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I published an pre-results note last week on AIM-listed, UK-focussed healthcare and business management software and services company Advanced Computer Software (LSE:ASW) ahead of the company’s results for the six months ended 31st August announced yesterday. As expected, the results were strong and the shares have moved ahead to hit a high of 66.5p – capitalising the company at £246.3 million and providing not a bad return since I recommended them on t1ps, the website I founded in 2000 and wrote for until September, at 34p in September 2010. The following reviews the results and current investment proposition…
Click here to read my article of last week
The results showed an underlying pre-tax profit of £11.8 million on revenue more than 20% higher (10% organically) on the corresponding 2011 period at £56.8 million, generating earnings per share of 2.8p, up from 2.4p. After particularly £2.5 million of tax, a £1.1 million working capital outflow, £0.9 million of capitalised development spending and £4.7 million on acquisitions, net cash was increased by £2.5 million to end the period at £1.3 million.
The results reflect strong performance right across the business. The Health & Care business – a provider of a range of products to the NHS and private healthcare sector – generated an 18% increase in EBITDA on revenue 19% higher at £13 million. The Business Solutions business – a provider of accounting, payroll, HR and document management solutions to local authorities, healthcare organisations and private sector businesses – generated a 7% increase in EBITDA on revenue 5% higher at £27.6 million and 365 Managed Services – a provider of managed services and unified communications – generated a 14% increase in EBITDA on revenue 19% higher. The company added that “current trading across the group is in line with expectations with the board becoming increasingly confident about the results for the full year” and that it “anticipates recommending the payment of a maiden dividend at the end of the current financial year”.
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The combination of growth prospects (as the company’s technology continues to offer a swift return on investment through facilitating cost and service quality efficiencies at an opportune economic time for such an offering) and defensiveness (in terms particularly of a strong base – 56% of total revenue in the reporting period – of contracted recurring revenue, combined with a 35% increase in total revenue under contract to £115.5 million), continues to represent an attractive one. The shares currently trade on multiples of 9.5x the EBITDA and 14.5x the earnings per share anticipated for the full-year. This is not cheap but the management team here have a stellar track record and the company’s strong cash generation means it retains significant balance sheet capacity to make further value-adding acquisitions.
The bird who runs this company, Vin Murria, is one of the sharpest cookies in the sector and her record of developing software businesses on a buy-and-build model really is excellent. I’d continue to back her not to break that track record here. As such the stock remains a solid Long Term Buy
Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings (except for that free share tip) follow him on twitter at @tomwinnifrith
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How do we know that you will not turn around at some point and advise subscribers to short this share?
Paul
You do not. I am entitled to change my mind, if the facts warrant it. But having seen Vin Murria in action for more than a decade I cannot see why I would make such a volte face
Tom