Half Year Results 

Microgen sets a tough pace

Microgen sets a tough pace

A provider of business-critical software, Microgen (MCGN) has two main divisions: Aptitude Software, which streamlines financial reporting, and Microgen Financial Systems, which supports wealth managers. Aptitude was the greatest driver of Microgen’s huge top-line growth for the first half, achieving £19.5m in total sales, up 70 per cent, and increasing its recurring revenues by 42 per cent. The resultant 3 per cent share price decline was perhaps a reaction to management’s statement that the "exceptional growth in demand" seen for Aptitude will moderate in 2018. 

This revenue growth helped Aptitude lift its operating margin to 19 per cent from 15 per cent a year earlier, despite the firm’s continued investment in new products. Aptitude consolidated its position in the telecoms market and entered the US healthcare market with two new contracts.

Microgen saw a slight decline in its adjusted operating margin. This was attributed to an inevitable change in strategic direction, shifting away from the relatively mature, high-margin application management business in favour of the trust and fund administration market.

Analysts at Investec forecast adjusted pre-tax profits of £13.1m for the full year to December 2017, giving EPS of 15.2p (from £9.2m and 11.6p in 2016).

MICROGEN (MCGN)   
ORD PRICE:420.5pMARKET VALUE:£256m
TOUCH:418.0p-423.0p12-MONTH HIGH:439.5pLOW: 166.5p
DIVIDEND YIELD:1.3%PE RATIO:34
NET ASSET VALUE:75.7p*NET CASH:£6.9m
Half-year to 30 JuneTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201619.53.85.11.50
201728.45.46.92.00
% change+45+43+35+33
Ex-div:3 Aug   
Payment:25 Aug   
*Includes intangible assets of £53m, or 87.0p a share

IC View

This is a solid set of results, suggesting Microgen is delivering on its strategy for both of its main businesses. That said, the shares are trading on a demanding multiple of 28 times forecast earnings and there may be a more appealing entry point later. Hold.

Last IC view: Hold, 260p,13 Mar 2017

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