Blow as Proactis loses clients

Shares in software firm Proactis plunged 42 per cent on the news it has lost Shell and BP as clients.

A group of office workers at Proactis
A group of office workers at Proactis

The Wetherby-based firm said it had expected to lose the two oil companies as clients over the long term as they consolidated the number of software providers they use, but the axe fell sooner than expected.

The group's chief executive Hamp Wall said: "The loss of BP and Shell came as a surprise. We didn't expect to lose them in the short term. We thought we'd have Shell until 2019 and BP until 2020 or beyond."

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The shares closed down 79p to 111p.

The group insisted that it does not expect this loss of clients to continue and said it has seen buoyant deal activity after signing up 35 new name deals in its first half.

​"The​ g​roup has performed extremely well with a strong momentum in new names signed during the period​ ​delivering substantially improved initial contract value​," said Mr Wall.

He said that up-selling and cross-selling activity with existing​ ​customers has also been positive.

M​r Wall added: "​However, this performance is not fully reflected by reported revenue​ ​which has been slower to build principally due to a strengthening ​s​terling which is reducing the impact​ ​of the ​g​roup’s performance in the United States and in Europe and, latterly, a loss of a number of​ ​customers which the ​b​oard does not expect to continue.​"

He said the group had a slower beginning to the third quarter which began in February, but insisted the firm is in a good position.

"The underlying business is as good as it gets," he said.

"Integration is good and the pipeline is solid. The contract losses are an anomaly. It's going to happen. 35 new names says your product is viable."

​The 35 new name wins include the State of Rhode Island, the City of Baltimore​, Friends of the Earth, Stoke City FC and Shropshire County Council.

​The shares plunged despite the​ firm reporting a 124 per cent increase in reported revenue to £26.4m in the six months to January 31.

Analysts had mixed reactions to the results.

The team at N+1 Singer said in a note: "Proactis has released interim figures in line with the February trading update, but the outlook for the second half is weaker than the first half update suggested due to a combination of continued sterling strength, some customer losses and lower new name intake in the third quarter than expected.

"While new business momentum was strong and growth in the order book (£47.8m vs £28.0m at the end of the first half of 2017) bodes well for longer term revenue visibility, we are concerned by the customer losses and weak new name intake in the third quarter."

Analyst Andrew Darley at FinnCap said: "While the expected challenges are in hand, ​20​18 revenue is now likely to be affected by the unexpectedly high churn of several single product customers, which – given the subscription nature of the new contract wins – is unlikely to be able to be offset in the current year; and also by the strengthening of the pound.

However, he said the firm is on a strong footing.

​"​Prospects remain undimmed and we see this as a bump in the road​," he said.

He has cut his 2018 forecasts by 6 per cent for revenue and by 14 per cent for earnings. His share price target​ of 250p remains unchanged.​