Patsystem’s hosted operations are still powering ahead and sales in the Asia region continue to grow but its business with exchanges has been hit by a substantial downturn, resulting in lower anticipated revenue for H2 and a profits warning for the full year (to December 31). In its trading statement Patsystems said profits for the year “would only be modest”.
As the AIM-listed derivatives-trading software company is taking one-off exchange licence sales out of its 2012 business plan, it does not see the situation improving anytime soon. It says exchanges are finding it difficult to source funding for new investments and there is no catalyst to push them to commit to major IT spend and transformational projects. It looks like Patsystems is being hit by the “good enough” effect.
Trading systems revenues will also be down due to lower than expected sales in Europe and North America that a 10% rise in sales in the Asia region could not compensate for. At the same time costs were up in H2 because the company had to commit more resources to delayed implementation projects, and took on the costs of insourcing its development following the Mixit acquisition (see Patsystems aims to boost critical mass with Mixit acquisition).
Reducing the reliance on one off licence sales is sensible but overdue given the economic environment of the past few years. Its prospects lie in its hosted operation and the recurring revenue it can generate - XConnect hosted revenues are expected to double in 2011 to around £3m. Asia is also a hope for the future. We are keen to see the effect of the Mixit acquisition as it should bring more recurring revenue and margin enhancement but given that it was only acquired in August it is early days yet.