Business process outsourcer Xchanging (XCH) is undergoing a transformation, and judging by these results it’s going well. A 44 per cent surge in adjusted operating profit to £23m was flattered by last year’s weak first half, although it still beat City estimates and management reckon full-year results will match expectations.
Only the €40.5m (£35.3m) sale of the group's half share in Xchanging Transaction Bank (XTB) in August prevented earnings upgrades. The disposal means Xchanging loses around £4m off second half profits from XTB, so broker Liberum Capital expects full-year adjusted pre-tax profit of £48.2m and EPS of 9.4p (from £46.3m and 10.4p in 2012).
Profit from financial services rocketed by two-thirds to £8.6m and by almost a third at the higher-margin insurance services division to £20.5m, driving adjusted operating margin up by 220 basis points to 8.5 per cent. Only the procurement division blotted the copy book. Lower than expected revenue from its North American contract with BAE Systems and a three-year deal in the UK at lower margins led to a £1.3m loss at the unit. However, chief executive Ken Lever is confident of a quick return to the black. Elsewhere, existing customers appear keen to switch to its Xuber insurance software launched in US in May. A pilot of Netsett, an insurance settlement service, with insurer RSA has almost concluded and there’s interest here, too.
XCHANGING (XCH) | ||||
|---|---|---|---|---|
| ORD PRICE: | 135p | MARKET VALUE: | £325m | |
| TOUCH: | 134-135p | 12-MONTH HIGH: | 151p | LOW: 96p |
| DIVIDEND YIELD: | 0.7% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 78p* | NET CASH: | £90m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 323 | 11.5 | 1.86 | nil |
| 2013 | 347 | 21.2 | 3.75 | nil |
| % change | +8 | +84 | +102 | - |
*Includes intangible assets of £224m, or 93p per share | ||||
