Elecosoft reported that, although H1’20 turnover dipped slightly to £12.2m (-4% vs £12.7m LY, -3% constant currency) due largely to COVID-19, adjusted PBT climbed 14% to £2.23m (£1.96m LY, or +23% reported £1.93m vs £1.57m LY). Boosted by favourable operating leverage, lower costs and higher EBIT margins - as tradeshows were postponed and less money was spent on travel & other discretionary items.
Encouragingly, net funds closed June at a robust £4.4m (worth 5.3p/share) vs £1.1m Dec’19 – up £3.3m in just 6 months (est. 139% cash conversion) - thanks to tight working capital management (re debtor days at pre COVID-19 levels) augmented by deferred tax payments. Providing plenty of liquidity to weather even the most extreme of possible 2nd infection waves, and optionality (re M&A) if potential acquisitions ever become available at attractive prices.
Furthermore, the outlook is improving with our stab-in-the-dark ‘guesstimate’ being that June saw positive LFL sales, assisted by the ongoing digitisation of the construction industry, launch of the new AI visualisation tool (eg Karndean) and North American expansion (eg US paint manufacturer Benjamin Moore).
In terms of valuation, the stock at 78p is attractively priced: trading on 2.4x 2019 EV/sales compared to typical industry multiples (pre COVID-19) of 4.0x – 7.0x. With the two closest rivals, Nemetschek & Autodesk, presently priced at >10x EV/turnover.
