Following Parseq's mixed messages to the market in April (see Parseq sends mixed messages), another warning seemed inevitable. And so it came to pass. The AIM-listed software and BPO provider for the financial services sector now expects FY11 profit (ending 31 December) to be below market expectations and below 2010 levels (PBT in FY10 was £718k: margin of 4.3%). This is the second warning from Parseq since the start of 2011, and shows the difficulties it faces buying and building its way to become an integrated software and services business. It is now taking the “necessary steps to improve its long-term financial performance”, which is likely to mean more restructuring and cut backs. The disappointing news sent Parseq’s shares down 10%.
Revenue for the first half of 2011 is expected to be £12m, an increase of 56% on the previous year - driven by the acquisitions of Avance, the customer management business acquired in August 2010 (see here) and Intelligent Environments. Excluding acquisitions revenue growth would have been flat. Group profits (we assume EBITDA) are expected to be £1m, up from £500k achieved in H1 2010.
The pain is being felt in the Documentric BPO business, which Parseq said is facing ongoing softness and delays in closing new sales. The BPO business provides transaction and payments processing mainly for UK banking clients. In the first half it did manage to renew deals with Lloyds and RBS and sign a new three-year deal with HBOS. But it seems the focus is now more on delivering new services to its customer base. So following a new partnership with a UK data centre specialist it now plans to offer hosting and managed services to better exploit its 10,000 sq/ft data centre in Rotherham. It hopes this will drive new revenue this year and profit growth from 2012. But diversifying into new areas seems a risky strategy right now while the core services business remains in trouble and in need of fixing.
The software business, meanwhile (formerly Intelligent Environments), is less of a challenge. It is expected to continue trading in line with or slightly ahead of expectations, and is apparently benefiting from “explosive growth” in the mobile banking market. It signed a number of new partnerships with global banking software businesses in the first half as well as a strategic deal with O2. Parseq’s strategy is to use the profit generated from the business as a whole to reinvest in its mobile and digital banking products Mobinetic and Net Finance. But it is unclear where this leaves the BPO business. Nonetheless, it seems Parseq's best chance of future success lies in further building the mobile banking software business.