Powerlan: Profitable, With Impressive Technology And Clientele Article Dated: 16th January, 2004
Powerlan Ltd is trading at its historic lows around 4.6c although it made a net full year profit, has been cash flow positive for the last five months and is expected to make a profit for the full year of around $4.5 million.
Market perception of the stock is still perhaps mired in the past.
Powerlan’s clients are multi nationals, and it is a tribute to the efficiency of its services and the quality of its technologies and management that it has retained and grown its client lists inspite of the unease major corporations generally have in placing their business with small and financially stressed companies.
However, Powerlan is now pared back to its profitable core operating businesses. Management is competent and tenacious and Powerlan’s clients include major Asian corporates, including Reliance in India which has 5 million mobile phone clients currently and is targeting 50 million, Philippines Telecom, Sri Lanka telecom and the like.
Clients for Powerlan’s portfolio management business include Macquarie Bank, Milton and Perpetual Trustees.
Last week, newly listed Australian fund manager OFM chose Powerlan in a 3 year $12 million outsourcing contract for its fund management back office and administration services.
Clients for its international currency business include American Express.
Powerlan, in line with several other hi techs during the dotcom boom (Powerlan listed in September 1999), had embarked on a buying spree acquiring businesses in education and other areas which have since been sold in the company’s fight for survival – exacerbated when the ANZ withdrew its facility ( when founder and chairman Theo Baker filled the gap with a $5 million loan to the company.
Meanwhile, by next year the $40 million of goodwill remaining on Powerlan’s books will no longer weigh on the company’s results.
Under the new rules (Exposure Draft 109) scheduled to come into effect for year end June 30 2005, only goodwill against assets whose value is impaired will need to be written off. (Increased value will result in goodwill being written back).
The $40 million relates to IMX ($14.9 million), Clarity ($25 million) and Garradin ($10 million) which are Powerlan’s three sound core businesses and seen by Powerlan as comfortably worth their intangible value.
What the Brokers Say:
VBM Capital’s research arm EX100 Research in a report dated December 11 said "Powerlan offers a high risk, but potentially very high return exposure to the pickup in IT expenditure which is increasingly evident"
Warning that Powerlan has a disputed liability that could still give rise to the issue of 179 million shares plus an outstanding tax bill of approximately $10 million owing to the ATO, EX100 Research’s Darren Vincent adds in the report, "Longer term PWR has a portfolio of software products that could support a significantly larger market capitalisation, as such at current prices PWR warrants monitoring for a potential turnaround and very significant share price appreciation".
Powerlan Ltd - A Snapshot
Powerlan was established in 1992 by chairman Theo Baker, at that time mainly a reseller of PC’s – a high volume, low margin business. Following its listing on September 1 1999 (floated at $1, closed on the first day at $1.78), Powerlan pursued its vision of acquiring its own intellectual property.
The Businesses
Powerlan’s core businesses are:
1. Garradin (formerly Portfolio Manager, rebranded in April 2003) a global software vendor of investment management solutions. Its customer base includes Alliance Capital, Macquarie Bank, Perpetual Trustees, Milton Corp, Sandhurst, State Trustees of Victoria, Hunter Hall Investment Management, Alpha Investment Management and Austock Ltd. 2. IMX which has no significant competitor globally was developed in Melbourne, founded in 1990. It is a software vendor of international monetary systems focused on travel money and foreign exchange. Powerlan acquired IMX for cash and scrip in June 2001. IMX far exceeded its profit forecasts and the amount payable in Powerlan shares was between $20/25 million by end July 2002. In 2001 IMX signed a 3 year global agreement with American Express for the supply of the full range of IMX products to AmEx and its clients worldwide. IMX has over 1700 installations in branches of large multinational banks and foreign currency service organisations in several countries including US, UK, Japan, South Africa, Germany and Switzerland. 3. Clarity has an Operational Support System (OSS) and Network Management Systems (NMS) for telcos. Clarity is Powerlan’s largest revenue generator, generating around $20 million per annum or approx 50 pct of PWR’s revenue. Major clients include AAPT in Australia , Reliance in India which has some 5 million mobile phone customers and is planning to expand to 50 million, Philippine Long Distance Telephone Company and Sri Lanka Telecom. Each order is worth several millions. Powerlan’s 41 pct owned associate Clarity International floated in 2000 at 50c a share raising $3.5 million and was bought back by Powerlan in 2002 offering 1 PWR share for every 3 Clarity shares. 4. Zento, is a leading Managed Services Provider focused on IT security and communications. 5. ConverterTechnology: Powerlan has been developing its converter technology since December 2000 when the core business was acquired, automating the migration of files from old to new versions of Microsoft Office. ConverterTechnology is expected to see a significant expansion in 2004 promoted by Microsoft globally. 6. FinancialBPO. Powerlan entered the business process outsourcing (BPO) arena at the start of 2004 when it announced $12m over 3 years contract with OFM. Based on Powerlan’s Garradin software and Zento infrastructure services, led by managers with solid experience in BPO, FinancialBPO is expected to grow significantly over the next few years bringing significant benefits to Powerlan.
Other
Business Innovations: is Powerlan’s R & D arm, engaged in prototyping and development of new concepts and products, largely contract work funded by external clients.
During 2002/03 a number of businesses were sold, some of them seen as non core (IT&T Careers Pty Ltd, a technology recruitment business, IT&T Education Pty Ltd) sold for $2.5m and $1m respectively), others sold as part of Powerlan’s fight for survival – including its Axapta ERP consulting and implementation divisions in Hong Kong and Singapore for $US60,000, its 35 pct stake in Integrated Asset Management, sold for a total consideration of $5 million, the business and certain assets of XSI Technology Pty Ltd for a cash consideration of $4.6m and others.
Powerlan Ltd
* Last Traded price 4.6 cents * Shares Issued 468.2m * Market Cap $21.1m
Year ended June 30, Values in Millions$
INCOME
2003
2002
2001
2000
Op Revenue
61.0
202.4
342.6
181.0
Op Profit
2.6
(143.8)
29.1
15.8
Net profit
2.5
(142.5)
14.8
5.8
EPS (Cents)
0.5
(37.1)
4.2
10.0
PE Ratio (times)
9.2
BALANCE SHEET
2003
2002
2001
2000
Current Assets
12.4
61.4
131.9
81.3
Non Current Assets..
46.8
68.8
117.2
77.2
Current Liabilities
18.8
106.2
87.7
57.5
Non Current Liabilities
18.5
5.2
22.1
3.6
Net Assets & Shareholders' Funds
21.9
18.8
139.3
97.4
Intangibles
44.5
59.0
63.8
62.9
Net Tangible Assets
(22.6)
(40.2)
65.5
34.5
Gearing (Net of Cash) %
14.6
nil
Nil
Nil
NTA per share (cents)
(4.8)
(8.7)
18.4
10.1
Shares Issued (Millions)
468.2
464.3
358.7
334.8
Cash Flows:
2003 5 Mths Nov 30
Fiscal Years
2003
2002
2001
Cash on hand (at open)
1.0
11.7
23.2
9.8
Operating Activities
1.1
(8.1)
(21.0)
22.1
Investing
1.3
5.6
(0.8)
(49.3)
Financing Activities
(2.2)
(8.2)
10.3
40.6
Cash on hand at Year end
1.2
1.0
11.7
23.2
Notes
1. ANZ in June 2002 withdrew its line of credit of upto $30 million, with the undrawn balance at the time around $10 million. Chairman and founder Theo Baker began assisting the company with funds from that date, culminating in a $5 million loan to Powerlan in January 2002. 2. There is a dispute with the vendors of IMX who have received $10 million, with payment capped at a maximum of $16 million (i.e. if the matter should ever go to Court, which is thought to be unlikely) 3/The ATO is owed $10 million. An informal agreement has been in place with the ATO, which is being paid in instalments.
Directors:
* Theo Baker, chairman and founding shareholder. * Tomislav Matic, managing director. Dr Matic has a PhD in Biophysics. He as worked as a Research Scientist with the government and co-founded a software development company, which he ran for10 years. He has been with Powerlan from Nov 1999. * Tony Kalcina, executive director, a co-founder and current CEO of Clarity, which was founded in 1994.
Major Shareholders:
* Theo Baker with some 27 pct (?)
PWR Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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