Today the Board reported in line 2019 results. Delivering revenues up 14% (est. 3% LFL) to £25.4m (£22.2m LY), despite adverse forex (ED -2%, weaker SEK vs £) & other macro headwinds (Brexit, General Election & subdued Eurozone). Growth was split evenly across the UK +15% (£9.4m) & abroad +14% (£16.0m), with sales/head nudging up 3.8% to £101.2k (£97.5k).
Both 89.5% gross profit margins and positive operating leverage (32.9% EBITDA drop through rates) allowed R&D (£3.1m vs £2.8m LY) to be increased (12.2% turnover), of which £1.2m was capitalised (£1.0m). Likewise, adjusted EBIT climbed 15.0% to £4.5m (17.9% margin vs 17.8%), EPS +7.1% higher to 4.10p (3.82p) and net funds ended Dec’19 at £1.1m vs -£1.8m LY, reflecting 120% cash conversion (114%).
Elecosoft continued to trade “well” in Q1’20, with results only marginally impacted towards the end of March. Since then there has been a “degree of disruption”, particularly with regards to face-to-face services (19% sales). However we believe this will lessen over the next couple of quarters, setting up for a powerful rebound in 2021.
In fact many housebuilders, for instance Mace, Taylor Wimpey, Vistry & Persimmon, are planning a phased reopening this month under new government guidelines. And the construction industry, traditionally slow to embrace new technology, is now accelerating its adoption of ‘everything digital’.
Given the comfortable cash position, high retention rates & recurring revenues (57%), Elecosoft should provide a welcome port for risk tolerant investors to anchor in whilst the worst of the COVID-19 storm subsides. The stock at 74p looks attractively priced, trading on 2.4x 2019 EV/sales compared to typical industry multiples pre COVID-19 crisis of 4.0x – 7.0x
