The service companies most likely to succeed in a globalised market are those that really do add value, where their offerings can't easily be ignored, or replaced by an alternative. Those attributes seem to apply to KBC Advanced Technologies, which provides proprietary software and engineering consultancy services to the resources sector.
- Benefits from squeezed refining margins
- Emerging market growth
- Favourable legal ruling
- Shortage of technical expertise
- Soft European demand
- Software contracts deferred
The company serves a broad client base, including companies involved in refining oil and gas; producing liquefied natural gas and petrochemicals; even those in oil trading. In addition to its software, KBC provides tailor-made consultancy designed to meet its clients' objectives – whether that's boosting profit margins, improving efficiencies through increased scale, or cutting energy bills and carbon emissions.
Chief among the factors driving demand for KBC's services is the continued squeeze on the profitability of oil refining. KBC offers proprietary software, such as its Petro-SIM product, that allows refiners to simulate and thereby optimise production processes; in addition, its consultancy services enable clients to react quickly to industry trends. Making profits from refining oil is chiefly about pushing volumes through fixed plant, but the most successful refineries are the so-called 'high-complexity' refineries that can process heavy grades of crude oil. Refiners, therefore, are increasingly seeking help to optimise profits either through modifications to their crude oil 'cracking' processes, or by changes to their product mix.
| KBC ADVANCED TECHNOLOGIES (KBC) | ||||
|---|---|---|---|---|
| ORD PRICE: | 72p | MARKET VALUE: | £40m | |
| TOUCH: | 70-72p | 12M HIGH/LOW: | 75p | 57p |
| DIVIDEND YIELD: | 3.2% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 55p | NET DEBT: | £2.66m | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 52.8 | 5.39 | 6.4 | 1.35 |
| 2009 | 52.6 | 4.61 | 5.4 | 1.55 |
| 2010 | 53.1 | 3.65 | 4.0 | 1.85 |
| 2011* | 55.8 | 5.52 | 6.8 | 2.00 |
| 2012* | 61.2 | 6.90 | 8.0 | 2.30 |
| % change | +10 | +25 | +18 | +15 |
Normal market size: 4,000 Beta: 0.3 *Cenkos Securities forecasts | ||||
Demand for KBC's services is also rising because the oil industry has had to respond to tougher environmental legislation at a time when there is a dearth of qualified technical personnel. This manpower shortfall has been exacerbated by the rapid expansion of refining in the world's emerging economies; a factor that KBC is already exploiting through a $42m (£27m) profit-improvement programme with PEMEX Refinación, a division of Mexico's state-owned oil and gas giant.
True, demand from European refineries, unlike those in Mexico and other emerging markets, remains subdued. But KBC has compensated for this by securing new consultancies in the petrochemical and gas-processing industries. So all of its divisions are busy.
Prospects for 2012 have been helped by the resolution of a long-running dispute over software patents. An arbitration award in KBC's favour removed an uncertainty that had been hanging over its share price. Admittedly, KBC has had to defer around £2m in software licence sales, but City analysts assume that these deferrals will ultimately be booked as part of first-half revenues.
Meanwhile, Nicholas Stone, KBC's operations director, says that "at one point all the integrated majors had a business unit that tried to do what we do". But in an era of increased specialisation, the majors often find that it's more cost-effective to opt for external support. And demand for these services can be gauged by the fact that, despite the depressing effects of the 'Arab Spring', KBC anticipates that 2012 will bring its highest consultancy revenues since the oil price peaked in 2008.
