Globo
Globo: Rapidly Growing Greek IT
Globo joined the AIM market a year ago. It’s a fast-growing software and technology services provider based in Greece. Most of its revenue is domestic but it also operates in Cyprus and is looking to expand in Turkey, Romania and Bulgaria.
The population of Greece is around 11 million and its economy is about one seventh the size of the UK (although that gap could of course narrow over the next few years!) In terms of the other markets it’s looking at, Globo reckons that combined IT expenditure in Romania, Bulgaria and Cyprus is just over half that of Greece. Turkey’s population is over 70 million but its expenditure on IT is probably only 25% greater than in Greece. Nevertheless, the move into new markets should mean that Globo has ample room to grow over the next few years.
Globo’s management has spent over a decade developing its own suite of enterprise software applications under the Citron brand name. These are offered on a licence basis and include content and document management, enterprise resource planning, intranet, customer relationship management, workflow and indexing platforms. Selling Citron and related services plus third party products has enabled Globo to build up a client base of around 600 corporate and 60 public sector organisations.
Many of its larger contracts come from the public sector where it specialises in turning large document archives into digital form thanks to an exclusive relationship with Zeutschel, a German company that provides document management and microfilm scanners.
Recently Globo announced the launch of CitronGO!. This will offer mobile and laptop users services such as push email, calendar, contacts, social networking sites and storage using cloud computing. It’s currently in beta testing and should be commercially available next year. For the technically minded, a demonstration and positioning paper can be examined at www.citrongo.com. Globo reckons this could be an important product for the company, particularly in terms of international expansion.
Another growing source of revenue is telecoms. Globo sensed an opportunity due to low broadband penetration rates in Greece and set up a subsidiary called Profitel in 2005. It offers broadband services to small and medium sized companies plus Citron products using a ‘software as a service’ model. This is where software is hosted remotely and therefore doesn’t have to be installed on the customer’s computers.
Globo’s also has another emerging revenue stream from installing Wi-Fi hotspots and providing broadband services to hotels and restaurants via its Internet Hotel product.
So how successful has Globo been in turning all these various products and services into sales? Group revenues grew from €5.1m in 2004 to €6.1m in 2005 and then €6.6m in 2006. Since then the pace has quickened. Sales hit €11m in 2007 and should hit €16m in 2008 with €23m forecast for 2009.
Sales for the first half of 2008 were €7.2m which was a 76% increase on the first of 2007. Traditionally Globo’s revenues are weighted to the second half of the year, so the €16m predicted for 2008 looks achievable. Profits before tax were €1m in 2006 and €2.1m in 2007.
Forecasts for 2008 and 2009 are €3m and €5.5m respectively.
Major contracts announced in the last 12 months include €3.9m for the digitisation of 15 million pages for the Greek Ministry of National Education and Religious Affairs and a similar €1.4m contract with the Greek Ministry of Mercantile Marine. Last month a bundle of other contracts was announced, including a €1.8m deal with the Information Society to install Wi-Fi hotspots.
Turning sales into cash is a little tougher – in the short term at least. Terms of trade in Greece are often around six months for the private sector and up to twelve months (or even more) for the public sector. This means Globo often has a large amount sitting in trade debtors and operating cash flow can lag profits by quite some distance.
For example, as at June 2008, trade debtors were €11.9m. Based on sales for the previous twelve months, this represents debtor days of just over 300. In addition Globo had £3.8m in other current assets which are typically amounts recoverable on long-term contracts.
This is a lot of cash to have tied up in working capital and something that could put off many UK-based investors. It also means that despite Globo’s recent profitability, it has burned cash over the last year as it has also continued to spend money on developing new products such as CitronGO!.
Investors can take comfort from the fact that Globo has no history of significant bad debts but this is an area to keep an eye on as the company continues to expand. As at 30 June 2008 Globo’s net debt was €8.4m. It raised €3m when it joined AIM a year ago but has raised no new equity finance since then.
Another point to note is the relatively wide bid/offer spread on the shares. At the time of writing it was 9p-12p and there are often no trades reported for several days at a time. Costis Papadimitrakopoulos, Globo’s chief executive officer and founder, is the major shareholder with a 51.6% stake. The next four largest shareholders (institutions and legacy investors) own another 40%, so there is limited marketability compared with other similarly sized companies.
Globo’s shares have declined gradually from the 20p float price and currently trade on an estimated price earnings ratio of around 6 times for 2008 and between 3 and 4 times for 2009.
That looks harsh. If sales come through as forecast and the cash follows suit, Globo could turn out to be an attractive growth story.
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