Revenue Assur. Share Discussion Threads

[daz] 14/6/2007 09:17

Nurdin, my thanks as well.

The summary shows how difficult it is to get at the underlying picture because of the ERP divestment and the meter point acquisition.

For 08, you would have thought that a 29% jump in higher margin revenue would lead to a lot more than a 0.7p rise in diluted earnings. Also this year will benefit from higher gas prices, so if the company processes the same number of bills at the same average bill discrepancy, margins should increase. So I'm a bit surprised that the 08 forecast is as low as it is.

Difficulties with the figures aside, the underlying business looks excellent and the growth prospects, now with possible international expansion thrown into the mix look excellent.

One thing to bear in mind is how long it took to sign the first electricity customer, I think they were working on that for about a year. While lead times will hopefully reduce with the experience gained, it looks like each implementation is a bespoke integration into the target companies processes and billing system, so it is going to take time to sign up new electricity customers.

The comment in the outlook statement '...We now have substantial trials running with a number of Utilities' hopefully indicates that some of these will be converted this year though.

[tole] 14/6/2007 07:51

Nurdin - Many thanks for the above summary. :))

[nurdin] 14/6/2007 06:52

Hi Daz

-the brokers have edged up their pretax estimates for 08 and 09 by £0.1m to £7.1m and £8.2m respectively with fully diluted EPS revised to 10.8p for 08 and 12.2p for 09

-the brokers expect a 29% jump in revenues to £18.9m for 08 with a small further increase to £19.9m in 09.(Guess it is hard for them to see that far ahead)

-since there will be no further contributions from the legacy business from here on,those forecasts suggest significant growth in earnings from the continuing business going forward

-no allowance has been made in their estimates for any earning enhancing acquisitions which the brokers say is very likely

- the most mouth watering comment from the brokers relate to the Companys scope for international expansion.Here is what they say:

"The group's main specialist area has been in gas but it has also started to address the much
larger electricity market having signed its first contract in 2/07. The water industry represents
another potential opportunity. Longer term there is scope to expand internationally. The US
market is ten times bigger than the UK and some of the groups UK utility partners also have
operations in the US with similar billing issues."

-I personally think the brokers are being very conservative in their forecasts but dont blame them as it is hard to estimate what level of debt they will unearth from each of their projects.So it is very much a case of 'finger in the air' estimates imo

-and finally,the brokers think RAS should be rated at 16x forward earnings which gives a price target of 175p.....too low imo :o)

[yf23_1] 14/6/2007 04:47

Daz
Where are you getting a P/E of 11 ?
The larger of the EPS is due to discontinued operations.
Adjusted EPS of continuing ops is 10p and only 7 without adj.

So at 146p we get a P/E of about 14.5

?

[daz] 13/6/2007 17:22

Nurdin - do the brokers have an updated EPS forecast for 2008?

[nurdin] 13/6/2007 16:31

Brokers have a revised price target of 175p now.....:o)

[fse] 13/6/2007 13:56

Great set of results and the current share price does not reflect this.
There needs to be a substantial re rating here IMHO ;-)

[tole] 13/6/2007 12:09

Tipped as a Strong Buy over on GCI today...

[tole] 13/6/2007 11:52

Was also nudged in The Times...



Tiddler to watch

Revenue Assurance Services added 1p to 135p ahead of year-end results from the billing services group due today. Dealers expect the earnings to reassure, with contract news also seen as a potential catalyst. The AIM-listed group, formerly known as XKO, has reshaped itself over the past six months to offer bill and metering services to utilities.

[njp] 13/6/2007 11:51

Nice to see. And yes, nick, looking for well north of 150p here if this catches on. The company has totally changed itself around since the old XKO days and that hasn't really been recognised.

[nickcduk] 13/6/2007 11:48

A bit of a slow burner really. Now finally waking up. I think 15 times earnings or so isn't unreasonable if you assume they did about 12p in earnings this year. It works out to about 180p or so. They do seem to have some interesting expansion plans and if they pan out we could see a lot faster growth. If it turns into a stock market darling and can put in 20%+ a year then 20-25 times earnings isn't unreasonable. It will be interesting to see how high updated forecasts come in at.

[nurdin] 13/6/2007 11:19

Breaking out...:o)

[daz] 13/6/2007 09:37

High margins, dominant and secure market position, good cash flow, excellent growth prospects in the electricity, water & possibly residential markets and potential for earnings enhancing acquisitions all for a pros p/e of 11 - not bad really.

[nurdin] 13/6/2007 09:36

..and the the Company has made a an extra effort this time to attempt to quantify the size of their market going forward:



MARKETS

The approximate value of annual billings in the energy markets is some #21
billion per annum which varies with energy pricing. The I&C element of this
market is some #11 billion, generated by over 2.5 million I&C customers. The
sheer scale and complexity of the I&C energy markets, coupled with the effects
of deregulation and acquisition activity have created a highly complex billing
and management environment for our clients, compounded by increasing levels of
churn.

It is the responsibility of Revenue Assurance Services to provide additional
resources to our clients in order to manage these challenges to within
acceptable tolerances and to recover outstanding monies for our clients where
possible.

Energy pricing has risen substantially in the last two years requiring a further
focus on cost cutting and headcount management by our clients. This has
increased demand by clients for the outsourcing of complex billing management as
well as in instances where the volumes and complexity represent a challenge to
the in-house resources of Utilities.

In addition, energy pricing has increased the level of debts outstanding to
Utilities, primarily in the residential markets but also at the lower end of the
I&C markets. We have therefore seen increased activity in our Collections
Division and we would expect this trend to persist since there is no short to
medium term likelihood of energy prices reducing.

[nurdin] 13/6/2007 09:21

Thanks for that Nick.Mirrors my feelings too and it would be interesting to see the level of revisions in the forecasts.

What I like about RAS is that it is a uniques business with hardly any competition in sight.Competition is unlikely to emerge either as it has taken 100 man-years of effort for UBM to develop their highly sophisticated software.Above all, they are returning superb operating margins which last year were at 38%,if I am reading the accounts correctly.

I think the market will soon cotton on to the quality of their business and give RAS a much higher rating than the measly current 11x 08 earnings

[nickcduk] 13/6/2007 09:02

Revenue Assurance Services - NR Price: 135p Target price: NRp Analyst: Justin Bates | 0161 209 3287
Strong Finals, Expect Upgrades - New Contract Win

* A strong set of results with PBT at �6.2m, 10% ahead of consensus. EPS of 10.8p was 19% ahead of consensus and a DPS of 2.0p was 11% ahead of market expectations.
* Importantly, the Group has announced a new contract win, this time with Scottish Power. The statement also makes reference to an encouraging start to the new year.
* We would not be suprised to see small EPS enhancing acquisitions given the low levels of gearing.
* We would expect that forecasts will have to be upgraded by c.7-10%. We have not yet initiated coverage of the stock but following a couple of meetings with management we believe there to be a very good story here. To that end we have secured Tuesday 19th June for meetings with the mangement. Please contact either myself or Michael Bell (Sales 0207 776 6584) if you would like to arrange a meeting.

[nickcduk] 13/6/2007 08:59

It has been a horrible few weeks for me with stocks that get sold off after some news. I think everyone is going off on their summer holidays and are bagging profits. Drip selling kicks in and the share price tumbles despite good news. I hope the same doesn't happen here. Todays results were very impressive and the outlook was pretty bullish. The only problem is I would imagine thats what most were already expecting.

[papalpower] 13/6/2007 08:52

Nice news.

[daz] 13/6/2007 07:50

The outlook statement is particularly encouraging:
First projects in water and residential gas markets -
Substantial trials running with a number of utilities, very likely to be further electricity companies - which the company says is 4 times the size of the gas market.

Safe growth, v good cash generation and the possibility of EPS enhancing acquisitions, RAS really ought to be trading a lot higher than it is.

One fly in the ointment is that with the disposal of the ERP business, the early payment of the deferred consideration for UBM and the acquisition of meter point services, makes it difficult to get at the underlying picture but nobody would argue with the strategy, as the company is now focused.

If the company has done 10.8p in adjusted earnings, it looks like this years forecasts are going to be adjusted upwards as well, which should provide a good reason for a deserved re-rating.

[njp] 13/6/2007 07:31

Don't know why they seem to have understated the eps from continuing ops. I make it 10.8p undiluted.

Looks good to me, and the cash generation potential here should command a higher multiple.

[nurdin] 13/6/2007 07:15

All I can say about these results and the commentary is...wow!

-Pretax and EPS 10% ahead of expecatations
-operating margins 38%...the best in the sector
-excellent cash generation
-new contracts
-entry into the Water utilities as well

If RAS doesnt get rerated to 20x next years earnings I will eat my hat!
(Broader markets permitting)

[greengiant] 13/6/2007 07:06

Fantastic set of results and contract win - even on what will be a red day, this is bound to be blue!

gg

[chester] 12/6/2007 07:54

Yes, still holding , has been a safe port through the market jitters.

[nurdin] 12/6/2007 07:41

A nice steady rise which should continue after tomorrows results....the gradient might even get steeper if the outlook statement is half decent.

The defensive qualities of RAS gives it a solid base as well....

[mikehardman] 11/6/2007 11:05

edging up a bit more, ahead of finals on Weds;
16apr07 tr.stmt: good and in-line, will increase divi, refinancing (good), appt of Cenkos as NOMAD.