K3 Business Technology Share Discussion Threads

[stegrego] 18/9/2012 16:53

Ole Winniefroth generally talks carp, but he is bound to get it right some times....

'The bid talks were first announced on December 1st 2011 and must have been a distraction. I am glad they have finally gone away. AIM stocks and tech stocks may be unloved (unless they are puffed up New Media rubbish) right now but that will not last forever. So now CEO Andy Makeham who I have just chatted to can get back to business. He seems rather relieved by that prospect.

In the year just ended revenues came in at £67.96 million, up from £52.8 million although acquisitions accounted for £11.82 million of the increase. Normalised profits before tax came in at £10.02 million, up from £8.68 million while normalised earnings per share came in at 30.2p up from 27.5p. That allowed the payment of a 1p final dividend up from 0.75p.

Net debt is the issue that worries some. It was £15.68 million at the year end (up from £15.49 million) but from peak levels £3.64 million was repaid. The company has banking facilities in place until December 31st 2013 and interest cover is very comfortable but that debt (55p a share) clearly worries some folks. Chatting to finance director David Bolton this lunchtime he reckons that without acquisitions ( and there is unlikely to be much on this front this year and next), K3 could use free operational cashflows of £5-6 million (and growing) to eliminate more than 80% of those borrowings by June 2014.

One commentator worried earlier today that in mentioning "a year of investment" in the statement about current trading K3 was issuing a veiled profits warning. I would not necessarily agree with this analysis. The company has good revenue visibility with more than 40% of sales now recurring revenues under contract with another 39% coming from repeat sales to existing customers (of which there are, at 3,000, a broad spread). The company will indeed be investing in developing its Microsoft AX and Managed services offerings and this will hold back profits growth a tad this year with the benefits seen next time.

I would forecast that sales will increase to £75 million this year and to £82 million in 2014 (10% increases) but that profits and earnings would increase by only 5% this time (for the reasons mentioned above) but by 12% in 2014. That gives earnings numbers of 31.7p for June 2013 and 35.5p next year.

I tipped this stock at 145p 5 years ago so I cannot say that it has exactly flown. But what is K3 worth now? For a company that seems to deliver a steady increase in earnings of 5-12% year in year out and which generates cash a current year PE of 4.7 ( and PEG of sub 1) falling to 4.2 is very harsh.  I suppose the debt deters. In which case if one looks two years out and assumes no re-rating but that 44p of debt has been cleared and added to the valuation one arrives at a target price of 212p ( upside of 43% plus dividends). I think that is a tad harsh as I cannot believe that a company that is virtually debt free and growing earnings at 12% would still be on a sub 5 PE. A re-rating is likely.  But for now that is enough to justify a stance of strong buy.'

[felix99] 18/9/2012 16:14

I have to say the year of consolidation sounds a bit cautious to me.

[dpmcq] 18/9/2012 15:50

Looking at todays volume shares have been dumped.

[tech] 18/9/2012 09:34

Bought a few at 143, growth looks good over the next few years

[stegrego] 18/9/2012 09:00

I think you are living in your dream world still Snatander.....

I would agree that the outlook seems to say that growth will be muted, but seeing as though they did next years forecast eps already, I'd say people are just looking for excuses.

Looks to me like MMs taking advantage of daft punters in a daft market.

[snatander] 18/9/2012 08:53

reckon this will touch 120p soon the way it is diving, debts are too high imago whioch put bidder off

[dasv] 18/9/2012 08:50

So sell-off an attempt to price in fall in future profitability? Seems a bit mysterious after divi announcement, rise in revenue and profit. Considering taking a position here at these levels.

[ir35] 18/9/2012 08:41

The current assets as shown on the balance sheet inlcude the facility that has since been extended to end December 2013. Would be a lot better if that had been extended by a couple more years.

One concern is the outlook statement that says that this will be a year of investment. That means that if we are lucky we wil maintain profit but more likely there will be a fall in the current year. Still that all seems like it was already in the price - and now some more.

[philo124] 18/9/2012 08:39

Long term loans down. Accrued revenue significantly up.

[yump] 18/9/2012 08:38

Trade and other payables looks to have risen in line with business increase - its short term borrowings that have jumped the short term liabilities. What was that for ?

( Not that the drop in share price is likely to be anything to do with that - its a bit of a detail to cause immediate selling or markdown ).

Perhaps mm's or sellers are worried that any of the interested parties that previously build some sort of stake (non-notifiable ones), will now sell out wholesale. If so, its a good opportunity to buy into the business for its own sake, rather than for a t/o.

[snatander] 18/9/2012 08:37

llooking for 120p here, chart support- see chart

Formal sale process now ended - must have cost a lot of money which will come in second arf

[stegrego] 18/9/2012 08:36

Isn't really any worse than it was at half year.

[philo124] 18/9/2012 08:36

Directors will be hoovering these up. Had a look, not worried.

[harrogate] 18/9/2012 08:26

Aren't you a bit concerned about the balance sheet? It has £32 m net current assets versus £48 million net current liabilities. That used to start alarm bells ringing in the old day. This ratio is much worse than it was a year ago.

[stegrego] 18/9/2012 08:21

These should be up 18 percent not down that amount.

Barking mad.

You can buy for roughly same price as you can sell. That's paying less than 5x historic earnings.

[snatander] 18/9/2012 08:09

Snatander 5 Sep'12 - 07:19 - 844 of 862 edit

ok phil but nervous had a dream it failed and lost 40% of its value :-(




that dream came true

[stegrego] 18/9/2012 08:08

Please carry on selling, getting cheaper by the minute :)

[stegrego] 18/9/2012 07:53

Adjusted eps is actually at next years level, so the results are good.

[dpmcq] 18/9/2012 07:35

Completely agree Stegrego, if not one bidder was anywhere near then it should not have dragged on so long.
Looked like as the share price slipped opertunistic approached took place.
As soon as the price recovered to a sensible level the bidder ran for the hills.

The good news is a good set of results and a low pe and a risind dividened.