That company is Netcall, and one of the services it offers its clients is Queuebuster, which gives telephone customers an alternative to waiting in lengthy call queues by offering them an automated call back. The process is simple, and means that the customer can leave their contact details and carry on with other tasks rather than being left hanging on the phone. The call will then be held in the queue as if the caller is still on hold and once it reaches the front of the queue, and, more importantly, reaches an agent, the call back is returned. The service is also an invaluable tool in dealing with unplanned call centre demand, such as when thousands of customers are all trying at the same time to contact their airline or booking agent because strikes, snow or volcanic eruptions have disrupted their travel plans.
In addition, Netcall offers another product, CallMeBack, to handle enquiries from online customers and those in branches which can't be handled immediately by onsite staff. For instance, banks can direct customers via their mobile to a skilled contact centre advisor during busy periods or the service can turn a company’s web enquiries into inbound calls with their customers rather than dealing with lengthy e-mails replies. This can quickly pay for itself, as medical healthcare provider BUPA points out: "By minimising the delay between interest and action, we attract the highest quality prospects. Nearly 40 per cent of our web callback customers make a purchase."
Netcall also offers planning and forecasting software, Q-Max Workforce Management. By accurately forecasting caller demand and planning the most cost effective and socially acceptable shifts for call centres agents, Q-Max helps improve productivity levels of a call centre's most valuable asset - its people.
There is no doubt the company's suite of software products is proving popular, with Netcall boasting over 600 clients in the private and public sectors. These include 80 per cent of the major multiplex cinemas, over 60 per cent of the NHS Acute Health Trusts and blue chip companies such as BT, Orange, Lloyds TSD, First Direct and Interflora. In fact, in the year to 30 June 2010, over 80 per cent of the company's revenues were recurring and underlying operating profit margins were a healthy 25 per cent. And following last summer's acquisition of rival Telephonetics in a £10.6m cash and shares deal, profits are set to soar in the current year to June 2011. This is partly due to costs being taken out of the business - around £1.4m of annualised costs including duplicate head office costs have been removed so far - but it also reflects the benefits of cross selling to a significantly larger customer base and reseller channels. Netcall reports that sales of new licenses have been doing well, while sales to the public sector have been holding up as the efficiency savings its products offer remain attractive with public finance budgets so tight.
Taking into account the Telephonetics acquisition, brokers WH Ireland and Evolution Securities both expect revenues in the current financial year to treble to £14.1m, and given the benefit of the cost savings, underlying pre-tax profits to more than double from £1m to £2.3m. On this basis, adjusted EPS are forecast to rise 25 per cent from 1.2p to 1.5p after factoring in the extra shares in issue following the acquisition of Telephonetics and a £4.25m placing at 19p a share to provide working capital and fund part of the cash consideration. So with the shares trading on a bid-offer spread of 12.25p to 13p (TIDM: NET), the PE ratio is set to fall from 12.5 to 8 in the 12 months to 30 June 2011.
The investment case is even more compelling when you consider that Netcall was sitting on £4.8m of net cash at the end of December. Analyst Roger Phillips at Evolution notes that the "operational cashflow performance is ahead of plan with the net cash position at the interim stage equivalent to our June year-end forecast". Anne Crow at broker WH Ireland now expects net cash to rise to around £5.2m by the end of June. In other words with Netcall having a market value of £15.5m, net of cash the company is rated on a lowly 6 times prospective post tax profits. And with scope for profits to rise by a further £130,000 in the year to June 2012 as the balance of the costs savings are realised, then it’s not as if the earnings momentum is about to grind to a halt. It's worth noting, too, that the company has some heavyweight directors on board including chairman Michael Jackson, who was previously had the same role at Sage Group, where he was a board director for 23 years.
So following the upbeat trading statement, I rate the shares a low risk medium term buy at 13p and have set a six month target price of 20p which, adjusting for the cash pile, would still only raise the PE ratio to 9 and offer over 50 per cent share price upside.
