Investors are often sceptical of companies that rely on hefty acquisitions to grow, as it’s rare that this provides the same consistency in returns as organic growth. Proactis (PHD) is a case in point. After spending $133m (£104m) on eProcurement solutions company Perfect in August last year, the group’s return on capital employed (ROCE) fell to 3.3 per cent during the year ended July 2018, from 11 per cent and 10 per cent in 2016 and in 2015, respectively (these being the last two years the group reported operating profits).
The acquisition also sent net debt up to £29.3m (or 1.7 times adjusted cash profits) from £0.9m in July 2017, with finance costs soaring eightfold to £1.1m. Still, having integrated Perfect – which gave rise to £5.1m-worth of cost synergies – has prompted another acquisition after the period end. Esize – a fellow payments solutions provider – will enhance the group’s position in northern Europe, but has come at further expense to the balance sheet. The €15.2m (£13.5m) acquisition has been funded by an extended £35m revolving credit facility, a placing and a €3m convertible loan note.
House broker finnCap expects pre-tax profits and EPS of £13.1m and 11.8p in the year to July 2019, from £12m in 10.4p in the previous year.
| PROACTIS (PHD) | ||||
| ORD PRICE: | 138p | MARKET VALUE: | £130m | |
| TOUCH: | 135-140p | 12-MONTH HIGH: | 211p | LOW: 93p |
| DIVIDEND YIELD: | 1.1% | PE RATIO: | 25 | |
| NET ASSET VALUE: | 99p* | NET DEBT: | 31% | |
| Year to 31 Jul | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 10.2 | 0.1 | 1.0 | 1.1 |
| 2015 | 17.2 | 1.5 | 5.2 | 1.2 |
| 2016 | 19.4 | 1.8 | 6.3 | 1.3 |
| 2017 | 25.4 | -2.8 | -5.9 | 1.4 |
| 2018 | 52.2 | 5.4 | 5.4 | 1.5 |
| % change | +106 | - | - | +7 |
| Ex-div: | 27 Dec | |||
| Payment: | 22 Jan | |||
| *Includes intangible assets of £151m, or 160p a share | ||||
