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On first read the results are very good and the outlook even better.
A £7m m/cap for a company with a maiden £0.4m PBT, with more pretty odds-on this year plus very high recurring income, seems somewhat bizarre.
And cash must be well over £1m now judging by the significant receipts this year.
You could quibble that this year (unusually) £0.3m of R&D was capitalised, but this is perfectly legitimate, or that small grants are included in other income, which is also fine.
But this is obviously a company on the rise which has a chance of very serious share price gains from this very low base imho.
Smells like a 2019 upgrade doesn't it Rivaldo? I was expecting a 700k increase in 2019 revenue v 2018, which they seem to have already achieved in Q1.
This comment is the most interesting for me, it seems like they have a pretty solid pipeline of new business:
"We anticipate continued growth in annual recurring revenue during the coming months which gives us confidence in further profitable growth beyond 2019"
Agreed ragnarlothbrok. Quite apart from the maiden profitability, cash pile and high recurring revenues, it's the very confident outlook commentary driven by regulation which is so striking for a mere £8m m/cap:
"David Cutler, Chairman of EU Supply, commented:
"A profitable platform for growth was achieved in 2018.
Our highest ever rate of increase in annual recurring revenue run rate has been secured already in 2019 with annualised values of contracts in aggregate of approximately £620k being signed this year, and this without any higher staffing levels. We anticipate continued growth in annual recurring revenue during the coming months which gives us confidence in further profitable growth beyond 2019.
The Board is also confident of securing further revenue from both other existing contracts and new markets."
"Outlook
During 2019, the Group will continue to build its base of SaaS revenues in order to continue to grow its recurring revenue base. The Group also has a strong order book and pipeline from paid-for enhancements, which will complement the SaaS revenues during 2019 and further strengthen the competitiveness of the Group's CTM™ platform.
In 2019, the Group anticipates further increased activity by public sector organisations which do not currently have an e-Procurement solution meeting the new requirements, or which work via consultants and advisors having solutions to address their needs above the EU thresholds, but which may not yet have any solutions to address their needs for lower value contracts and requests. With our CTM™ platform, we are well positioned to gain market share in the countries where we are active.
Growth in Business Alert services and other supplier side services is expected to pick up in 2019, particularly in Norway, Denmark and Sweden with added sales resources in this area. In Germany, we look forward to improved results from our additional reseller approach which was adopted in 2018. New opportunities are also being developed in other EU/EEA markets where the Group is well positioned with its own sales and/or sales via distributors.
Additional mandatory requirements in the EU public sector have led to additional software functionality being demanded by our customers which provided project implementation revenues in 2018. The future recurring revenues from these completed contracts should provide a sound foundation for the continued growth of the Group.
Recurring revenues are growing to date in line with the Board's objective of increasing the proportion of SaaS revenue with fewer one off projects. The Board looks forward to continued profitability in 2019 based on stable organic growth leading to the potential for accelerating revenue in 2020 and beyond."
The really interesting part of today's results is the growth from H1 to H2, masked by the overall results.
EUSP made a £451k PBT in H2, compared to a £91k loss in H1.
Operating profit was up to £600k in H2, compared to just £48k in H1.
If you completely exclude other operating income (grants), operating profit was £442k in H2 compared to just £17k in H1.
I don't remember EUSP saying there's any particular seasonality to the business (happy to be corrected).
Annualised, the H2 results would equate to a £0.9m PBT this year, without any growth at all (or a £600k PBT this year excluding any grant income).
With around £1m cash in the bank and high recurring income, and compared to many companies on m/caps of £50m-£100m or more which still dream of making a profit, an £8m m/cap looks pretty good value to me.
Rivaldo yes H2 profit was much higher, could the H2 capitalisation partially support this? I suspect it relates to the full year as costs in H2 are around 350k lower than H1 so you may need to apportion the capitalisation across both halves.
But I'm more interested in the cash flow, which it doesn't impact.
Revenue improved by 200k half on half which drops straight to the bottom line, which explains the rest of the H2 improvement.
Financial performance for the last 5 years is very encouraging. The numbers below set out the change in YoY revenue compared to the change in EBIT. In total over 5 years revenue has increased by 3.29m and EBIT by 3.86m.
2018 marks the 5th consecutive year of organic revenue growth and improved EBIT. The company has continued to add revenue while keeping admin costs flat.
2014: 0.72, 1.07
2015: 0.33, 0.70
2016: 0.61, 0.61
2017: 1.08,0.91
2018: 0.55, 0.57
Total: 3.29, 3.86