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UPDATE - Advanced Computer eyeing acquisitions as opportunities "open up"

Last updated: 14:18 04 Nov 2014 GMT, First published: 15:18 04 Nov 2014 GMT

Advanced Computer

--adds more broker comments, interview--

Advanced Computer Software (LON:ASW) is eyeing more acquisitions with opportunities opening up in all of its markets, according to chief executive Vin Murria.

A full contribution from last year’s major purchase CSH helped revenues rise 9% to £108.1mln in the six months to August.

Pre-tax profits were 63% higher at £7.8mln and 14% ahead on an underlying basis at £25.4mln. Both sales and profits were in line with forecasts in a trading update in September.

Murria said that with CSH now starting to contribute the focus is on optimising operating margins across the group, something that is expected to deliver significant gains.

“This, together with our strong balance sheet and excellent track record, positions us well for long term sustainable growth, and to take advantage of acquisition opportunities opening up in all of our markets,” she said.

Revenue growth was strongest in the healthcare division and 365, the managed service division, at 10% and 11% respectively.

The 365 arm in particular is seeing strong demand for its mobile and loud-based services. Overall, Cloud-based service income now accounts for almost a third of recurring revenues of £68.2mln.

Advanced Computer is one of the main software providers for the NHS's 111 emergency system while 365 picked up new contracts with the Royal Free Hospital, the Imperial College Healthcare Trust and Wandsworth Council.

The company generated cash of £23.7mln over the half year with net debt reduced to £37.9mln from £49.4mln six months earlier.

George O’Connor at Panmure Gordon said the interims suggest the company is on track to meet full year expectations. Organic growth was 4%, but 5% underlying. Other stand-out numbers include SaaS/subscription revenues up to 31% of recurring revenues and net debt down to £37.9mln. Shares remain reassuringly inexpensive given what you get, Panmure added.

“In the current risk-off environment investors should welcome a combination of consistent delivery, decent visibility (63% of revenues recur), strong contracted revenues (£209mln) and healthy cash generation.

"Management’s focus on optimising margins could deliver upside to forecasts in the medium term, but the key attractions for investors now are the reassurance of consistent delivery and strong cash generation, O’Connor added.

Liberum, meanwhile, increased its forecast fiscal 2016 adjusted EBITDA margin for the company by 3.8% and its earnings per share estimate by 5.7%.

The acquisitive company is prepared to bide its time for the right opportunities, as asset prices are currently quite high, the broker said, adding that it would not be surprised if Advanced Computer elected to return some of its cash to shareholders if it could not find the right sort of sizeable acquisition.

“The combination of organic growth with rising margins and the likelihood of significant value creation through M&A, makes Advanced Computer Software an attractive investment in our opinion. We therefore reiterate or buy recommendation and 141p price target on the stock,” Liberum said.

N+1 Singer was another broker making upgrades to its earnings forecasts, albeit modest ones.

It says the business is showing “clear signs” of returning to sustainable growth following a period when it was focused on integrating the CSH business.

The shares trade on a pre-share-based payments basis of 14l.6 times projected 2015 earnings, making it attractive in comparison with its peers, N+1 Singer said.

Shares rose a touch to 107.6p.

 

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