Archive 

Successful transition year for Innovation

Innovation Group reckons that 2009-10 was a “year of successful transition” as new management sorted out a company that was “overmanned and over-resourced”. There was a cull of senior management (including the board of the US subsidiary) to reduce employee numbers by 13 per cent to 2,250. Also a quarter of its offices were closed. The company reckons these actions will produce annualised savings of £4.7m of which £1.7m came in the last half year.

Innovation’s strategy is to make its main business process outsourcing - from operating call centres to claims handling for mainly the motor and property markets - more profitable. After cost cutting comes the roll-out of its own Enterprise technology platform to improve margins. In contrast 2009-10 software sales fell from £31m to £20m as one-off licence fees declined sharply. But they should be on the up next year. The latest results are also complicated by a number of exceptional items and amortisation. On an adjusted basis profits fell from £11.3m to £9.8m but they did benefit from exchange rate gains (notably against the rand) while £4m of Enterprise development costs were capitalised. Broker Investec forecasts 2010-11 sales of £175m and normalised profits up from £9m to £13.8m.

INNOVATION (TIG)

ORD PRICE:13.75pMARKET VALUE:£128.6m
TOUCH:13.5-13.75p12-MONTH HIGH:14.25pLOW: 9.75p
DIVIDEND YIELD:NILPE RATIO:NA
NET ASSET VALUE:10p*NET CASH:£28.9m

Year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2006801.281.3nil
20071111.171.2nil
2008140-1.06-1.1nil
2009156-19.82-3.2nil
2010162-1.70-0.6nil
% change+4---

Sector: Software.

*Including £91.1m intangibles, or 10p a share.

.

More analysis of company results

IC View

On that forecast, the prospective PE ratio works out at 16. We upgrade to buy assuming both cost cutting and the Enterprise roll-out is successful.

Last IC view: Fairly priced, 11p, 26 May 2010

Related topics

Subscribe today

Full access for just £3.37 a week:

• Tips and recommendations - to beat the market 
• Portfolio clinic & Mr Bearbull - build a well-planned portfolio 
• Expert tools - track and manage investments effortlessly
• Plus free delivery to your home or office

Subscribe Now