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Enables IT (LSE:EIT) the AIM listed provider of network and IT solutions, has served up a pre-Easter AGM statement which is confident and appears to show that this could well be a great recovery play for 2013-15. Noting that there have also been some very hefty director share purchases of late, it is not surprising that the shares have moved ahead to 33.5p valuing the business at £5.31 million
Enables IT was a private business that engineered a reverse takeover of Nexus (LSE:NXS) last autumn as I described at the time, asking the valid question as to Enables would be any less of a dog than Nexus?
It is clear that Enables is different. It has faced challenges, notably losing the low margin high volume H&K contract in the US and also dismantling the high cost management structure of Nexus. Those matters have been dealt with and after all of that Enables still has net cash. So how is trading?
The New CEO Michael Wallis – who unlike his predecessor is very switched on and has a vast equity stake in the business and so finds his interests aligned with those of ordinary shareholders – stated at the AGM:
“The Group’s main focus following the completion of the transaction in late November 2012 has been on integrating the Enables and Nexus businesses and enhancing our service capabilities. Looking ahead, the Board believes there is significant scope to further broaden our customer base in both the UK and US markets.
As a result of the transaction Enables now has a global support presence which will allow the Group to develop its 24/7 managed service-desk offering while also enabling the Group to create a Cloud offering both in the UK and US using its HAVEN platform. The key focus throughout the Group is on growing recurring income with a view to enhancing visibility and strengthening the Group’s underlying revenue model.
To assist the Group in its strategy it has appointed Silver Worldwide, a leading b2c and b2b marketing and branding agency. Silver Worldwide will seek to enhance the Group’s brand and create a new global website which is expected to go live in June 2013. By promoting the Group’s brand we believe this will allow us to better compete in our market place.
Our continued efforts in attracting new customers are beginning to bear fruit and I am pleased to see our pipeline increasing. Attracting new business still remains challenging given the macroeconomic environment, but we are confident that the business will move forward throughout 2013 and into 2014.
The combination of the Nexus and Enables businesses ensures that the Group is well placed to take advantage of opportunities and to benefit from cross-selling initiatives. While we are currently focused on organic growth, as previously stated, we are also considering a buy and build strategy when presented with suitable opportunities.
We remain confident about the Group’s future growth prospects and I look forward to further updating the market as to progress in due course.”
I have underlined a few key phrases in that statement. One of the problems of Nexus was lack of earnings visibility. It won the wrong sort of business. H&K offered no visibility. Wallis is going for the right sort of business and it is clear that he is winning new business. My conversations here still leave me to think that in the current year to September 30th 2013 the profits will not be that great.
But the ever increasing monthly revenue run rate suggests that it will enter next year from a far better place than it started this year. And thus for 2014 profits could well be anywhere up to £500,000. This business runs on a very high gross margin and so once fixed costs are covered operational gearing is tremendous.
I would hope that there is no rush on acquisitions but there are clearly opportunities out there and this board has a proven M&A track record in this sector. And so as summer turns to autumn I would hope that bolt-on deals go some way to accelerating what will be, by then, pretty spectacular organic growth.
This is not a stock to be selling ahead of what will be an interesting and eventful nine months.
Tom Winnifrith writes for 10 US & UK websites in the US and UK and you can get alerts on all of his articles by following him on twitter @tomwinnifrith or you can get links to all his material via his own blog – which also carries a range of content on the evils of the EU, the global warming con and other matters at www.TomWinnifrith.com
