Aconex shares plunge then plateau

Brexit uncertainty has affected Aconex’s projected growth, with the company’s share price tumbling as a result.

Aconex logo 2014It’s been an interesting couple of months for the Melbourne, Australia-based SaaS construction collaboration vendor Aconex. At the end of January, the company provided a half-year trading update and 2017 financial year forecast; there were changes to the executive team, and then it revealed its results for the six months to 31 December 2016. Market sentiment towards the business has changed: the company’s shareprice has more than halved from its July 2016 high, settling below Au$4 for most of February and March.

Shares plunge into a ‘tailspin’

In the 30 January update, Aconex revised down its operating profit forecasts from between 62% and 84% growth to between 10% and 32% growth, blaming lower-than-expected first-half sales in the UK and Americas. Uncertainty around Brexit was partly to blame for the UK performance it said, while delayed decision-making ahead of the US presidential election had affected US sales. A higher proportion of long-term contracts had also resulted in lower short-term revenues, while currency movements in the British pound (which plunged following the June 2016 referendum result) and the Euro had been unfavourable. And CEO Leigh Jasper also talked of some “one-off impacts associated with bringing the Conject business into Aconex.”

Aconex forecast full-year revenue (to 30 June 2017) of Au$160-165 million (c. £98-101m, US$122-126m or €113-117m) compared to the prior forecast of Au$172-180 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) for the full year was forecast to be in the range Au$15-18 million – down from the Au$22-$25 million previously forecast.

The news sent Aconex’s shares into “a tailspin” (reported The Australian), tumbling 45% from Au$5.65 to $3.10 by the close of trading – a marked reverse for a company previously regarded positively by most market analysts. The company’s shares last traded at this level in mid-2015, six months after the December 2014 IPO. In July 2017, the shares were trading above $8.40, some four months after its acquisition of the Anglo-German Conject Group, a deal which helped its 2016 revenues to jump 50% (see Conject deal boosts Aconex revenue growth). Share sales by Aconex founders Leigh Jasper and Rob Phillpot in late 2016 also hit the company’s share price.

These forecasts were the last made by an Aconex team including CFO Stephen Recht, who was succeeded by Paul Koppelman at the end of February. Also in February, the company announced the appointment of a new chief technology officer, Craig Fulton, reporting to Rob Phillpot. Fulton, formerly at Australian telcoms giant Telstra, is now responsible for all Aconex product engineering and cloud hosting functions.

First half results

On 21 February, Aconex reported its first half FY17 results, revealing revenues of Au$77 million (c. £47m, US$59m or €55.5m), up 38% on the Au$55.7m for the same period in 2015 (buoyed by the first full half-year contribution of Conject, of course). However, the figure was affected to the tune of Au$4m by negative currency movements (Au$3m of this attributed to the pound’s plunge after the Brexit vote). Profits from core operations for the half year edged up 9% from Au$6.8m to Au$7.4m (c. £4.5m, US$5.6m or €5.2m), with acquisition and integration expenses of Au$3.546m associated with the Conject deal.

Attempting to reassure investors and analysts after the share slump, CEO Leigh Jasper said he expected business to pick up in the next six months, and planned to keep investing in the business:

Leigh Jasper“We will continue to invest in product, sales, marketing and customer service to capture the large global market opportunity. This investment will further consolidate our market leading position, underpinning our growth for years to come and enabling Aconex to deliver on its mission of connecting teams to build the world.”

However, the results, and Jasper’s forecasts of 20% mid- to long-term growth in a still under-penetrated market, failed to excite investors. Aconex shares fell 6% to Au$3.50 on the ASX (a month later, the price has barely moved – they closed today at Au$3.55), with some analysts concerned about the continued impact of Brexit uncertainty on Aconex’s British operations. Australasia remains Aconex’s most important market but revenues from the region grew just 6% in the half-year (UK-based Asite has seen revenues slide in this market – post), while US revenues have been impacted by a client deals agreed on a per-user basis rather than the project-based (and enterprise agreement) approach usually favoured by the business.

Brexit impacts

The Brexit uncertainty perhaps needs further exploration, as the June 2016 referendum decision not only affected currency exchange rates but reflects continued UK construction industry concern about skills shortages, and has caused doubts about some future projects.

Many projects, particularly in London and the south-east, are heavily reliant on migrant workers, from site-based labourers and tradespeople to architects, engineers and other professionals. The indigenous UK workforce is also ageing, with many existing workers set to retire, and only a limited pipeline of UK-domiciled replacements coming through. As a result, skills shortages are reported across many trades and professions, and industry organisations are calling upon the UK government to exempt some key roles from any Brexit immigration constraints. Moreover, skills shortages are pushing up labour costs on some existing projects, and could affect the economic viability of future projects. And the impact on pound/Euro exchange rates has made the UK less attractive as a workplace to some would-be migrant construction workers, who are now seeking work in mainland Europe markets, deepening the skills gaps and adding to potential inflationary pressures.

The Brexit vote has also caused some client organisations to review where their businesses should be located, with some financial institutions, manufacturers and other organisations considering relocation to other EU states so that they can continue to work effectively within the European market, while EU funding will no longer be available to support some future UK projects. As a result, some decisions about built asset investments have been either postponed or cancelled, affecting the future workload of construction businesses reliant upon these new projects.

This was a contributing factor to the relatively poor performance of the Conject operation in the first half of the current financial year. In his investor presentation, Leigh Jasper described it as “below expectations”, talked of “some softness” in core markets such as the UK, but expected the UK “to rebound off the back of the shock Brexit result”, adding:

The Brexit uncertainty certainly slowed new project decisions and … we saw a significant drop off in UK construction starts in the months after the referendum.

Aconex and its rival construction collaboration technology providers are, of course, heavily dependent upon there being a continued pipeline of new projects. If they have strong relationships with the ultimate clients, their SaaS platforms may still be deployed upon projects which have been relocated from the UK, but – depending upon where these schemes were relocated to – they could find themselves competing with other SaaS vendors (think project! in Germany, for example) with strong client, contractor or consultant relationships in their local markets.

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