2019 proved to be challenging period for many corporates, with S&P500 EPS growth set to climb just 0.2% YoY ($162/share). Even the poster child of the tech world, Enterprise Software (ES), hit a pot-hole, limping along at a comparatively modest 8.5% to $456bn (source: Synergy Research) vs 13.5% for 2018.
However C-suite confidence is returning, with Gartner predicting the ES market will accelerate back up to normal cruise speed (ie +10.5% to $503bn) this year.
Encouragingly too, Elecosoft said this morning that 2019 PBT would be “ahead of LY” (£3.67m) and “in line with expectations” (consensus £4.1m) - despite being impacted by forex (ED est -2%, weaker SEK vs £) and macro uncertainties (eg Brexit, General Election and subdued Eurozone).
We think this is a creditable outcome. Not least because it underlines the resilience of the business - while the results are actually a touch better than our previous (bottom of the range) profit & cashflow estimates, albeit with revenues a smidgeon shy.
Consequently, we have tweaked our 2019 numbers to: EBIT of £4.40m (margin 17.5%) on turnover up 14% to £23.35m (3% LFL CC) with net cash closing Dec’19 at £1.50m (vs -£1.81m LY). Going forward, the 2020 PBT & EPS targets remain unchanged at £4.6m and 4.5p respectively, notwithstanding a further small forex headwind of c.-1% (£’s recent rise vs $/€).
Elsewhere, our valuation inches up from 100p to 105p/share - reflecting the improved economic climate, new product launches (eg AI visualisation tool), stabilisation in the SEK and significant future up/x-selling opportunities.
