Canaccord Genuity lowers target price on System1 following profit warning

22nd Feb 2022 09:09

(Sharecast News) - Analysts at Canaccord Genuity lowered their target price on market research company System1 from 405.0p to 385.0p on Tuesday and said its recent legacy miss re-emphasised that "the future is data".

Canaccord Genuity said a profit warning from System1 was disappointing as far as the group's short-term outlook was concerned, it also highlighted "the lumpiness and reducing visibility" of more traditional bespoke consultancy project sales.

The Canadian bank noted that anticipated fourth-quarter budgets from large US customers had not materialised as a result of refocused portfolios and with only six weeks of System1's financial year remaining, the firm was forced to reduce its revenue guidance by over £1.0m and adjusted pre-tax profit expectations by roughly £1.0m.

"We reduce our FY22E EPS by 57% accordingly and prudently lower our FY23E expectations by 9%, said Canaccord, which has a 'hold' rating on the stock. "However, we believe the narrative surrounding consultancy attrition has been well flagged and the future investment case remains very much focussed on growth in high margin automated data products."

Canaccord also pointed out that client transition to these products happened at "a much faster pace" than had been imagined, driving a rapid acceleration in run-rate revenues, and noted that System1 had won 200 new data customers since launching in April 2020.

"As a result data contributed £7.4m of revenues in the nine months to 31 December 2021 (39% of group) with new customers providing £4.4m of 60% data sales, and we are encouraged that the group continues to see new high margin, fast growth data products perform well," said the analysts.