ASX:PRO
Prophecy International Holdings Ltd
Investment Summary
In their analysis of Prophecy International Holdings Ltd, the fund managers believe that the company is currently facing significant challenges. They noted a disappointing restatement of annualised recurring revenue (ARR), which dropped from $28.4m to $25m due to reporting errors. This raises concerns about the adequacy of the finance function, particularly in the absence of a Chief Financial Officer. Management's commitment to enhance financial resources has been questioned, reflecting shareholder impatience with profitability. Despite a modest ARR growth of only 3% in Q1 and rising hosting costs, the managers maintained their position, albeit with a reduced weighting of approximately 4% to reflect the ongoing difficulties. Furthermore, while revenue growth was reported at 1%, it was misleading due to the decline of legacy revenue; a more accurate adjustment indicates a 6% growth in continuing operations, which, although better, still highlights the firm's struggles in becoming profitable. Overall, the fund managers express cautious optimism, yet acknowledge that substantial work is needed for a turnaround.
Commentary From The Managers
Mereweather Capital
28 Feb 2025
$0.46
- Mereweather Capital updates its investment thesis on Prophecy International Holdings Ltd (PRO).
- PRO reported revenue in line with guidance, but the headline 1% growth masks the reality of legacy revenue declining.
- When adjusted, continuing operations saw a revenue growth of 6%, which is below historical trends.
- This level of growth is considered acceptable given the context of a declining operating cost base.
- Operating costs decreased from $13.5m to $12.9m, a positive sign considering past growth in costs.
- PRO is currently viewed as being in investing "no man’s land", characterized by low growth and unprofitability.
- To improve, one or both elements of growth or profitability need to change.
- The recent result is a step in the right direction with reduced costs, but further improvements are necessary.
Mereweather Capital
30 Nov 2024
$0.51
- Prophecy International (PRO) announced an overstatement of annualised recurring revenue (ARR), acknowledging a decline from $28.4m to $25m.
- The company faced issues in their reporting system, leading to a detrimental impact of $3.4m on ARR.
- Management's announcement raised concerns about the adequacy of the finance function, with PRO lacking a Chief Financial Officer.
- During the AGM, management committed to enhancing the finance function and providing better detail on ARR reporting through a new software solution.
- Shareholders expressed concern over profitability and controlling costs amid management’s focus on revenue growth.
- The first quarter update revealed an ARR growth of only 3% to $25.8m, which, combined with previous issues, was viewed negatively.
- Despite the challenges, Mereweather Capital has maintained its position, having taken profits earlier when the share price peaked above $1.
- The current weighting in PRO is approximately 4%, reflecting a cautious stance given the existing business issues.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.