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K3 Business hit by contract delays

The software and services group has had a tough start to its 2017 financial year
March 27, 2017

The risks of large, long-term contracts have been made clear by these half-year results from K3 Business Technology (KBT). As announced in a profit warning in January the software and services group didn't sign as many new contracts during the December trading period as anticipated, meaning adjusted operating profit took a £4.7m nosedive to £0.45m.

IC TIP: Hold at 255p

But management has tackled the challenge head on, re-aligning the business in an effort to claw back £3m in annualised savings. Even so, this time around a £2.74m non-recurring cost still took pre-tax profit and EPS into negative territory.

It’s not all bad news, though. Recurring revenues rose 7.6 per cent to £21.2m and now make up 49 per cent of total sales. Plus, new deals have been signed, including a £2m contract with the British Heart Foundation. With a pipeline of future orders worth £82m - up 45 per cent on the comparable period - the outlook for the current financial year looks better than these numbers suggest.

For now, ongoing costs associated with the restructuring programme mean broker FinnCap expects a decline in pre-tax profits and EPS to £7.7m and 18.4p respectively (from £8.8m and 22.9p in 2016).

K3 BUSINESS TECHNOLOGY (KBT)

ORD PRICE:255pMARKET VALUE:£92m
TOUCH:253-256p12-MONTH HIGH:362pLOW: 235p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:196p*NET DEBT:18%

Half-year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201542.32.35.9nil
201643.0-4.2-9.6nil
% change+2---

Ex-div: na

Payment: na

*Includes intangible assets of £77m, or 214p a share