Redstonewww.redstone.com TICKER: RED EXCHANGE: L
Redstone plc is a network-based provider of end to end managed services. With over 400 employees and offices throughout the UK, Redstone comprises a group of companies that are committed to being the partner of choice for IT and communication solutions. Founded in 1995 and listed on the London Stock Exchange in 1999, Redstone is a market leader and a financially stable public limited company. Whether your goal is to remove the day-to-day headaches of maintaining your IT and Communications, enhance existing systems and processes or develop a large-scale IT infrastructure, Redstone plc brings the energy and expertise that allows you to get on with improving and growing your business. In November 2012, Redstone completed the acquisition of I.T. business systems Maxima Holdings plc for approximately £9.9m.The Maxima acquisition strengthens Redstone's position as a leading provider of network based end to end managed services, technology and infrastructure solutions. Maxima has built an enviable reputation for managed services with some of the UK's leading organisations, and their expertise will complement and strengthen Redstone's managed services offering substantially.
The second half of the year saw delays for Maxima Holdings and, in some cases, cancellations, of sales that led in April 2011 to a downward revision of its guidance for the year to 31 May 2011. Significantly, the Growth Engines have performed well, accounting for 30% of business revenues in 2011 (19% in 2010). However, attrition in the other areas of the business of around 23% more than offset this. A Strategic review has been implemented to achieve more fundamental change in the company to support the growth strategy, new strategic relationships and the sale of part or all of the company. Several opportunities are currently being considered, including preliminary discussions with a potential offeror.
Revenues in the 6 months to 30 November 2010 in the key areas of focus and investment recorded double-digit growth, and there were >40% and >90% year-on-year increases in revenue orders for Citrix Virtualisation and Microsoft Dynamics AX-related business respectively. However, the after-effects of the termination of the QAD contract, a decline in Business Intelligence consultancy revenues and product sales resulted in revenues declining from £26.2m to £23.7m.
We believe that Maxima continues to execute well on its Strategic Focus and Simplify Plan. We have reduced our outlook for the current year, but believe that the reorganisation and the focus of investment in the selected growth areas will more than offset declines in the legacy business and result in a return to growth in 2012. Our target price is 140p based on 2012E multiples.
Maxima's half year trading update of 17 December 2010 reports good progress in the first six months of the year to 30 November 2010, with strong revenue growth recorded within its core competences which provide the engines for recovery and future growth. Strong performance was seen in Microsoft Applications, Citrix Virtualisation, Web Connectivity and Infrastructure Management activities.
We believe that Maxima continues to execute well on its Strategic Plan. We maintain our current forecasts and our price target of 130p remains.
Results in line: recurring revenue now 60% total, large reduction in net debt
Re-engineering on track and core competencies sourcing growth
Undemanding multiples augur well for share appreciation: fair value set at 130p vs current 88p
Cloud computing proving a fruitful segment
PER of under 8x in 2010 and a healthy yield show significant undervaluation of shares
Long term record delivering flexible and innovative IT solutions and services
Interim results in line with expectation
Returning to growth path
Executing on new management's strategy
Exciting new potential markets
Significantly undervalued to peer group
An IT business systems and managed services company with strong record of delivery
Update reveals no surprises; encouraging second quarter and debt reduction
Ongoing progress in simplifying the business and enhancing its brand
Lowly PER for coming years ignores potential