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Thursday 21 May 2020

Resilient Endava downgrades outlook

LogoTrading held up comparatively well for London HQ'd digital SI Endava during the first part of this year. Revenue in Q320 (the three months to 31st March) increased to £92.2m by 25.7% yoy on a constant currency basis, just shy of the bottom end of the guidance issued with the second quarter results. This produced sequential top line growth of over 7%.

Adjusted profit before tax for the latest quarter, which removed the impact of a significant one-off credit related to the company’s non-recurring discretionary employee bonus scheme, was up 21% yoy to £16.0m. This delivered a margin of 17.4%, down 70bps compared to Q319.

There was little change in the composition of the company’s revenues. The UK remained the single largest market for Endava accounting for 45% of global sales. This was followed by North America (28%) and Europe (25%), the latter of which returned to growth after a slower Q220 (see here). Payments and Financial Services continued as the company’s best performing vertical industry again producing over half of total turnover last quarter. The softening of demand in the Telecommunications, Media and Technology sector (25% of revenue), which emerged during the last three months of 2019, persisted though the last quarter with yoy top line growth limited to just 4%.

Endava began to see not only a slowdown in its sales pipeline, but also a reduction in the size of its client teams and delay in projects from January onwards as the pandemic began to bite. As a result, the company is now anticipating that Q420 sales will decrease by c.6% qoq. Endava has also reduced its full year constant currency revenue growth expectations from between 25% and 26% to within the 23% to 23.5% range. If achieved, this will still represent a pretty impressive performance given the current circumstances.

Posted by: Duncan Aitchison

Tags: results   systemsintegration   digital  

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