Shares in Servelec (SERV) fell by more than a tenth on Monday, after the software group reported significant first-half pre-tax profit growth but said a “deferment of orders” in some parts of its automation business would reduce anticipated full-year growth.
Within the automation division, the pain was felt at Servelec Technologies, which provides systems such as leakage detection and control systems to a range of sectors. The UK wholesale water market is currently being opened up, which has been a "significant corporate distraction" for companies, according to Servelec's management. So, while the company has won six out of the eight framework contracts tendered so far under the water industry’s AMP6 regulatory period, orders through these have been postponed.
It wasn’t all bad for automation: the recovering controls segment achieved revenue and operating profit growth. Oil and gas-related trading improved, but power and infrastructure services struggled with a "stalling" nuclear market.
The major healthcare, social care and children’s services (HSC) business fared well, with double-digit sales growth. Healthcare was more profitable thanks to cost savings. Meanwhile, Synergy – the business acquired in April 2016 to provide software to children’s services in local government – contributed significantly.
Stronger cash flows cut net debt in half, and Servelec is aiming for a net cash position by the year-end. Analysts at Investec forecast pre-tax profit of £15.9m and EPS of 17.8p for FY2017, up from £14.4m and 16.1p in 2016.
| SERVELEC (SERV) | ||||
| ORD PRICE: | 242p | MARKET VALUE: | £169m | |
| TOUCH: | 242-248p | 12-MONTH HIGH: | 316p | LOW: 226p |
| DIVIDEND YIELD: | 2.5% | PE RATIO: | 17 | |
| NET ASSET VALUE: | 103p* | NET DEBT: | 8% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 28.4 | 1.7 | 2.0 | 1.65 |
| 2017 | 31.5 | 4.3 | 5.0 | 2.00 |
| % change | +11 | +147 | +150 | +21 |
| Ex-div: | 21 Sep | |||
| Payment: | 27 Oct | |||
| *Includes intangible assets of £67.6m, or 97p a share | ||||
