?p=CAS.PA
I'm going with managements guidance while being totally open to the fact that they have a history of underdelivering, so haircut whatever they say.

It seems to follow the playbook of most SAAS plays where s transition from perpetual licences to SAAS depress revenue in the short term but eventually you get to an inflection point.

They guided for plus 20 pct growth this year, so despite them overpromising before I assume they were on course for meaningful growth despite Q1 looking weak.

They launched their first SAAS solution in 2015 so yes, that has and will depress evenue, but that is already partly in the numbers. Receivables have been building, so if they can collect liquidity should be fine.

However, they collected less that expected in Q1, so that is a negative.

I think it is obvious I'm not an expert on SAAS, nor am I French, so this is very much a valuation play for me with different catalysts and very liquid balance sheet. Historically they have obviously been poor on the cost side (even though that is apparently the SAAS way...), but perhaps Covid19 has installed some more urgency in management, which owns 20 pct. Otherwise I think ESW will gobble them up.
Title: Re: CAS:FP - Cast SA
Post by: kab60 on June 19, 2020, 02:05:27 AM
French Annual report released yesterday.

Some highlights (done with Google translate):

Expects an operating margin that will accelerate sharply in 2021 and 2022.

Still expect "significant" growth in the years ahead. Continue to invest a lot in new products (Cast Imaging - MRI for software...) launched in 2019. Introduction of CAST, since January 17, in the "Solution Assessment Program" of Microsoft (perhaps big if companies migrating to Azure starts using Cast Solutions to check for data integrity etc.).

Expect to be profitable this year with 10 pct. revenue growth if we get a quick recovery. Expect 20 pct. annual growth over 2021-2023.

I still think there's a risk of having to raise a bit of money or missing on revenue targets, but I don't think that's a major point. Market cap is 35m, they had 25m of receivables at year end and 6m in cash recently according to their latest update.

Float is tiny, like 8 pct., and it's obviously French (though management is located in the states), but I think it's quiet interesting compared to all the other SAASy and bubbly names out there and bought more. If one is aggressive and converts receivables to cash, it trades at like 0,5x sales (mostly software) and 1,2x recurring revenue (with SAAS growing some +50 pct. in 2019). Seems like everyone has given up on this while it might actually be at an inflection point.

C/P from report:

Annual recurring revenue can be estimated at around € 15.9 million by adding recurring SaaS revenue (annual value of subscriptions sold in 2019 for at least 12 months), recurring license revenue (annual value of temporary software licenses of 1 year or more sold in 2019), and recurring maintenance turnover (software maintenance turnover expected for 2020 excluding maintenance associated with new 2020 transactions).
Perpetual / temporary segmentation on software sales is about 50/50 on trend.
Sales from partners (internal use, co-sell, OEM), the main factor of future growth, are increasing sharply and represent more than 40% of global turnover.
The activity indicators are generally very positive:
- Nearly 100 new logos have been acquired, well distributed between Europe, US, India and China.
- 40% growth in the number of cases handled with BCG, a very effective partner in market penetration.
- Significant commercial success of CAST Imaging, a new product that accelerates the learning and modernization phases of complex software systems x2, as well as their migration to the cloud.
- Introduction of CAST technology in the IBM "Garage for Cloud", in the "IT transformation" practice of Bain & Co,
- Ditto in the “DXC Studio” (migration-modernization offer from the giant DXC).
- Introduction of CAST, since January 17, in the "Solution Assessment Program" of Microsoft, a global program of Microsoft Corp targeting large companies to promote Microsoft Azure.
The concept of software intelligence is becoming more and more strategic in a world becoming very dependent on software. Of the 500 billion spent each year on software of all kinds, only a tiny part is analyzed today. The development potential is therefore more than ever very important.
The growth in activity (+ 5.8% at current exchange rates) and a controlled change in operating expenses (+ 3%) led to a 21.8% reduction in losses for the year.

CAST initially built a 2020 budget with growth of more than 20%, clearly profitable, based on the market dynamics observed and the fruit of the investments planned for the period 2015 - 2019.
The health crisis and its economic consequences will affect the decision-making processes of CAST customers and thus impact activity in the coming months.
In this uncertain climate, the company has developed other scenarios in order to be able to face this crisis and its possible hardening. All possible solutions are studied and in the process of being implemented (operational efficiency, savings, funding, etc.). Even on the basis of growth reduced by half, the savings expected must make it possible to maintain a profitable year.

It is worth remembering here that CAST software products meet the needs of large groups who wish to accelerate their digitalization (modernization and adaptation of applications to an increasingly “online” business world, migration to the cloud, strengthening security and resilience) and improve their operational efficiency (better IT governance, cost reduction, eradication of sources of waste of time and money). More current needs than ever.
The pillars of CAST's value offer (Objectivity, Modernization and Safety / Quality) should therefore become even more priority in order to respond to the underlying challenges of this crisis. It is therefore reasonable to think that shifted transactions will quickly become topical once the health crisis is on the way to settlement and that economic players will have a little more visibility.

Assuming that the Covid19 crisis takes the form of a V-shaped crisis, with a favorable rebound in 2021, management confirms the possibility of achieving (profitable) growth of around 10% in 2020. Management plans growth over the 2021-2023 period of 20% per year and an operating margin that will accelerate sharply in 2021 and 2022. Finally, management plans to accelerate in proportion to the business handled via partnerships.

A - Liquidity risk
The company has carried out a specific review of its liquidity risk and considers that it is able to meet its future maturities. Cash at December 31, 2019 was down compared to December 31, 2018 but the Group had significant trade receivables at the end of the year. Cast has implemented short-term factoring solutions in most of the geographic areas where receivables are located (US, France) in order to strengthen its WCR. The net cash flow from financing is 0.6 million euros. Trade receivables of 25.3 million euros will be collected in the first months of 2020, thereby consolidating the Group's financial situation. Note that the Group holds part of its own shares for a value of 1.3 million euros.
Given the elements presented above, there is no liquidity risk.
Title: Re: CAS:FP - Cast SA
Post by: kab60 on July 20, 2020, 10:35:10 AM
Just going with guidance they should do around 70m in revenue in 2023 and profitability increasing sharply from next year already. Versus 35m market cap recently and 25m receivables at year end. But perhaps what is most interesting is that it follows the same parttern of a lot of SW companies switching from licenses to SAAS. At first, investors neglect the transition which can be difficult to detect, since revenue growth slows down. And then suddenly, investors bid the thing up when it's obvious to everyone what happened  We're still at the neglect phase though. Hopefully we get to the OMG it's SAAS phase in a year or two. :) (or perhaps they botch the execution... but if they expect a significant boost to profitability next year, high incremental margins in 22 and 23 should really kick in)...

Anyone used their products or know the competitive landscape?
Title: Re: CAS:FP - Cast SA
Post by: Borgesian on July 21, 2020, 06:19:28 AM
What broker are you using to buy this? Having trouble finding them on IBKR.
Title: Re: CAS:FP - Cast SA
Post by: kab60 on July 21, 2020, 11:13:04 AM
IBKR, no issues but volume is very low. Someone made it jump today after it being pretty much dead money since March.
Title: Re: CAS:FP - Cast SA
Post by: Jurgis on July 21, 2020, 01:56:05 PM
IBKR, no issues but volume is very low. Someone made it jump today after it being pretty much dead money since March.

Dem CoBF investors, grumble, grumble.
Title: Re: CAS:FP - Cast SA
Post by: kab60 on July 28, 2020, 03:24:13 AM
ESW just announced a bid to take over Canadian software company Optiva Inc (I was involved with that a couple of years ago) at a price of more than 3,5 x ev/revenue - with revenue forecast to fall 22 pct. this year. Meanwhile, Cast - which I'd venture is a better business with way less execution risk (less concentrated customers, no legacy business melting rapidly, no leap of faith in their cloud transition etc. etc.) - trades around 1 x ev/sales in 2020 despite some strong buying in Cast SA since my last post. Depending on how fast they turn profitable and convert receivables to cash the valuation is even lower.
Title: Re: CAS:FP - Cast SA
Post by: kab60 on July 30, 2020, 02:11:57 AM
Prelim Q2 numbers out, looks pretty good. 80 pct. growth in SAAS revenue in H1, they're optimistic for the remainder of the year and very focused on cost. They've clearly telegraphed that they'll turn profitable (if not in 2020 then significantly more so in 2021), so I'd say the market is a bit slow to pick up on the recent developments and we're probably getting close to an inflection point.

https://www.castsoftware.com/docs/financial/pr_rs_s1_2020.pdf

CAST’s Software  Intelligence, “the  MRI  for  software,” confirmed  its  resilience  in  this  time  of  crisis,  offering managersimmediate visibility allowing for quick decision-making, the targeted cutting of costs, a rapid increase in the efficiency of development teams working on transformation and Cloud migration –important vectors in and  of  themselves  for  decreasing  infrastructure  costs –and,  finally,  the  ongoing  improvement  of  IT  systems’ resilience and security.

The success of the SaaS CAST Highlight(analysis in just a few days of application portfolios, software risks and costs, Cloud readiness, use of open-source software) was confirmed by revenue of €2Mfor the first half of the year, up 80%, and €1.4Min sales for the second quarter alone.

CAST Imaging, launched in 2019, continued to be embraced by system integrators and major groups, in particular with the goal of significant cost-cutting in just a few months by trimming unproductive workhours.

Sales via consulting firms (Boston Consulting Group, EY,etc.), the major integrators (IBM, Accenture, Cognizant, etc.) and Microsoft continue to increase and show more and more potential, which, along with the current business portfolio, allows us to be optimistic about the rest of the year. Forecasts for the second half of the year are currently for a performance similar to that of the last six months, while remaining careful about expenses and being ready for real-time adjustmentsbased on changes in the macroeconomic context.
Title: Re: CAS:FP - Cast SA
Post by: kab60 on September 14, 2020, 10:36:28 AM
Almost breakeven, net cash, lots of receivables (net cash plus receivables almost half of marketcap), still expect to be profitable for the year. So basically looks pretty good but this is a 2021/2022 story. If they can't grow revenue meaningfully, they shouldn't be public, but they sound pretty bullish.

Not a lot of software plays at around 1xsales or 0,5x if one is a bit aggressive and includes receivables.

    Sept 14 (Reuters) - Cast SA <YAS.PA>:
    * H1 NET LOSS EUR 0.6 MILLION VERSUS LOSS OF EUR 3.8 MILLION
YEAR
AGO
    * WHILE THE UNCERTAIN MACROECONOMIC CONTEXT CALLS FOR
CAUTION, THE
OBJECTIVE REMAINS MORE THAN EVER TO ACHIEVE A YEAR OF GROWTH AND
PROFITABILITY
    * H1 REVENUE EUR 20.0 MILLION VERSUS EUR 18.8 MILLION YEAR
AGO
    * H1 OPERATING LOSS EUR 0.1 MILLION VERSUS LOSS OF EUR 3.4
MILLION
YEAR AGO
    * AT 30 JUNE 2020, AVAILABLE CASH WAS €11.7M AND NET CASH
WAS
€6.4M. TRADE RECEIVABLES AMOUNTED TO €17.9M
Title: Re: CAS:FP - Cast SA
Post by: kab60 on September 16, 2020, 01:47:00 AM
Up nicely yesterday, popped 25% this morning and trading now halted. No idea what's up.
Title: Re: CAS:FP - Cast SA
Post by: kab60 on October 22, 2020, 06:38:03 AM
So they just announced a collaboration with IBM (yeah, I know, a large dinosaur but also lots of consultants): https://www.linkedin.com/feed/update/urn:li:activity:6724743909051772928/

And they released a new version of their three software solutions the other day (and even release an English press release). They seem to be doing the right things. Pick and shovels on cloud migration doesn't seem like a bad place to be, hopefully they can execute.
Title: Re: CAS:FP - Cast SA
Post by: _JJ_ on October 22, 2020, 06:53:14 AM
It’s not a new collaboration, IBM is actually their most important sales channel. But yes, the collaboration has intensified over the years. CAST software is now integrated in the IBM Garage for Cloud module.

Another interesting thing: It was announced today that 10% CAST shareholder Long Path Partners is negotiating a buy-out of French software company Dalet SA: https://m.marketscreener.com/quote/stock/DALET-S-A-8051707/news/Dalet-S-a-LONG-PATH-PARTNERS-AND-CERTAIN-LEGACY-SHAREHOLDERS-ENTER-INTO-EXCLUSIVE-NEGOTIATION-31588615/

Dalet is similarly transforming into a SaaS-model.
Title: Re: CAS:FP - Cast SA
Post by: kab60 on October 22, 2020, 10:51:17 AM
It’s not a new collaboration, IBM is actually their most important sales channel. But yes, the collaboration has intensified over the years. CAST software is now integrated in the IBM Garage for Cloud module.

Another interesting thing: It was announced today that 10% CAST shareholder Long Path Partners is negotiating a buy-out of French software company Dalet SA: https://m.marketscreener.com/quote/stock/DALET-S-A-8051707/news/Dalet-S-a-LONG-PATH-PARTNERS-AND-CERTAIN-LEGACY-SHAREHOLDERS-ENTER-INTO-EXCLUSIVE-NEGOTIATION-31588615/

Dalet is similarly transforming into a SaaS-model.
Interesting with Dalet, thanks for flagging that. I suppose it is also a matter of time before Cast gets bought out, and the composition od shareholders should increase the chances of a good price. But hopefully they finally nail their execution and start growing meaningfully.