In times of crisis, companies and management tend to be judged by metrics other than the normal key performance indicators.
A case in point is Quixant, which makes hardware, software and display technologies used predominantly by the gaming, broadcast and healthcare sectors.
Its recent interims, hailed by ‘house’ broker, finnCap, as ‘beating the odds’, revealed how management, led by Jon Jayal, was able to navigate some potentially treacherous markets as coronavirus began its deadly global spread in early 2020.
What stood out was not the modest loss, but Quixant’s ability to manage its financial reserves, which were $17.4million as at September 28, 2020, up from just over $16million at the end of last year. It also has $12.4million of undrawn borrowing facilities.
Revenues for the gaming operation halved as casinos from Macau to Vegas shuttered
Cash is king when you are being buffeted by the extraordinary economic turbulence caused by a staggered worldwide lockdown.
It has achieved this not by lopping hundreds of staff from the payroll but by working with customers collaboratively to ensure management of receivables while finding incremental savings from the business.
All of this was done without the loss of a single client – which under the current circumstances is some feat.
‘We’ve been on weekly calls with customers talking through progress,’ explains Jayal.
‘Close customer collaboration has been essential in this and not being heavy-handed because they [customers] are hurting as well at the moment.
‘We’ve been working with our suppliers, but always honouring our commitments with them and never reneging on a payment – it is something we promised we would never do.’
What also jumped out from the results was the resilience of the Densitron business, which develops control surfaces and systems and displays.
So, while revenues for the gaming operation halved as casinos from Macau to Vegas shuttered, Densitron’s were off by a comparatively modest 13 per cent due to its broader market exposure, meaning total turnover was down by ‘just’ a third.
Looking ahead, analysts expect Quixant to make a modest second-half profit, meaning the business will be break-even for the year.
Out of adversity has come an outsourcing opportunity that has also allowed Quixant to offer support to hard-pressed machine makers supplying the stricken casino industry.
So, as roulette and blackjack tables have seen players return, manufacturers have been forced to gamble too – on ramping up production with a significantly reduced headcount.
‘Such resource constraints represent an opportunity for a specialist outsourcer like Quixant to provide even more of the cabinet hardware and the software stack underpinning the game,’ finnCap observes.
This in turn allows the company to move away from one-off purchases to multi-year, contracted, repeatable supply agreements, the broker adds.
‘Based on conversations we’ve been having in the last few months with executives and some of our major customers, we think that’s an area where over time, there’ll be a greater move towards simplification and standardisation,’ says chief executive Jayal.
Quixant has offer support to hard-pressed machine makers supplying the stricken casino industry
Looking ahead, analysts at Canaccord expect Quixant’s revenues to be $59million for the current year, rising to $69.6million, and then $81.8million. Crucially, the business will be back in the black next year, according to the broker.
At the start of the year, the shares were trading at above 220p, reflecting a guardedly optimistic assessment of prospects after 2019, the ‘first down year in the company’s history’.
After bottoming out at 62p at the end of March, they have rallied strongly to 113p.
But, according to Canaccord, they may have further to go. Using the discounted cash flow (DCF) methodology, analysts at the London arm of the Canadian bank have set a price target of 160p.
‘Our assumptions show Quixant returning to profitability for 2021 and 2022, with positive free cash flow (albeit at lower than historic levels),’ the analysts said in a note.
‘It has historically been a highly cash generative business, and for that reason, we use DCF analysis to capture the longer-term recovery.’
Jayal says ‘caution is the watchword’ as Quixant moves towards 2021.
With some understatement, he says it is ‘difficult’ to make any definitive forecast amid a pandemic with the US elections and Brexit further obscuring the outlook.
However, the business looks well placed once the world health crisis has abated and politics and economics have ‘normalised’.
‘We’ve maintained all our customers through this [pandemic] period, and there are early signs that things are getting a little more positive. But there’s still a long way to go,’ says Jayal.
Quixant’s share performance over the last year