Reducing fixed costs and increasing the focus on sales from own intellectual property helped bed in K3 Business Technology’s (KBT) recovery during the first half. Underlying operating profit improved to £1.7m, up from a £3.1m loss at the same time in 2017. Even on a reported basis, operating losses narrowed to £0.5m from £5.4m.
K3, which supplies software to the retail, manufacturing and distribution sectors, boosted sales of its own IP licences by 85 per cent to £2.4m. An increased contribution from those higher-margin products offset a reduction in services revenue of almost half, pushing overall 'own-IP' gross profits up almost a fifth.
There was also progress in the enterprise market, which was last year blighted by contract delays. Those had stemmed from an industry-wide shift towards cloud-based delivery of services, away from on-premise technology – leading customers to defer decision-making. Thankfully, such uncertainty around cloud adoption has seemingly cleared, with the group signing seven deals for its 'axIis fashion' product during the period, the same number closed across the entire 17 months to November. Meanwhile, a lower cost base, and improved profitability from 'own-IP' software licences increased the gross margin from 46.8 per cent to 52.2 per cent.
Broker finnCap forecasts adjusted pre-tax profit of £3.6m and EPS of 7.2p for the year to November 2018 (from pre-tax losses of £3m and losses per share of 7.7p in FY2017).
| K3 BUSINESS TECHNOLOGY (KBT) | ||||
| ORD PRICE: | 218p | MARKET VALUE: | £93.3m | |
| TOUCH: | 215-220p | 12-MONTH HIGH: | 218p | LOW: 144p |
| DIVIDEND YIELD: | 0.6% | PE RATIO: | na | |
| NET ASSET VALUE: | 160p* | NET DEBT: | 12% | |
| Half-year to 30 May | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 40.3 | -5.8 | -12.4 | nil |
| 2018** | 41.4 | -1.0 | -2.8 | nil |
| % change | +3 | - | - | - |
| Ex-div: | na | |||
| Payment: | na | |||
*Includes intangible assets of £70m, or 163p a share **In May 2017, the group changed its financial year-end from June to November | ||||
