DY can deny that Autonomy is a tremendously exciting company with high growth prospects, the closest thing the UK has to a Microsoft or a Google. A market leader in the field of meaning-based computing, it is only scratching the surface of what is possible. The world, as they say, is its oyster.
It’s a pity then that genuine concerns over cash conversion will not go away. Autonomy converted 87 per cent of sales to cash in the first quarter, far less than the 100 per cent or more that analysts had been expecting. The average number of days it took Autonomy to collect revenues after booking a sale was up from 88 days in the first and last quarter of 2009 to 93 days. This was largely due to an outstanding debtor and a big payment that was booked just after the reporting period ended.
Management offered an upbeat outlook, especially for the second half when ongoing discussions become contract wins. Until then, all eyes are on the acquisition that Autonomy is about to make after building a £500m war chest in a convertible bond issue. The firm is tight-lipped on its intentions, although City A.M. understands it has its eye on a US firm that will enable it to apply its meaning-based technology to advertising and marketing.
Until Autonomy catches its prey, a move that will be highly earnings accretive if past form is anything to go by, cautious investors will be content with holding the stock. Meanwhile, Autonomy needs to show it can push cash conversion up, both in the second quarter and beyond.