BULL POINTS:
● Dominant software supplier to UK law firms
● Expansion in the US
● New low-cost package
● Interesting acquisitions
BEAR POINTS:
● Legal IT spending still under pressure
● Shares up 20 per cent since September
Lawyers don't win many popularity contests, but they do have unique needs for IT packages, and Tikit is a market leader in supplying these. Employing 200 staff in the UK, Paris, Madrid and Chicago, it supplies over 1,000 clients (including 92 of the UK’s top 100 law firms and 61 or the biggest in the US) with technology that helps with manage documents, record time and, of course, bill clients.
Tikit has an impressive 15-year track record, blemished only twice with falling profits – first in 2002, when law firms delayed new software investment because of economic uncertainty, and last year for much the same reason. It also has shown its ability to recover quickly. Pre-tax profits of £0.7m in 2002 doubled in 2003 and had trebled by 2005. Last year's pre-tax profits fell 29 per cent to £2.5m as revenue dropped 12 per cent, but, importantly, recurring support and outsourcing revenue still rose 10 per cent to £13.7m.
| IC TIP RATING: | |
|---|---|
| Tip style: | Growth |
| Risk rating: | High |
| Timescale: | Long term |
| What do these mean? Find out in our | |
Developing more in-house software – as well as reselling products owned by Autonomy, LexisNexis and Microsoft – is also crucial in improving the quality of profits. Operating profit margins in the latest first half jumped 3.5 percentage points to 12.6 per cent, driving underlying pre-tax profits 43 per cent up to £1.65m. This was helped by slicing £1m off costs, but it also shows that Tikit can adapt and prosper while law firms remain tight-fisted.
The launch of Tikit Legal Office, an outsourced IT package aimed at small and medium-sized law firms, is also savvy and exciting. It will serve the legal mid-market using cost-effective cloud technology. That involves charging a monthly subscription for services rather than hefty upfront licence fees – a much easier sale since the cost can be met by operating cashflows rather than dipping into capital.
| ORD PRICE: | 200p | MARKET VALUE: | £29.5m | |
| TOUCH: | 195-200p | 12M HIGH / LOW: | 200p | 117p |
| DIVIDEND YIELD: | 3.4% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 101p | NET CASH: | £2.1m | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 26.4 | 3.39 | 18.6 | 5.00 |
| 2008 | 28.5 | 3.49 | 18.1 | 6.00 |
| 2009 | 25.2 | 2.47 | 12.7 | 6.00 |
| 2010* | 26.9 | 3.30 | 17.0 | 6.00 |
| 2011* | 29.7 | 4.40 | 22.7 | 6.75 |
| % change | +10 | +33 | +33 | +13 |
NMS: 500 MARKET MAKERS: 3 BETA: 0.4 *Charles Stanley forecasts | ||||
Tikit recently bolstered its offering with two bolt-on acquisitions, including Carpe Diem from UK accounting software giant Sage. Tikit has long been the exclusive reseller of Carpe Diem's billing management software in the UK, but the package is falling behind the times. The plan will be to shift the 200 or so customers to Tikit's own platform.
The second deal was for Canadian software company PensEra. It has 20,000 subscribers to TimeKM, software that helps lawyers calculate their billable hours, either directly from Microsoft Outlook or from mobile devices, such as Blackberry. Tikit is effectively buying recurring revenue worth around £2m a year for an initial £1.3m or so – that seems good business as PensEra should immediately add around 10 per cent to EPS.
