Canaccord Genuity cuts target price on Aptitude Software

Canaccord, which reiterated its 'buy' rating on the stock, said Aptitude's full-year results were broadly in line with its model, with sales of £59.3m as expected, while adjusted underlying earnings of £10.5m were slightly below forecasts. It also noted that £10.0m in free cash flow had equalled an "impressive" 95% conversion.

Organic software growth, excluding the recently acquired MPP, was 15%, with contractually recurring revenues now constituting 62% of total revenues, something the analysts expect to further increase as the new business is consolidated in 2022.

However, the Canadian bank noted that Aptitude's UK and global finance automation enterprise software peers had "materially de-rated over the last months" on the back of recent sell-offs in the technology sector and the wider market.

"Reflecting today's forecast changes puts the shares on an attractive 2.5x 2023E EV/sales, a circa 50% discount to peers. As a consequence of our reduced margin forecasts as well as lower multiples of listed peers we have lowered our target price from 845.0p to 670.0p based on a 5x 2023E EV/Sales multiple as well as the NPV of a 'return to normalised 20% margins' scenario in 2025," said Canaccord.