Maxima Holdings Share Discussion Threads

[edcrane] 26/2/2007 10:40

small nudge up ... figures tomorrow

[rik shaw] 25/2/2007 15:45

From Dec trading statement: Maxima will announce its interim results on 27 February 2007, together with details of the interim dividend payment.

[saucepan] 09/2/2007 14:57

Certainly looking very strong presently.

[currypasty] 09/2/2007 11:18

she's off again, up another 12p

[Abuse team] 07/2/2007 09:06

Post removed by ADVFN

[saucepan] 07/2/2007 08:34

Hi Tole: I'll get back to you, give me a little time :-)

[tole] 06/2/2007 20:25

Yes, cant complain about the price action again here today.
Just awaiting TSE to follow suit aswell now.... :0

Anyhow nice to see you over here Saucepan....always good to see you in a particular stock - got anything else off the APSE filters which might be worth a look? tia.

[currypasty] 06/2/2007 12:11

wow, look at it go 250-255, up 17%

[currypasty] 06/2/2007 09:32

looks like a break out today !

[saucepan] 06/2/2007 09:31

Hi to thread regulars. I went long first thing this morning, at 238p, as a low PEG/imminent results play.

I also subscribe to the Alpesh Patel Special Edition (APSE) of ShareScope.

MXM is currently appearing as one of a set of stocks making it through the 'Momentum/Value' filter of APSE (which targets 20%+ over 2-3 months, with stocks regarded as medium risk) and one of a set of stocks appearing in the 'Value/Growth' filter of APSE (which targets 25%+ over 6-12 months, with stocks regarded as medium risk).

Please DYOR.

[rik shaw] 02/2/2007 20:41

Next leg up looks to be just starting prior to results 27 Feb.

[johnroger] 31/1/2007 18:06

Thanks for your response Mark, you seem to have a very good insight into the strategy of the company. If I remember correctly they had the aim of achieving a market cap of £50 million and this could well be accomplished this year.

[marben100] 31/1/2007 16:02

Hi JR,

I also have some TSE and this one (to add to your list):

Gladstone (LSE: GLD)
24.25p
8.8
6.6%
£12.6M

It is important to understand that MXM is very much focussed on the service side of the business, rather than software sales. Kelvin has said that when they make acquisitions, one of the things they tend to focus the acquired businesses on is ensuring that existing customers are receiving excellent service (at a price profitable to MXM). As a result, their customer "churn" rate last year was just 5%. This leads to strong, stable revenue streams... and the new software sales kinda tend to follow. I like this approach.

Kelvin also has a rather Buffett-like approach to the acquisitions MXM makes: they tend to buy them on even cheaper multiples than MXM itself. So we get a value multiplication effect.

Vista and new versions of Office should provide a good boost to consultancy and support revenues in '07 and '08.

Regards,

Mark

Regards,

Mark

[johnroger] 30/1/2007 13:09

From MF

Marben - did you mention patience?!

Investors might be forgiven for thinking that the New Year sales haven't finished for some software companies, with a number sitting on forecast P/Es less than 10.

Share Price
Forecast P/E
Forecast EPS growth
Market capitalisation

Clarity (LSE: CCS)
59p
8.20
-3%
£11.9M

Touchstone (LSE: TSE)
170p
9.26
17%
£19.8M

Maxima (LSE: MXM)
228p
9.60
31%
£41.8M

Delcam (LSE: DLC)
360p
9.73
15%
£21.9M




With its apparent lack of growth, it's maybe easier to see why Clarity sits on such a low rating. For the rest however it's harder to understand, especially when brokers are forecasting further EPS growth for Touchstone and Maxima of 16% and 17%. Brokers 'modest' next year growth forecast of 7% for Delcam probably reflects its exposure to the depreciating dollar.

Software companies do not suit all sorts of investors. Warren Buffet remarked that "it's much easier to predict the relative strength that Coke will have in the soft drink world than Microsoft will in the software world. That's not to knock Microsoft. If I had to bet on anyone, I'd bet on Microsoft. But I don't have to bet."

It's recognition that a software company is only as good as its latest release and a product can age pretty quickly. A superior rival product or technological change can quickly destroy even the most successful market leader. Who amongst us still uses Supercalc and Wordstar?

The companies above are a disparate bunch, providing a range of software solutions to differing market sectors. Both Clarity and Delcam develop their own software and consequently continually need to refresh their offerings. This can be an expensive and uncertain area. Both spend heavily on R&D. If development goes wrong the consequences can be unpleasant as Brady (LSE: BRY) found out to its cost, when cost over runs and delays forced it to issue a profit warning.

In contrast Touchstone and Maxima base their applications around third party products. Consequently this may afford them some protection from the costs and risks of software development.

Companies in this field typically make their money in three ways;

1. selling applications to new customers,

2. selling updates to existing customers; and

3. software support and maintenance contracts.

Whilst maintenance contracts provide good steady cashflow, it is the sale of applications to new customers which is the engine of future growth. It is an area where business can be lumpy and notoriously sensitive to economic sentiment. Consequently, despite broker forecasts, forward earnings visibility can be poor, which undoubtedly affects ratings. That the companies are also small and AIM listed will also not help.

However compared to the likes of Sage (LSE: SGE) trading on a 2006 P/E of 22.0, with a similar 15% increase in forecast EPS next year, these stocks clearly offer potential value. If you believe that businesses conditions will remain robust in the medium term then these companies should continue to do well. It's fact that has not gone unnoticed on the Motley Fool bulletin boards.

So is there any prospect that the stock market will eventually recognise the value of these companies? Six months ago specialist recruitment and HR software provider, Bond International Software (LSE: BDI) , was trading on a one year forward P/E of 10. Since then its share price has increased by 50%.

Sometimes it's just a matter of being patient.

[marben100] 29/1/2007 17:02

Patience, Grasshopper... :0)

An announcement about further acquisitions could be made at any time.

[rik shaw] 26/1/2007 21:39

Very quiet here. I wonder whether interest will pick up in run up to interim results on 27 February.

[currypasty] 09/1/2007 14:57

RNS Number:2386P Maxima Holdings PLC 09 January 2007 Maxima Holdings plc ("Maxima" or the "Company") Exercise of Share Options Maxima has issued 250,000 ordinary 1p shares pursuant to the exercise of share options at 110p by Geoff Bicknell, former Finance Director of the Company. Application has been made to the London Stock Exchange for the new ordinary shares to be admitted to trading on AIM. Dealing is expected to commence in these shares on 12 January 2007. This information is provided by RNS

[nfs] 13/12/2006 18:01

well done Mark-very informative.What stood out for me is
1 the flexibility of management in pursuit of management-the word "opportunistic" is used by Kelvin
#2 the pipeline of acquisitions,when they go well they do attract others and the price negotiated will be very good in current conditions.600 looked at!The fact that he knew the answer shows they are right on top of things.

[tole] 13/12/2006 16:21

Yes Thanks - very detailed and informative read. Appreciated.

Looks like we could be off again L2 1v3 230-237
Would like to see these up and holding the 250/260p mark imo.

[currypasty] 13/12/2006 07:59

RNS Number:7692N
Maxima Holdings PLC
13 December 2006



13 December 2006


Maxima Holdings plc


Change of Adviser


The Board of Maxima Holdings plc is pleased to announce the appointment of
Cenkos Securities plc as its Corporate Broker and Nominated Adviser with
immediate effect.



Enquiries
Maxima
Kelvin Harrison, Chief Executive 01242 211 211
Linda Andrews, Group Finance Director 0141 880 1000

Smithfield
Sara Musgrave/Tania Wild 020 7903 0676

[glasshalfull] 12/12/2006 20:57

Also wanted to say thank you Mark.
Very balanced write-up & one greatly appreciated.

Even when considering the recent rise they still look very good value to my eyes, especially in comparison to their peer group.


Kind regards,
GHF

[currypasty] 12/12/2006 12:39

RNS Number:7204N
Maxima Holdings PLC
12 December 2006


Maxima Holdings plc

("Maxima" or "the Company")

Notifiable Interest

Section 198 Companies Act 1985 ('the Act')

The Company was notified on 8 December 2006 that following the purchase of
70,000 Maxima shares on 4 December 2006, Liontrust Asset Management had an
interest in 1,828,786 Ordinary Shares of 0.01p each in Maxima, representing
10.10% of the total issued share capital of the Company.

[currypasty] 12/12/2006 10:27

thanks for that

[marben100] 12/12/2006 10:07

Here is info gleaned from an investor presentation that I attended last Thursday.

Last Thursday, it was Maxima's turn to offer a Foolish investor presentation.


Events on Thursday

From my POV the day started well, with the shares opening 8% up on the back of a half-year trading statement released by Maxima that morning: [and, more significantly a new broker note from Edison – available here: That puts Maxima's share price 15% up over the last week... so perhaps not the best time to buy for those interested. The recent rise can probably be explained by broker upgrades, issued earlier last week, resulting in a rise in the consensus EPS for this year from 21.6p to 24.1p These upgrades are to take account of Maxima's latest acquisitions (see

Thursday's rise was more surprising, as the trading statement was pretty nondescript:

The business continues to successfully pursue its acquisitive and organic growth strategy, and will report expected revenues and profits significantly up year on year.

I'd be rather surprised and disappointed if the revenues and profits were NOT significantly up, given that Maxima should be enjoying the benefit of a half-year contribution from the four acquisitions made last year (little effect from these in 1H last year). This was queried in the meeting and I got the impression that Kelvin Harrison (CEO) and Linda Andrews (FD) were being cautious before completing the accounts for November... I guess we'll see once the results are released next February.


Some Numbers

Before moving on to the presentation, let's have a look at the numbers. The last figures that I calculated are presented here:

Following recent acquisitions and using the latest Edison forecast, the forward numbers for '06/'07 look like this:


SP (p) : 230/236.5/139p (current/1yr high/1yr low)
'06/07 Pretax : £6.7m
Shares in issue : 18.9m (1)
EPS Forecast : 24.7p (2)
Forecast P/E : 9.3
PEG : 0.13 (3)
Forecast divvy : 5p
Forecast yield : 2.2%


(1) Includes outstanding options of 0.80m
(2) Pre- goodwill amortisation, based on quoted shares in issue figure, rather than weighted average
(3) The PEG may be misleading as it is based on the 73% EPS growth forecast between FY06 and FY07. It is questionable whether such
rapid growth can be sustained going forward.



The Presentation

We had the most pleasant venue of any of the company meetings that I have attended so far, on the top floor of the building that Seymour Pierce occupy in the City, with good views of the rest of the City and over the Thames. A pleasant buffet lunch and wine were provided.

It is always interesting to see how the players in a business compare with one's expectations. Kelvin came across as soft spoken with a nice smile, definitely not a salesman's salesman, he is confident in his own abilities. Linda is more outgoing, together they seem to make a good team.

Key points that I gleaned from the presentation were as follows:

The business has developed into two areas:

- Managed services. Provision of IT management and support services, targeted at mid-cap businesses, divisions of major corporations [e.g. Mars, Hoover, Vodafone], and the public sector. Maxima provide the same type of service to mid-caps that large IT service companies such as EDS provide to major corporations. KH indicated that demand for outsourced services from midcap enterprises is growing rapidly.
- Solutions. This is the more typical bread-and-butter of most IT companies: supplying, supporting and maintaining IT systems.

The managed services arm has really developed from the acquisition of Hanston, just over a year ago. Prior to that acquisition Maxima's foundation business, Azur, was more solutions oriented. Kelvin stated that the managed services arm was the more profitable and reliable business. These contracts typically moved into profitability within the first month or two of being initiated, whereas "solutions" contracts were generally not profitable for the first year.

This transition illustrates Kelvin's approach to business, which he himself describes as "opportunistic". Rather than simply imposing Maxima's own business methodology on its aquisiitions, Maxima is willing to draw on any new ideas and skills that it gains through those acquisitions and capitalise on them. It is not an "ego driven" business. The acquisitions can open up considerable cross-selling opportunities. E.g. with the recent acquisition of Intertech, Maxima acquires strong credentials in Citrix, a good relationship with that supplier and Intertech's customers. Those Citrix skills and sales opportunities can then be deployed across the much larger customer base of Maxima's existing businesses. Similarly, Maxima's skills in SAP, Oracle etc can be offered to Intertech's customers. Each new acquisition can multiply its effectiveness in this manner, as Maxima broadens both its customer base and skill base. Maxima now has partnerships with the following suppliers (besides Citrix):

- Microsoft (Gold certified partner)
- IBM (largest U2 managed services practice in EMEA, see
- Oracle (largest managed services practice in the UK)
- SAP
- QAD (largest MFG/PRO distributor)
- Progress
- Computer Associates

Kelvin does, however, have some clear and straightforward views about what will lead to success in Maxima and its acquisitions:

a) A strong emphasis on a customer service culture as opposed to a sales led culture. It is much cheaper to retain existing customers, cross-sell to them and be recommended by them, than to spend heavily on sales and marketing to win new ones.
b) Firm control of costs. Business costs are constantly and rigorously monitored and any unnecessary costs eliminated. E.g. introduction of strict timesheet reporting/monitoring to ensure that professional time is spent productively: Maxima operates a target of 80% of available hours per fee-earner to be chargeable.

The overall IT services market is forecast to grow at little more than the rate of inflation (5-6%). Clearly Maxima aims to grab a larger slice of that market. Kelvin was asked who Maxima's main competitors were. His response was that the marketplace was highly fragmented and that Maxima came up against different competition in each of its market areas. It is this fragmentation that Maxima seeks to exploit:

- By beating the competition through better business process and customer service. From personal experience, I do know that Kelvin is very strong on business process.
- By growth through acquisitions at good prices. Kelvin described it as a "buyer's market" for acquirers. This seems consistent with the observation of Fools that quoted companies in the smallcap IT services sector are trading on low P/E multiples and it appears that unquoted ones can be bought at even lower multiples, as their owners struggle to grow their businesses in tough market conditions. There appears to be a classic value opportunity.

Maxima has the following key acquisition criteria:

- Strong recurring revenues
- Organic growth opportunity
- Potential for rapid cash payback
- Good cultural fit. I.E. staff in the acquired business are happy to adapt to Maxima's more rigorous business process.

A couple of interesting observations were made on that last point. Firstly, often the original owners/directors of the acquired businesses were looking for an exit and departed once the acquisition was complete. This also means that there is less need for an "earn out" to be included in the deal. Currently MXM has only £0.7m of deferred consideration outstanding from the 6 acquisitions completed so far. Kelvin had found that the second (and lower) tiers of management were often pleased to see the improvements and reduction of waste that occurred with increased rigour.

Kelvin stated that there was a plentiful pipeline of further acquisition opportunities. We asked how many had been examined in the last year. We were surprised to hear that it had been some 600 businesses! Most of these were rejected within a few minutes of examining them. As Maxima's reputation spread, Kelvin indicated that Maxima was being approached more and more by potential vendors, rather than needing to seek out opportunities. Whilst it was not stated explicitly, I would expect to see more acquisition announcements this financial year (to 31st May). All acquisitions so far were reported to be performing ahead of expectations.

We discussed financing of the acquisitions. Maxima's strong cashflow allows considerable scope for purchasing from Maxima's own resources. Following the most recent acquisitions, the Edison note indicates that they expect net debt to stand at £8m, falling to £5m in the absence of further acquisitions by the financial year end. Kelvin indicated that Maxima's bankers were willing to lend up to 3.5x prospective EBITDA but that the Board was not happy to go above 2.5x EBITDA in borrowings.

Kelvin also stated that Maxima intended to implement a progressive dividend policy, with an aim of paying out around 20% of operating profit. It was also stated that the effective corporate tax rate is likely to be higher this year than last, at around 29-30%.

It is worth observing that Maxima's track record seems to back up their claims. There is evidence for this in an October note from Seymour Pierce, which is well worth reading. Here is a particularly striking example relating to the Ringwood acquisition:

Of the £3.2m revenue that Ringwood reported for the year to March 2005, 65% was derived from recurring support contracts from the installed base. However, the high proportion of recurring revenues, typically a good sign, were also a signal that new business growth had withered at Ringwood. When Maxima bought the company it was perceived from the start as a turnaround situation. Soon after the deal completed, Ringwood's directors left the company, and a new team took control. Some staff were laid off and the company relocated to new offices, which Maxima believes boosted morale. These changes led to an exceptional charge of £130k, principally related to redundancies.

These changes achieved the desired result, and the company which had reported a loss of £80k on turnover of £3.2m in the previous year, hit an annualised run rate of £800k operating profit on £2.9m turnover. The business had previously been in decline, having won no new customers for some time. However, in the first year of Maxima's ownership, Ringwood added twelve new customers and we estimate that revenues are now tracking at an annualised £3.5m (representing 20% top line growth yr/yr), with annualised EBITA at c.£1.2m. With Ringwood, Maxima has achieved a fast payback: having acquired a business for a net price of £2.9m which within a year is generating £1.2m of operating profit.


Some Further Thoughts

Maxima's business strategy seems to me to operate in a virtuous circle at the moment:

- Each sensible acquisition MXM makes adds both to Maxima's EPS and cash generation
- That, in turn, tends to lead to a rise in MXM's share price
- When making further acquisitions there is a) more cash available; and b) MXM's higher share price means that fewer shares have to be issued in cash/share deals resulting in less EPS dilution.
- Vendors of companies that MXM buys should be very satisfied with the gains that they are seeing on their MXM shares which should also attract future vendors and strengthen MXM's negotiating hand.

The flip-side is that, in time, there will be an overhang of shares that past vendors may wish to sell. It seems to me, however, that there is little risk of the circle turning vicious: if MXM's share price starts to slide it can simply stop making new acquisitions. As long as the 1 year forward P/E and cashflow looks attractive (and they do at the current SP), risks look very reasonable.

There is a risk that the share price could rise to speculative levels, where future potential acquisitions start to be priced in. At that point I'd start reducing my stake.

Regards,

Mark

[johnroger] 08/12/2006 14:55

Had to ring the broker to add 1000 today unable to buy any online but could of sold 5000.