Shares in SQS (SQS) fell 5 per cent on Wednesday, after the company reported a small revenue dip in the first half. This stemmed from the loss of one banking client worth €7m (£6.3m), and currency headwinds. That said, the software group, which provides quality assurance services, lifted the gross margin by 90 basis points to 32.6 per cent, after automation delivered efficiencies. And management expects to grow the adjusted cash profit margin from the current 7.5 per cent to at least 9 per cent by 2019.
The banking client loss meant a 5.4 per cent sales fall for SQS’s largest division, management services. However, the segment won a €4m contract with a European online payments processor. And management says the revenue gap has already been filled, with further growth expected. Management consulting saw sales rise 5.2 per cent, driven by organic growth. Professional services revenue declined, in keeping with the group’s aim to reduce its share of this lower-margin area to 25 per cent.
The US remains a focal region, although bosses describe target industries as “subdued” due to market uncertainty. Stateside revenue share fell slightly, but the group won initial contracts with US technology businesses, which should reap rewards in the second half. Management notes that the US represents 50 per cent of SQS’s addressable market.
Analysts at Panmure Gordon forecast adjusted pre-tax profits of €26m and EPS of 48.6¢ (revised from 47.8¢), up from €24.4m and 45.2¢ in 2016.
| SQS (SQS) | ||||
| ORD PRICE: | 553p | MARKET VALUE: | £177m | |
| TOUCH: | 545-560p | 12-MONTH HIGH: | 635p | LOW: 426p |
| DIVIDEND YIELD: | 2.5% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 343¢* | NET DEBT: | 27% | |
| Half-year to 30 Jun | Turnover (€m) | Pre-tax profit (€m) | Earnings per share (¢) | Dividend per share (¢) |
| 2016 | 167 | 7.2 | 14 | nil |
| 2017 | 160 | 11.2 | 23 | nil |
| % change | -4 | +56 | +64 | nil |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of €98m, or 307¢ £1=€1.12 | ||||
