SQS (SQS) chief executive Diederik Vos is undoubtedly correct that demand for his company's services continues to be driven "by the ever-evolving digital economy". But in 2016 that trend wasn't quite in evidence at the managed services division, SQS's largest source of revenue, which contracted by 4.4 per cent due to a reduction in the scope of several older contracts.
This, together with a planned reduction in short-term IT project work within the professional services segment, translated to a mild 2 per cent improvement in full-year revenue at the Cologne-headquartered software testing outfit. But while investors will take confidence that this is now leading to higher-margin consultancy work - which offset income declines elsewhere - volumes still matter.
Indeed, noting the managed services segment's shift to "more agile and decentralised engagements", broker Numis downgraded full-year pre-tax profit and EPS forecasts to €26.1m (£22.6m) and 49.7¢, and to €26.9m and 51.1¢ in 2018.
That this prompted a 10 per cent share price sell-off on results day should say more about the stock's good recent run than fears of a deep freeze in order intake. The group is nonetheless preparing for international growth, underlined by the purchase of the 25 per cent stake it did not own in its Indian subsidiary.
SQS SOFTWARE QUALITY SYSTEMS (SQS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 565p | MARKET VALUE: | £179m | |
| TOUCH: | 555-575p | 12-MONTH HIGH: | 635p | LOW: 401p |
| DIVIDEND YIELD: | 2.3% | PE RATIO: | 20 | |
| NET ASSET VALUE: | 351¢* | NET DEBT: | 10% | |
| Year to 31 Dec | Turnover (€m) | Pre-tax profit (€m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2012 | 210 | 7.8 | 21.0 | 7 |
| 2013 | 226 | 8.6 | 18.0 | 9 |
| 2014 | 268 | 10.1 | 25.0 | 13 |
| 2015 | 321 | 10.3 | 23.0 | 13 |
| 2016 | 327 | 14.7 | 32.0 | 15 |
| % change | +2 | +44 | +39 | +15 |
Ex-div: 11 May Payment: 30 May *Includes intangible assets of €102m, or 322¢ a share £1=€1.15 | ||||
