Don’t miss hand­some lit­tle Ele­cosoft: its earn­ings are set to soar

A re­cent ac­qui­si­tion has scope to ac­cel­er­ate growth for this at­trac­tive tech­nol­ogy sup­plier

Shares - - GREAT IDEAS - (SF)

This is a small cap in­vest­ment story we have watched for ages and now feel con­fi­dent it has de­vel­oped the scale and mar­ket po­si­tion­ing to re­ally move the earn­ings nee­dle. In­cred­i­bly, Ele­cosoft

(ELCO:AIM) has been in busi­ness for more than 100 years but turned it­self into a con­struc­tion in­dus­try tech­nol­ogy sup­plier when it sold its phys­i­cal build­ing op­er­a­tions about five years ago.

These days it pro­vides spe­cial­ist soft­ware so­lu­tions that cover the core el­e­ments of a con­struc­tion pro­ject, such as com­puter-aided de­sign and vi­su­al­i­sa­tion, en­gi­neer­ing re­source plan­ning, cost es­ti­ma­tion and track­ing. It sells pri­mar­ily in the UK, Swe­den, and Ger­many al­though also to the Benelux re­gion and US through re­seller part­ners.

Com­pa­nies us­ing Ele­cosoft tools in­clude in­ter­na­tional build­ing firms Skan­ska and Mace plus global wood floor­ing sup­plier Boen.

Fi­nan­cial per­for­mance since its tech­nol­ogy fo­cus re­jig has been very de­cent if not spec­tac­u­lar. Rev­enues have in­creased about 45% since 2015 while op­er­at­ing profit has tripled, as­sum­ing fore­casts are cor­rect for £22.3m rev­enue and

£3.76m op­er­at­ing profit for the year to 31 De­cem­ber 2018.

Most of that growth has been gen­er­ated or­gan­i­cally, bar­ring the £2.4m pur­chase of in­dus­try data man­age­ment firm ICON in Oc­to­ber 2016.

The po­ten­tial to ac­cel­er­ate growth rates has now been har­nessed af­ter strik­ing a £6.3m deal to buy Shire Sys­tems in July. Shire sup­plies post-con­struc­tion tools to the fa­cil­i­ties man­age­ment space, ef­fec­tively giv­ing Ele­cosoft a cra­dle-to-grave set of build­ing in­for­ma­tion man­age­ment so­lu­tions.

Shire’s kit should dove­tail neatly with Ele­cosoft’s own flag­ship Pow­er­pro­ject and ICON ap­pli­ca­tions but it also of­fers the tan­ta­lis­ing op­por­tu­nity to cross-sell a range of prod­ucts to an en­larged 800-strong cus­tomer base. It means land­lords can man­age their prop­erty as­sets more ef­fi­ciently, hav­ing al­ready cap­tured most of the struc­tural data dur­ing de­sign and build phases.

There is also a bulging pipe­line of in-house de­vel­oped new tools or up­grades in vi­su­al­i­sa­tion and site man­age­ment, for ex­am­ple.

Shire’s largely re­cur­ring rev­enue model will also speed up Ele­cosoft’s own di­rec­tion of travel to­wards cloud-based re­cur­ring rev­enues, now up to 55% of all sales.

First half re­sults showed ad­justed op­er­at­ing profit up 33.5% to £1.76m on a 7% rise in rev­enue to £10.6m (on a con­stant cur­rency ba­sis).

Earn­ings per share (EPS) jumped 38% to 1.8p, demon­strat­ing the ex­cel­lent con­trol man­age­ment has on costs.

The div­i­dend was hiked 40% to 0.28p, al­beit still of­fer­ing a lim­ited in­come yield of just 0.85%.

An­a­lysts are con­fi­dent Ele­cosoft in the fu­ture should achieve dou­ble-digit sales growth, 20%-plus ad­justed op­er­at­ing mar­gins and strong cash con­ver­sion (90%-plus of op­er­at­ing prof­its).

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