Following a slow start to the year, workforce software company
Allocate was able to nudge first-half revenues up thanks to the contribution from recent acquisitions, although overheads also increased, which, coupled with higher research and development (R&D) spend, meant operating costs rose by £1.1m to £15.5m. So underlying cash profits fell from £1.6m to £600,000 and adjusted EPS went from 1.8p to a 0.1p loss.
Still, trading has improved as the year has gone on. Recurring revenues increased 11 per cent to £8.2m in the period and the predictability of future revenues has been helped by the launch of a cloud-based service last July, which has already won contracts with 13 customers worth £1.4m - £100,000 was booked as revenue in the first half - and has a pipeline worth £8m. The healthcare business, which accounts for over three-quarters of total sales, also has a strong pipeline of licence renewals in the second half. This bodes well given the business's historic 100 per cent renewal rate.
Broker Numis Securities predicts Allocate will match last year's strong second-half result, which benefited from a one-off £3m defence order, and reckons there is visibility on about 70 per cent of second-half revenues. Analysts forecast full-year underlying pre-tax profit of £4.5m and EPS of 6.1p (from £5.7m and 7.4p in 2012).
|Allocate Software (ALL)|
|ORD PRICE:||80p||MARKET VALUE:||£51m|
|TOUCH:||79-82p||12-MONTH HIGH:||90p||LOW: 72p|
|DIVIDEND YIELD:||1.5%||PE RATIO:||na|
|NET ASSET VALUE:||20p*||NET CASH:||£2.1m|
|Half-year to 30 Nov||Turnover (£m)||Pre-tax profit (£m)||Earnings per share (p)||Div per share (p)|
*Includes intangible items of £16.5m, or 26p a share
As the so-called 'earnings quality' of Allocate's business improves due to rising recurring revenues, there is the potential for a higher rating. But a forward PE ratio of 13 times is fair for now. Hold.
Last IC view: Buy, 75.5p, 1 Aug 2012