The four-year transformation of Xchanging (XCH) from an outsourcing group into a higher-margin business technology and services provider is now complete, says management. But the shares dipped 3 per cent on the publication of these full-year results, suggesting the market is still more focused on teething problems after a year of acquisitions and product development.
Xchanging's development of its insurance software business Xuber has been slower than expected, as a soft market amid lengthy customer reviews of their infrastructure investments hit new contract wins. An unexpected inquiry by the Competition and Markets Authority into the £64.1m acquisition of Agencyport Europe has also hurt the division, although management is so confident of a favourable decision - expected in late May - that it would not discuss contingency plans if the deal does fall foul of the antitrust watchdog.
However, Xchanging's investments should eventually give it a more cash-generative business platform, capable of higher profit margins and less reliant on chunky long-term contracts. Exiting many of these contracts in the year helped the company increase its adjusted operating margin by 320 basis points to 13.7 per cent, maintaining underlying profits even as revenues plunged.
Broker Investec downgraded its 2015 forecasts by 7 per cent. It now expects pre-tax profits to rise 3 per cent to £52.7m this year, generating EPS of 10.4p.
| XCHANGING (XCH) | ||||
|---|---|---|---|---|
| ORD PRICE: | 139p | MARKET VALUE: | £338m | |
| TOUCH: | 138.3-139.5p | 12-MONTH HIGH / LOW: | 192p | 138p |
| DIVIDEND YIELD: | 2.0% | PE RATIO: | 21 | |
| NET ASSET VALUE: | 89p* | NET CASH: | £13.7m | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 689 | -7.6 | -16.8 | nil |
| 2011 | 651 | -2.5 | -5.8 | nil |
| 2012 | 668 | 40.7 | 8.9 | 1.0 |
| 2013 | 686 | 78.3 | 21.8 | 2.5 |
| 2014 | 574 | 32.5 | 6.6 | 2.75 |
| % change | -16 | -58 | -70 | +10 |
Ex-div: 23 Apr Payment: 22 May *Includes intangible assets of £332m, or 136p a share | ||||
