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Serko caught in global tech stock woes

Serko caught in global tech stock woes

By Paul McBeth

Nov. 21 (BusinessDesk) - Serko shares dropped to a two-month low yesterday as the global tech sell-off overshadowed earnings in line with the firm's expectations.

The online travel booking software developer lifted first-half sales and earnings and affirmed annual guidance as it continues its push into the Northern Hemisphere, where it sees an opportunity to grab market share.

Sam Trethewey, a portfolio manager at Milford Asset Management, said the company delivered exactly what it said it would. He's comfortable with how it's executing its plan as a small player in a large corporate travel space.

However, the timing of the result coincided with an ongoing sell-off of tech stocks on Wall Street that weighed on domestic peers such as Pushpay Holdings, Eroad and Gentrack.

"The business is executing to plan - it's more what's happening in other markets," Trethewey said. "Serko hadn't moved really until yesterday's result, which triggered investors to review it."

Serko shares were unchanged today at $3 after dropping 8.8 percent yesterday. They are still one of the top performers on the S&P/NZX All Index, up 37 percent so far this year and more than 10 times the 29 cents it was trading at in early 2017.

The company yesterday reported a net profit of $920,000 in the six months ended Sept. 30 from $1.1 million a year earlier, when it first achieved profitability. First-half revenue climbed 23 percent to $11.8 million, and the company affirmed annual guidance for operating revenue to grow 20-to-30 percent, implying sales of $21.9 million to $23.8 million in the year ending March 31.

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The lower profit was due in part to Serko's dual-listing on the ASX, and as it spent more on new hires and contractors to support its growth ambitions, and bolstered research and development.

Serko expects that extra spending will deliver earnings before interest, tax, depreciation and amortisation of around $2.2 million in the year ending March 31, largely the same as the year earlier. First-half ebitda rose 12 percent to $1.5 million in the six months ended Sept. 30.

However, chief executive Darrin Grafton anticipates the added cost this financial year will be earned back to Serko the following year.

While Serko says it's carefully managing investment after raising $15 million in August, it's still open to making acquisitions to kick-start growth.

Grafton told BusinessDesk previous purchases are a good indication of where Serko is looking. That includes expanding the firm's technology stack, acquiring new customers, or adding infrastructure when new systems are needed.

The company is establishing a foothold in the Northern Hemisphere with a successful trial of its Zeno platform by travel management company ATPI in the UK. That's going to be extended to other corporate clients in the second half and will likely get rolled out to Europe and North America in the same period.

Partnering with other companies in resale arrangements means a lot of the cost is front-loaded and that spending can be dialled back when an agent is comfortable with the platform.

"The opportunity to go into 50 countries is there," Grafton said, adding that it's currently setting up in seven countries simultaneously.

Serko has signed Zeno agreements with other travel management companies and is in talks with others. It expects to close another reseller agreement in the current financial year, with revenue set to flow from a final deal in subsequent financial years.

The company's shareholder register has swelled to 1,208 investors as at Nov. 15 from 779 a year earlier. That includes the addition of new institutional investors from the August capital raising.

Grafton says those institutional investors have been heavily engaged since coming on the register, something he puts down to the depth of the ASX which has a number of travel management companies and online booking agents.


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