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.
|ORD PRICE:||13.75p||MARKET VALUE:||£128.6m|
|TOUCH:||13.5-13.75p||12-MONTH HIGH:||14.25p||LOW: 9.75p|
|DIVIDEND YIELD:||NIL||PE RATIO:||NA|
|NET ASSET VALUE:||10p*||NET CASH:||£28.9m|
|Year to 30 Sep||Turnover (£m)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
*Including £91.1m intangibles, or 10p a share.
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