The public sector division – which generates half of the company's sales – still enjoyed strong demand in the period, with new clients such as The London Borough of Lewisham signing up to Netcall's software. This contract win momentum propelled product and professional services revenues up by 22 per cent to £2.24m. With maintenance revenues rising 18 per cent to £3.2m and the Software as a Service offering gaining traction, recurring revenues have surged 11 per cent to £5.1m and now represent just under 70 per cent of total sales.
Cash profit margins increased from 18 per cent to 22.3 per cent, helped by £1.8m in cost savings, but with continued investment into research and development (R&D) expected – especially as Netcall extends its platform to include the web, mobile, data and voice – any further savings will be ploughed back into R&D.
Analyst Andrew Darley at FinnCap expects a 20 per cent rise in full-year adjusted EPS to 1.8p and has a 30p target price.
|ORD PRICE:||23p||MARKET VALUE:||£28.4m|
|TOUCH:||22.5-24p||12-MONTH HIGH:||23.5p||LOW: 15p|
|DIVIDEND YIELD:||1.7%||PE RATIO:||21|
|NET ASSET VALUE:||12p||NET CASH:||£7.2m|
|Half-year to 31 Dec||Turnover (£m)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
*Includes intangible assets of £10.7m, or 8.7p a share
Netcall is on the verge of a steep growth trajectory, and its shares are cheap at 10 times underlying earnings, adjusted for net cash of 6p a share. Buy.
Last IC View: Buy, 17.5p, 26 September 2011