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The Panoply Holdings: a fast growing small cap bet on digitalisation of public services


Shares in digitalisation small cap player The Panoply Holdings LON:TPX have not been doing badly recently. The stock could have been had for around 115p back in November, but is now trading at more than twice that.

This is a pure tech advisory specialist that works with both the public and private sectors, including, among others, the Rural Payments Agency here in the UK and DEFRA (Department for Environment, Food & Rural Affairs). The Panoply produced revenues of £21.2m in the six month period to 30 September and an adjusted EBITDA of £2.9m.

We like the look of this company because it delivers exposure very efficiently to a medium term trend in government and private sector digitalisation, a process that many of you will see happening right in front of you. The leadership team is inspirational and knows what it is doing. There is experience here and a solid knowledge about how to pitch and win business with government clients. Scope for further growth looks likely.

The big recent news at The Panoply was the acquisition of Keep IT Simple, which was achieved with £26m in a 30/70 cash/.shares split and no earn out. Keep IT Simple is described as an ethical company that provides consultants and engineers that help clients get to grip with the rapid roll-out of digital services. There is always a lot of talk about digitalisation, but actually making it happen on target, particularly in the public sector, can be challenging.

KITS parachutes into an organisation to work with what are often under-performing proprietary systems. We are in an interesting point in time when many government agencies are trying to migrate from paper-based to digital processes, not just internally but also in the way they interact with their ‘customers – i.e. you the tax payer. Many of them are making a mess of it. That’s where KITS comes in.

More clarity on messaging would help The Panoply

If we had one criticism of The Panoply at the moment, it is that the company is still having trouble telling the market exactly what it does on its website. Its website is full of lovely phraseology about “consistent autonomy’ and ‘culture of cultures’ but this really doesn’t tell investors what the company does or enable them to make an effective valuation. “Ambition with inclusion” sounds lovely, but many will not want to invest in that.

The Panoply makes over 70% of its revenue from the UK public sector. Clients include the NHS, central government and local government. This is potentially a huge market, even if you measure it over the next five years, valued at more than £20bn. It can deliver world class products and services at a fraction of the cost of the bigger players in the market, thanks to its agility and lower cost base.

“We’re in this game of presenting ourselves as the full service, modern alternative,” says Co-founder Neil Gandhi. “There are many digital consultancies that are niche and small, but the challenge they have is that they are never going to be given many of the bigger engagements that are out there. We believe today that we are the only digitally native, full service, modern services company out there pitching into government.”

Shares in The Panoply have done extremely well over the past 12 months: COVID is inevitably going to have been a driver here, but we think the company is tapping into a broader demand for its consultancy capabilities that is obviously not being met from other quarters. One would be tempted to expect that bigger brands in this space would be hoovering up all the juicy business, but it is obvious that they are losing out to Gandhi and his team.

The Panoply stock has come from less than 50 pence a year ago and recently hit a new peak, after which it has come off slightly. But it has broken out of a recent range that had been established at around 175-210. At the time of writing it was at 260. Major institutional shareholders currently include Canaccord Genuity (3.39%), Octopus Investments (3.16%) and Rathbones (2.62%). The shareholder base is actually quite well diversified with the largest single stock holder at 12.78%.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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