Temenos: CEO exit highlights the perils of software-as-a-service shift

If you have always doubted national stereotypes, revel in the unreliability of Switzerland’s Temenos. You might not ask this lot to fix your cuckoo clock, let alone install your banking software, given recent managerial mishaps. Shares have halved since 2019. Chief executive Max Chuard has just resigned. His nemesis, Petrus Advisers, is hardly keener on chair Andreas Andreades.

In fairness, Temenos is not the only European software group that has found the transition to selling software-as-a-service hard going. SAP of Germany and the UK’s Sage have form of their own. City readers with long memories will meanwhile recall the rough ride that cyclical demand for banking software gave the likes of Misys.

Switching to SaaS means revenues and profits booked up front are spread over longer periods. The management of Temenos have exacerbated the blow to investor confidence by over promising and under delivering. A profit warning in October shaved a quarter from full year operating earnings.

Temenos is mature for an IT business at 30 years old. Chuard and executive chair — now interim chief executive — Andreades have been there for 20 years. Chuard is leaving following better-than- expected fourth-quarter results published on Monday. A 10 per cent pop in the shares may reflect joy at either, or both, of these factors.

Temenos, which is worth about SFr4.6bn, has underperformed peers like FIS and Fiserv. These have lost one-third and gained two-fifths respectively since 2019, albeit that they are oriented to payment services. Temenos hardly looks cheap at 23 times price to forward earnings. Both Fiserv and FIS have managed to increase earnings against a decline at Temenos over the period.

Petrus wants Temenos to set realistic targets and disclose more data. The group is still guiding for higher margins by 2025. Analysts think it may meet such targets, although almost two years later according to Visible Alpha.

The activist is also calling for a greater focus on the US. Temenos’s 2 per cent market share there is very low given its relative strength in the European market.

Petrus wants Andreades, who will step down as chair in six months anyway, to follow Chuard out the door. In the meantime, optimistic targets leave shareholders primed for further disappointments. Would-be consolidators would be cuckoo if further slip-ups do not prompt them to swoop in.