Eckoh Growth On Track

Eckoh (ECK.L) expects to report FY13 results in line with market expectations. The sales pipeline at the start of FY14 is stronger than ever, and combined with a full year of revenues from contracts signed in FY13, provides support for our FY14 growth forecasts. The recent signing of a new BPO sales partner strengthens the company’s indirect sales channel.


FY13 trading in line
Eckoh saw strong financial performance in H213 (our forecast is for h-o-h revenue growth of 27%) and confirms that results for FY13 will be in line with market expectations. Customer demand remains strong, with the total number of customers growing from 39 to 50 over the year. The company expects to recommend a dividend of 0.25p for FY13 (+25% y-o-y). Net cash at year-end had grown to £8.5m from £6.4m at the end of FY12.

Sales pipeline stronger than ever
New business signed in FY13 will only have had a limited impact on FY13 revenues – we should see the full impact of these new contracts in FY14, supporting our 9.7% revenue growth forecast. The current sales pipeline is at its highest ever level providing further support to our FY14 forecasts. Customers are particularly attracted to Eckoh’s PCI DSS-compliant payment products (EckohPAY, EckohPROTECT) and we expect these products to continue to drive future growth.

Indirect sales channel strengthened
Eckoh recently signed a three-year partnership agreement with a leading UK provider of business process outsourcing (BPO) and business process management (BPM) solutions. The agreement includes contracted minimum revenues and is effective immediately. Eckoh will provide a range of self-service solutions and PCI DSS-compliant payment services to support the partner's multi-channel customer management solution and to reduce the scope of the PCI DSS compliance processes undertaken by the partner's clients.

Valuation: Reasonable valued ex-cash
The stock trades slightly above its peer group on a P/E basis, although on an ex-cash basis (13.4x FY13e and 10.2x FY14e), it trades at a discount to its peers. On an EV/Sales basis, Eckoh trades at a discount but we expect this to reduce as its margins grow. Eckoh has a progressive dividend policy, with a dividend yield of 1.7% in FY13 and 2.1% in FY14.

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