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Record-breaking six months for eg solutions

In addition to record revenues and order book levels, eg also announced a tie-up with the UK’s largest energy supplier
The deal with the UK's largest energy supplier is worth around £760,000

A strong second half for EG Solutions plc (LON:EGS) ensured 2016 was a record-breaking year for the back-office workforce optimisation specialist.

The group expects to post record revenues of at least £5.69mln for the six months to January 31 2017 after a refocused strategy and several contract wins provided a boost to trading.

As a result, adjusted underlying earnings [EBITDA] for the second half should come in at more than £2mln, while eg had £3.4mln cash in the bank at the end of the period.

Pleasingly for investors, the future looks just as bright with the company’s contracted forward revenue order book at record levels of £18.5mln.

That figure has been buoyed by today’s other news that eg has signed a master services agreement with a leading business process outsourcer (BPO), which will now market eg operational intelligence software to utilities firms to help improve operational performance.

In fact, the tie-up with the BPO has already yielded an immediate deployment of licences with the UK’s largest energy supplier, which is worth in the region of £762,000.

The second half performance leaves the company confident that full-year results will be in line with market expectations.

eg will publish its results for the year to 31 January 2017 on 22 March.

Turnaround complete

As early as September, eg was guiding that it was still confident of hitting its full-year targets despite a sluggish first half.

Revenues for the first six months dipped to £2.5mln from £3.6mln a year earlier, but a beefed up sales team helped to steady the ship as it moved into the second half.

eg bagged a 'landmark' contract in the Asia Pacific region worth around £0.5mln in October, which was closely followed up by another decent deal which it announced in November.

The latter is worth £1.3mln to eg, with £0.25mln of that recognised in the financial year just gone.

The third big contract win with the UK’s largest energy supplier was announced this morning (February 13) along with the update.

That tie-up was secured after eg signed a master services agreement with a “leading BPO”. Importantly, this opens up eg’s offering to a host of new potential clients which could help bolster an already bloated order book.

What the chairman said…

“At the beginning of the second half of the financial year, the board embarked upon a strategy to profitably scale the business through increased focus on sales, broadening and increasing the Company's distribution channels and efficiency deploying internal resources,” said non-executive chairman Nigel Payne.

"I could not be more pleased with how the chief executive [Elizabeth Gooch] and her management team have embraced and risen to this challenge. The management team is highly focused and there is now real momentum within the business whilst at the same time our customers continue to provide excellent feedback on our products.

"The second half of the financial year was busy and the board is encouraged by the company's performance. We are delighted with the successful signing of a number of high-profile contracts and our pipeline as we enter the new financial year is strong.”

What the brokers said…

“The first half had been relatively weak which had led to some investor concern for the full-year forecast however the company placed its faith in a strong order book which it has clearly delivered,” said finnCap analyst Lorne Daniel.

“From £2.5m in the first half, sales have doubled to at least £5.7m in the second half, meeting full-year hopes of £8.2m, up 8% on last year.

“Margins have also been impressive; full-year adjusted EBITDA [underlying earnings] will be at least £1.2m, on track for our £1.3m forecast, and leaving an impressive £2.4m cash balance at year end.

“The good news on second half trading is accompanied by a significant broadening of eg solutions’ channels and a record £18.5m order book which will see the momentum continue into [the current financial year].

“The shares have been weighed down by fears for the second half and are now due a dramatic re-rating.”

Spot on with ‘dramatic re-rating’ call

The analyst wasn’t wrong either, with the eg share price jumping by more than 20% on the back of the bullish update.

The share price stood at 49.5p shortly before lunch on 13 February, giving eg a market capitalisation of £11.5mln.

The rally also takes the share price back to where it was this time last year and now that it’s back on an even keel, eg is set to push on according to finnCap’s Daniels.

The analyst is tipping the stock to double over the coming months, setting a target of 105p.

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EG Solutions plc Timeline

January 03 2017

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