-1x Square Discussion Threads

[welsheagle] 30/12/2011 15:25

Arbuthnot reiterated their 'Strong buy' recommendation yesterday, with a target price of 275p.

[spaceparallax] 30/12/2011 11:42

a little life?

[spaceparallax] 05/12/2011 12:22

..or not. It seems that only the MMs were briefly impressed.

[spaceparallax] 30/11/2011 09:56

wonderful news - watch that share price recover

[shuisky] 30/11/2011 09:02

Great contract win announced today and managed services revenues now above 25% of total. It would have been nice if they gave a comment on Egypt though.

[spaceparallax] 23/11/2011 14:05

I see we had a Peel Hunt Hold reiteration today

[shuisky] 15/11/2011 10:00

I'm not sure they will hit the 5% expected yield because I think they will stick to their 30% of EPS payout target.

However, you need to consider that they pay their dividend all in one go, so if you annualise the dividend the return is much higher. On this basis its closer to around 8% right now.

[gingerplant] 04/11/2011 13:43

SQS Software Quality Systems

I last looked closely at SQS Software Quality Systems (LSE: SQS) a year ago. At the time, the share price was 187p. It's now 157.5p (currently valuing the company at £44m), but it went as high as 243p earlier this year.

The German based company is the world's largest independent provider of software testing and quality management services.

The value basics look good for a growing techie. The prospective P/E stands at just 5.8, gearing is low at just over 9%, and the half-year results showed turnover up 29% to €95.3m, on which SQS made an underlying pre-tax profit of €2.8m. There's even a c.5% expected yield; a very welcome rarity in tech stocks, and the CEO holds a comforting 11.3% of the shares.

The first half was an excellent performance given the company's investment in new staff, training costs and investment in IT infrastructure. SQS said that it hired and fully trained an additional 260 new consultants during the period, resulting in a billable staff net increase of 137.

On the downside, SQS wasn't too optimistic about the rest of the year, and that was enough to send the shares down. Such short-term fears may well present long-term opportunity. SQS is waiting for the European economic situation to improve before it invests further. Revenues will be flat, but margins should improve as the company reaps the benefit of its recent investment.

I think SQS will reward patient investors.

[spaceparallax] 03/11/2011 12:00

good to see

[shuisky] 03/11/2011 10:03

RNS out today and not entirely unexpected...



...Octopus have quietly picked up 568,373 shares, roughly equivalent to a £880k worth.

Meanwhile, PI's are selling out on a stock trading on at least 7.5x 2011 earnings. Go figure.

[shuisky] 25/10/2011 12:47

Yep. IMHO the MMs have realised there is no stock available so they will have to raise the bid price

[spaceparallax] 25/10/2011 09:42

a little life this morning

[envirovision] 18/10/2011 16:59

shuisky, my comment was aimed at the market in general. However I found the information you provided interesting regardless of what reason prompted you to take exception to my post.

Regards the widening spread, imo I would have thought it was in response to the lack of any volume in the stock.

[shuisky] 18/10/2011 15:46

The bid price has been moved down but the offer has gone up. I suspect we are about to move higher here very soon.

[shuisky] 06/10/2011 09:08

Envirovision,

Why not back up your comments with some facts instead of making silly remarks?

At the interims...

SQS current assets= 57.3m, current liabilities =38.4m
EBIT=2650, net interest cost=693. So the cover is 3.8x

Moreover, they are about to generate a bundle of cash in the second half as the new managed services contracts start to mature and the new consultants start billing work.

Now lets turn to the 'worst case scenario'.

Their worst year was in 2009...



Asjusted EPS was 21c and the divi was 7c.

In UK money this is 18.4p and 6.1p, which equates to a PE=155/18.4=8.4x and a yield of 3.9% in today's price.

And that is on a worst case scenario.


Now, go back to the recent results statement...



"Although investments made in staff during the first half resulted in increased costs, these consultants are fully billable in the third quarter and are expected to continue to be so going forward, resulting in improved margins. However, given the outlook for the global economy we prudently forecast revenues to remain flat in the second half and consequently expect profits to be at the lower end of expectations."

This means..

1. Revenues flat implies E190m in revenue which is AHEAD of market estimates.
2. The lowest broker forecast is for EPS of 20.64p

So the stock is on at least 155/20.64= 7.5x 2011 earnings.

Now look at Managed Services revenues. This is important because they are long term contracts that insulate SQS from a cyclical downturn. Here is how they have moved over the last few years as a percentage of revenue...

2009 3%
2010 11%
2011 19%

..and that number will increase significantly with the new orders that were announced before the results.


Therefore, the downturn (which will be nothing like as severe for the economy as it was in 2009) will be managed better by SQS.

This stock is on 7.5x its 2011 earnings and, is very very cheap. I note JO Hambro picked up some more.

Investing is about buying cheap and selling dear.

[envirovision] 03/10/2011 12:52

Market seems to be taking a second swipe at some decent companies today and appears to be pricing in a considerable decline in fortunes, a total reversal of growth fairly large shrinkage and with a good degree of conviction.

SQS for example, market seems to be expecting a 25% decline in profits next year. I guess if the market then decides to price in no growth the year after or even further decline then the share price would more than half again.

Many similar companies which do not have such good cover on debt will shortly be priced for high probability of administration. This is starting to look and feel like early 2009 again.

[spaceparallax] 03/10/2011 12:00

Strange sharp dip this morning.

[spaceparallax] 08/9/2011 10:07

a handsome yield

[shuisky] 07/9/2011 15:41

Dividend forecast at 8.09c so around 7.9p and since they pay it all at year end- which we are around 6 months away from- this is now trading on a dividend yield of

(7.9/169)x2= 9.35%

[spaceparallax] 07/9/2011 10:25

Looks okay to me, but understandably cautious. Sp reaction seems overdone

[shuisky] 06/9/2011 23:56

Daz,

Flat Revenues in the second half will see them do E190m vs. E180m forecasts.

With regards consultants...

'Although investments made in staff during the first half resulted in increased costs, these consultants are fully billable in the third quarter and are expected to continue to be so going forward, resulting in improved margins. '

...and the freeze is good news. They are responding to market conditions.

Cash Flow is likely to be very strong in H2, because the margins for Managed Services contracts increase over time and the hiring freeze will help margins go up too. Receivables will reduce as they won't be expanding so aggressively.

I do appreciate how bloody annoying this stock is. It never seems to move up in favourable conditions, so you don't get an exit point before the cycle turns round again! Nevertheless, its hard to argue that this isn't good value and they are about to generate lumps of cash flow. IMHO, the management have to be wondering why they bothered with an AIM listing if this is the way they will be rated.

The company trades on-revised- forecasts of free cash flow yields of 7.4% 12.5% and 16.5% for 2011-2013. Extremely undervalued. In the lase recession they achieved 21c or 18p in earnings at the bottom, so even in the worst case sceanrio its on 9.4x earnings. However, with the shift to managed services they won't be as much affected by any slowdown.

[stegrego] 06/9/2011 20:29

Sold this a couple of weeks ago to raise some cash for stocks that were getting smashed. Glad I did.
Never really seems to do anything when I've held it and I won't be rushing back in. Very mediocre share.