Maintel sees share price boost despite H1 revenue drop

Turnover tumble driven by projects put on pause due to lockdown and clients downsizing estates in Q2, according to comms player

Marian McHugh
@MarianMcHughCRN
15 September 2020

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AIM-listed Maintel's H1 was hampered by the loss of legacy contracts and customers delaying projects as a result of the national lockdown.

The comms player reported a revenue tumble of 17 per cent year-on-year to £53.4m for the six months ending 30 June 2020.

Despite this dip, Maintel saw its share price jump eight per cent on the back of the results, as CEO Ioan MacRae praised the firm's ongoing transition to a cloud and managed services business. He anticipates closing the financial year with over 100,000 contracted cloud seats.

He also noted that the first half of 2019 was a "particularly strong comparator" and that the loss of four legacy support contracts in the latter half of last year had an impact on the first half of this year.

"Although the impact of COVID-19 in Q2 has meant that the first half of the year has been challenging, Maintel remains firmly on track with its transition to a cloud and managed services business, as evidenced by the continued increase in contracted cloud seats during the period and the building of a strong pipeline of both new and existing customers," he stated.

"Performance in Q1 was positive, with revenue and cloud contracts in line with expectations and EBITDA tracking ahead. Revenue in Q2 was depressed by COVID-19, with projects being delayed and new contracts not being awarded. However, close control of costs in Q2 and the use of government business support schemes ensured that the impact on EBITDA for H1 2020 was minimised."

The Avaya partner recently underwent a restructuring of its senior management team, which MacRae said removed over £3m of annualised cost. It also recently saw the departures of COO Kevin Stevens and group sales director Stuart Legg.

"I am positive about the group's prospects in H2. We are now seeing good momentum in the number of projects being implemented and sales orders are increasing across both the public and private sectors," the chief exec continued.

"The cloud pipeline is very healthy and I am confident that we will close the year with contracted cloud seats in excess of 100,000, demonstrating the strong progress we are continuing to make in our transition to a cloud and managed services business."

Cloud and managed services accounted for a quarter of H1 revenue, while cloud seats rose 21 per cent to around 80,000 in the first half of Maintel's fiscal year.

However, its managed service base declined 19 per cent, a development driven by the four large contract losses at the tail end of last year, the "churn" of smaller contracts at the beginning of H1 and price erosion as customers downsize their estates and transition to cloud, according to chairman John Booth. He stated that this base reduction was "disappointing" and that it will be a key focus for the team.

The firm saw a frenzy of demand in March and April as organisations pivoted to remote working environments, but its second quarter was hampered by paused projects, which have now re-started, according to Booth.

These project delays caused the firm's technology revenue to drop 29 per cent to £14m.

"The hard lockdown for most of Q2 suppressed revenue for the quarter overall as the majority of our customers put major projects on hold for good, practical reasons," he stated.

"These projects have not been cancelled and, since the period end, Maintel has seen a rapid increase in activity with most projects being reignited. These project delays, combined with the loss of some managed services contracts in H2 2019, contributed to a decline in revenue."

Maintel's execs are optimistic about the course of the rest of the year, despite continuing economic uncertainty and potential further lockdowns as a result of the pandemic.

It reported that a further 10,000 cloud seats have been contracted so far in Q3, with a further 50,000 in the pipeline. It expects that H2's revenue and EBITDA will be around the same as that of the first half of 2020.

"Since the period end, there has been good momentum in the number of projects being implemented, sales orders are increasing, and cloud contracts being closed. In addition, the pipeline is growing, driven by a broad mix of public and private sector opportunities," it stated.

"The board is confident that Maintel is extremely well positioned in the market with a product offering that is well-aligned to customer requirements."

The COVID-19 pandemic has held mixed fortunes for the channel so far; Computacenter last week reported a slight 1.5 per cent revenue growth to just under £2.5bn for the first half of its FY, while distie Midwich reported a slight decline of four per cent to £302m for its H1.