Blancco Technology Group's (LON:BLTGB) FY18 trading update confirms that despite weaker than expected revenue growth, work on reducing the cost base resulted in a better than expected operating margin of 11%. Positive cash flow in H2 reduced the net debt position to below our forecast. We have revised our forecasts to reflect lower revenues but stronger profitability, resulting in an upgrade to our normalised EPS forecasts of 49% for FY18e and 10% for FY19e. With the appointment of a permanent CFO, the new management team is now complete, and we expect more detail on strategy when the company reports FY18 results in September.
FY18 operating profit ahead despite weaker revenues
Blancco expects to report modest revenue growth for FY18 (our forecast +5.6%). The rate of growth was not as strong as management expected (previous guidance was for reported growth at the lower end of the 6-16% range), and was negatively affected by the weaker pound during the period. For H218, the company saw a good rate of contract wins, with revenue growth of 7% y-o-y on a constant currency basis (our forecast +12% reported). Despite the weaker than expected revenues for the year, due to good cost control Blancco expects to report an adjusted operating margin of 11%, well ahead of our 8% forecast, towards the top end of the 8-12% guidance range, and significantly higher than the 6.6% reported in H118. Combined with good cash collection, this generated positive cash flow for H218 and net debt at year-end of £2.8m, below our £3.5m forecast.