Megabuyte

Megabuyte morning round-up 04.03.08

It was another rough day in the markets yesterday as fears of recession in the US loomed large once more. The FTSE 100 closed down 1.1% to 5,819 whilst the Megabuyte Leaders Index slipped 1.0% to 878.1 and is now over 6% lower than a week ago. Logica was again the worst performer with a 4% decline to 90p - getting very close to the company's previous all time low of 80p in April 2003. Some may see this as an indictment on Andy Green's performance at the results meeting last week but we just see it as a realisation that things at Logica are worse than many had thought. It's all still to play for for Green and it will be fascinating to see how he annunciates the new strategy in May and, more importantly, how well he executes against it over the coming years. Outside of the MB Leaders, share prices generally sagged. The recent shine came off eServGlobal which dropped 7% to 57p and First Derivatives has come rattling back from its 320p high following last week's trading update. On a more positive note, AT Communications added 3% to 34p on news of a large contract with De Le Rue and Computacenter was also better on the day - 4% to 187p.

No dramas from Axon

Full year results from SAP services group Axon are at the top end of expectations and are accompanied with a confident outlook statement. Revenues for the year to December grew 49% to £204.5m - growth helped by acquisitions but organic growth was still strong. The US remains the engine of growth with 130% growth of which 41% was organic. Importantly, the US growth story remains in tact when one looks at the sequential performance where H2 revenues increased 13% over H1. Margins in the US also improved to 12% in H2 from 10% in H1. EMEA revenues grew an impressive 22% to £129.3m and our concerns about the sustainability of the EMEA margins so far look unfounded and the H2 operating margin from the region actually increased to 21.7%. Overall, adjusted pre-tax profits were up 69% to £35.5m. Cash flow was again excellent, especially when one considers that a people business like Axon should consume working capital as it grows. Operating cash conversion was over 100% and, despite spending £9m on acquisition, the company's cash balance rose by over £19m. We'll post a more detailed comment on these results later but, in short, this look like another excellent set of results from Axon which continues to confound its doubters.

Latin American contract comes in for Intec

The long awaited contact which was highlighted by Intec Telecom Systems in its November interims has finally landed. The multi-million pound contract, which is Intec's largest contract to date, is with the state run Uruguayan operator Antel and it for Intec's convergent billing platform. The Latin American region was a weak spot on Intec's 2007 results but this contract, which is to be delivered in 2008 and 2009, should underpin growth from the region and will also make hitting group numbers for the year to September that much more likely.

Megabuyte morning round-up 19.02.08

It was a strong day on the London market as the FTSE 100 added 2.8% to close at 5,947 but the Megabuyte Leaders Index underperformed somewhat registering a 0.7% gain to 931.0. Wall Street was closed for President's Day. Dimension Data was the strongest performer in the MB Leaders with a 3% gain on the day to 56p and has now regained most of the lost ground following recent negative comment from various brokers. Elsewhere in the MB 50, two telecoms software stocks, Intec Telecoms Systems and eServGlobal talked to the market about current trading and both were in line with expectations (see below). The market reacted positively to Dicom's results and the shares closed up 4% to 187p. Last but not least Clinphone jumped 15% to 98p after it revealed that it had rejected a cash bid from Parexel although the level of the bid wasn't disclosed.

Intec in line at IMS

During the day yesterday, Intec Telecom Systems issued its IMS saying that current trading is in line with expectations. Also, the company said that the large Latin American contract referenced at the results is progressing well and should be signed shortly. Intec's shares have performed broadly in line with the MB 50 so far this year and, on 14x current year earnings, trade in line with the index.

eServGlobal shows strong growth at interim stage

Also announced during the day yesterday were interim results from Australian telecoms software vendor eServGlobal. For the six months to December, revenues grew 23% to A$91.1m and pre-tax profits all but doubled to A$8.1m. In a brief statement, management reported continued strong demand and expressed confidence for the out turn for the full year. eServGlobal has been one of the best performing stocks in the MB 50 so far this year and has outperformed that index by nearly 40%.

Megabuyte morning news 04.12.07

Yesterday's movers

Monday was a quiet day in the market with mixed share price performances. Interestingly, Civica was one of the strongest stocks of the day, registering a 5% increase to 176p. After a terrible month last month, Gresham Computing also enjoyed a bounce yesterday and closed up 5% to 72p. Lastly on the positive tack was Irish security software vendor Norkom which ended the day ahead 6% to 113p. The leading stocks were generally weak with Dimension Data dropping 5% to 58p after holding up very well through last month following strong results. At the smaller end, Netstore was 6% easier at 24.5p and Strategic Thought was off 11% to 44.5p on no news.

Today's news in brief

Full year results public sector IT software vendor Civica strike an upbeat tone with strong revenue growth from the software and services business. Whilst we have only had a quick read of the results at this stage, they look solid enough and could prompt a rally in the shares. As promised, Intec Telecom Systems has appointed a new CEO - former UK COO of Alacatel-Lucent Andrew Taylor will take up the post in January and John Hughes will return to a non-exec role. Full year results from insurance software and BPO provider The Innovation Group look to be in line with expectations and finalss from Redknee reflect the October profit warning and show a small loss for the year. Lastly, Microgen has issued a update saying that trading is in line with expectations.

The beginning of a new phase for Intec

Full year results from billing software vendor Intec Telecom Systems this morning showed good progress on a number of fronts including solid underlying revenue growth and a substantial improvement in profitability. Group revenues were up 8% to £124.5m but would have been nearer £130m at constant currency rates. There were a couple of key points to note underneath the headline numbers. Revenues were boosted by the inclusion of a full year contribution from EUR Systems which was acquired at the tail end of fiscal 2006. Excluding this boost, revenue growth was around 4%. However, the managed services revenue line, in which EUR was included, was under pressure in 2007 and experienced a meaningful decline. The consequence of this is that core software business enjoyed growth of around 7% in the year with licence sales, professional services and support revenues all showing underlying growth. It's important to get to this number as it is a key driver of value in the business.

A tale of two geographies

The other key point to note on revenues is that there is a definite bias in growth towards the developing world especially in some of the BRIC countries. By contrast, market conditions in the US and Western Europe remain tough. It is not easy to get a sense of this market dynamic from Intec's numbers because the EMEA region, includes a multitude difference areas, showed revenue growth overall of 4%. Equally, the US was showing headline growth of 20% but this included the contribution from EUR. The CALA region was disappointing with revenues down by over 20%. However, after 18 months of trying, Singl.eView now seems to the gaining some traction in the region and Intec is preferred bidder on a large contract which should transform the performance of that region in 2008. News of that contract should be out in the next few weeks. Looking forward to 2008 and beyond, management suggests that there is not likely to be any change in the demand dynamics with Europe and the US remaining tough but solid growth coming from the developing regions.

Profits - complicated but definitely better

There are many swings and roundabouts in the profit numbers but the underlying message is that the cost base is significantly down and margins are therefore on an improving trend. Gross margins were up two points year on year and benefited from the continued shift of personnel to offshore locations and a reduction in the proportion of contractors. Cost efficiencies were also made in all overhead areas and consequently, EBIT margins before all bad stuff were 7.0%, up from just 2.1% in 2006. Whilst margins have got some more room to increase, we expect a more modest pace of improvement going forward.

The long management journey is nearly over

Accompanying the results statement was news that the appointment of a new CEO is imminent. If you go back as far as the fall out between Kevin Adams and Mike Frayne which resulted in Frayne leaving in 2005, the management change at Intec has been a long and difficult process. It is, however, nearly complete. By the time the new CEO is appointed, there will have been an almost complete change in the board including the non-execs and one this only serves to underline our view that Intec is entering a new phase in its development.

Share price and valuation

The management team at Intec has made impressive improvements in the business, especially given the rather unkind market backdrop in large parts of the world. However, the shares have had a rough ride as expectations that the company would be bid for have subsided. Also, an unfortunate consequence of improving profitability is that investors can once again value the business on a PE basis rather than on EV/sales. Whilst the EV/sales multiple of under 1x looks compelling, on consensus estimates, the shares trade on 13.7x 2008 earnings which, in the context of the current market, is not that cheap. That said, we do feel that the market will now start to appreciate the good work done by the new management team and that, as investor who were simply in the stock for the takeover are replaced by longer term investors, the shares should start to stage a recovery. Also, with a great customers base, strong products and a global footprint, a bid for the company is an ever present possibility.

UK Technews 19.11.07

It's a busy morning this morning with results from RM and Detica. Full year results from educational technology provider RM look to be slightly better than forecast and are accompanied by an upbeat trading statement. Interims from technology consulting group Detica are not to rosy. Whilst problems with DFI in the US seem to be resolved, organic growth slowed in H1 in almost all parts of the business. At constant currency rates, the only two parts of the group that displayed strong organic growth were US financial services and UK Government. However, the outlook statement suggests that there will be no growth in the financial services practice in H2. We are certain to see downgrades to estimates and there may be fall out in other financial services and IT consulting stocks today. We'll be posting more analysis and our thoughts on the results after the analyst meeting this morning.

Further trading news has come this morning from public sector software vendor Idox. The period end statement for the company's October year end notes that profit and cash flow are ahead of expectations although revenue is slightly below because of delays in new systems installations (which we assume means the timing of a milestone payment). CEO of AT Communications Alex Tupman has bought more shares in the company - this time has has picked up 500,000 shares at 34.5p to take his holding to 16.3%.

In M&A news, Intec Telecom Systems has disposed of it's DCP product to Volubill for £1m. The DCP product, the real time rating functionality from which has already been integrated into the core products, was acquired with Danish concern Digiquant in 2003. The business generated losses of £1.1m on revenues of £3.4m in fiscal 2006. Long time observers of Intec might notice that the CEO of Volubill is John Aalbers who was a senior product manager for Intec with responsibility for next generation products until a year or so ago.

UK Technews 30.10.07

Video search specialist Blinkx was one of the worst performing stocks in the sector yesterday following its interim results which failed to excite - the shares closed down 11% to 31p. Other than that, it was a generally positive day in the sector. Telecoms software vendor eServGlobal has a good day with its shares up over 4% to 47p. Gresham Computing nudged up again yesterday to 116p -Gresham shares have responded well to a cleared overhang which had pushed then down briefly below 100p a couple of weeks ago. Insurance software company SSP continued it recent run adding another 4% to end the day at 155p and NSB Retail Systems showed a glimmer of light after a negative period and added 4% to close at 24p.

This morning, Morse has issued an in-line AGM trading statement and Intechnology has said that it is to delist from AIM - see separate post. Antipodean network traffic monitoring software vendor Endace has reported interim revenues ahead 34% to $8.4m and PBT up 18% to $1.0m. Enterprise software business Touchstone has said that it will delay its results because of the change to IFRS but has confirmed that trading is in line with expectations. Lastly, Intec Telecom Systems has announced that it has gone live with the first phase of a mediation project with logistics company DHL. We see this announcement as interesting as it underlines the fact that Intec's technology has applications outside of the telecoms arena.

UK Technews 27.9.07

Yesterday was the day that some of the recent fallers enjoyed a rebound. Alphameric was up 6% to 9.5p (dead cat bounce?), Group NBT added 7% to close at 236p and Blinkx was up over 10% to 32p. Netcall responded well to results and ended up 3% on the day to 30.5p but the same was not true of Intelligent Environments which dropped 5% to 9.5p.

Amongst the largest stocks, further confirmation that trading is in line with expectations failed to excite Micro Focus which closed down 2% to 277p. Intec Telecom Systems was unchanged at 53p following news of a large customer win in Ireland. Intec announced a multi million US$ deal with Irish mobile operator Meteor for its convergent billing and customer management solutions. Whilst revenue from most of these large deals is generally recognised over the life of the contract, it is still encouraging to see Intec land a deal of this size so close to its September year end.

It looks like the results season is now tailing off as there is only one set of results in the sector this morning - AT Communications. We're speaking to the management later this morning but in summary, revenues for the six months to June nearly trebled to £42.7m helped by acquisitions. Underlying revenue growth was 11% and adjusted pre-tax profits increased 25% to 2.3m. There is no sign of a negative comment on the outlook in the statement but current market estimates are for PBT of £6.6m for the full year which would require ATC to substatnially increase profits in H2. The shares have opened down 14% to 41.5p.

Lastly this morning, there is some cheer for Silanis shareholders who have been suffering somewhat since the company issued a profit warning in August. The company has announced contracts worth $1m for its e-signature software with two large US insurance companies. Silanis shares have perked up 4% to 38.5p on the news.

UK Technews 16.8.07

Another quiet day today as the market is bracing itself for a fall after a late drop off on Wall Street and overnight falls in the Asian bourses. Psion has released interim results (see earlier post) and Intec Telecom Systems has appointed a new NED in the form of John Allkins, formerly of MyTravel and Equant. We're still waiting for the announcement of the new CEO following the sudden departure of long standing CEO Kevin Adams earlier this year. Chairman and acting CEO John Hughes suggested at the interims in June that a replacement was on the way so we would hope to see an announcement in the not too distant future. Meanwhile, the shares continue to bounce around as speculation comes and goes about the possibility of a bid.

On a quiet day it's worth reflecting on some of the share price moves we've seen over the last few weeks. The 'sell in May and go away' adage has been even more true than usual this year. A quick scan down the share prices to see which of the main small & mid cap cap tech stocks had been hit hardest revealed some interesting results. CODA is over 30% of its March high, Detica is 26% off its high, and Fidessa, Northgate I-S and Civica are all more than 20% lower than they were earlier in the year. It still seems too early to tell what effect the credit crunch will have on the wider market, but if it proves to be a storm in a team cup, Q4 will bring an even greater bounty of value than usual.