Earn-outs are the cautious way to purchase a business because they incentivise vendors to maximise profits by pushing up sales and minimising costs. But as Proactis discovered with its two recent purchases - Requisoft in November 2006 and Alito in March 2007 - earn-outs also prevent acquirers from interfering even when (in Proactis's case) it was itching to cut costs.
So it seems unlikely that either takeover contributed much profit in 2007-08. In fact, they were dominated by a jump in administration costs from £2.76m to over £5m, which is a little embarrassing for a company selling cost control and cost monitoring software. But Proactis has now implemented a cost-reduction programme to cut overheads by £1.4m. Broker Daniel Stewart forecasts 2008-09 sales of £6.55m and adjusted profits up from £870,000 to £1.11m.
PROACTIS (PHD) | ||||
|---|---|---|---|---|
| ORD PRICE: | 16.5p | MARKET VALUE: | £5.08m | |
| TOUCH: | 15-18p | 12-MONTH HIGH: | 70p | LOW: 16.5p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 18p | NET DEBT: | 22% | |
| Year to 31 Jul | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2004 | 0.91 | -0.20 | – | – |
| 2005 | 1.86 | 0.04 | – | – |
| 2006 | 2.91 | -0.08 | -0.5 | nil |
| 2007 | 5.34 | 1.09 | 3.5 | nil |
| 2008 | 6.55 | -0.53 | -1.40 | nil |
| % change | +23 | – | – | – |
Click for a guide to the terms used in IC results tables
