Yesterday Prophecy International (ASX: PRO) announced that full year revenue for FY 2020 is expected to be about $14million. This was a negative announcement because revenue was $7.3 million in the first half, so the second half must have been weaker at around $6.7 million. As such, Prophecy has a patchy claim on growth, and the share price is now around 20% lower.
However, my rationale for owning Prophecy is that its Snare business, which sells a trusted but unremarkable event logging system, should benefit from extra demand resulting from increasing cyber espionage. As one friend pointed out to me (thanks) the Australian government says that “During investigations, a common issue that reduced the effectiveness and speed of investigative efforts was the lack of comprehensive and historical logging information across a number of areas including web server request logs, Windows event logs and internet proxy logs.” This supports the notion that event logging systems like Snare may see stronger demand in FY 2021 than in FY 2020.
Meantime, the company’s eMite call centre software business is also finally getting a little bit of traction, with ARR reported to be almost $4.4m year end. While eMite could scarcely be accused of fast growth, given its 13% revenue gain year-on-year, it’s not hard to imagine the business supporting the current market capitalisation of around $44 million if the increased importance of call centres drives demand in a covid-riddled world.
Having said all that, I have zero intention of buying more Prophecy at this stage because I don’t have much confidence in management. This is for two reasons. First, the company massively overpaid for eMite, in my opinion, and the business has not lived up to the hype they created a few years ago, when it was purchased. No-one on the board seems to have paid a price for this lapse of judgement since they all own so much of the company.
Second, the CEO’s twitter makes me believe his desire to sprout right wing political memes, rage against the ABC, mock BLM and share climate change skepticism on the internet is greater than his desire to create a work environment that maximises Prophecy’s ability to attract and retain many
top tier half decent software developers.
There’s no doubt he’s a successful fellow, and he can think what he wants about politics privately, but there’s no doubt his outspoken twitter feed would be a turn off for any left-leaning software developer with sufficient ability to have multiple employment options.
Prophecy is a medium term trade for me that represents an opportunistic bet that it is undervalued. I’m looking for a re-rate, not a multiyear multi-bagger, and I don’t intend to publish anything more on the subject of the company (except to Supporters).
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This post is not financial advice, and you should click here to read our detailed disclaimer. The author owns shares in