Investment summary: Scaling up
FY13 results confirmed that in addition to growth from recent acquisitions, Advanced Computer Software (ASW.AIM) continues to drive organic growth across all business lines. The post year-end acquisition of CSH will provide a step change in revenues and profitability in FY14 and should offer further scope for cross-selling. The enlarged group should be highly cash generative with strong recurring revenues, providing a level of confidence that debt will be reduced in a timely fashion.
FY13 results in line, with continued organic growth
ACS reported revenue growth of 23% y-o-y, of which 9% was organic. All business lines showed organic growth: Health & Care +13% (driven by growth in mobile licence orders and its dominant NHS111 position), Business Solutions +6% (driven by contract and product extensions) and 365 Managed Services +9% (driven by demand for shared services and cross-selling). Adjusted EBITDA grew 12% y-o-y, although acquisitions of lower-margin businesses resulted in a margin decline from 26.7% to 23.9% y-o-y. Cash conversion continued to be strong at 108%. ACS had net cash of £30.9m at year-end and announced a maiden dividend of 0.4p/share.
Recent acquisition scales up Business Solutions and 365 Managed Services divisions
In March, ACS acquired Computer Software Holdings (CSH) for £107m, funded by cash, a £55m term loan and a £50m revolving credit facility. CSH is a provider of accounting, back-office and document management solutions to the professional services sector, CRM solutions for the not-for-profit sector and accounting solutions for SMEs. In CY12, CSH generated revenues of £61.2m, an EBITDA margin of 21.4% and recurring revenues of 66%. CSH’s proprietary software solutions fit into the Business Solutions and 365 Managed Services business lines, offering opportunities for cross-selling and access to new verticals. There is also scope for cost synergies, particularly through rationalising office space.
Forecasts and valuation: Undemanding
The pro forma order book stood at £189m at year-end, of which 73% is due to be recognised in FY14, equating to c 70% coverage of FY14e consensus revenue. The stock has gained 12% ytd and now trades at a small discount to the UK software sector on FY14 forecasts. With scope for revenue upside from cross-selling and cost synergies from the integration of CSH, we see potential for earnings upgrades.
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FY13 results confirmed that in addition to growth from recent acquisitions, Advanced Computer Software (ASW.AIM) continues to drive organic growth across all business lines. The post year-end acquisition of CSH will provide a step change in revenues and profitability in FY14 and should offer further scope for cross-selling. The enlarged group should be highly cash generative with strong recurring revenues, providing a level of confidence that debt will be reduced in a timely fashion.
FY13 results in line, with continued organic growth
ACS reported revenue growth of 23% y-o-y, of which 9% was organic. All business lines showed organic growth: Health & Care +13% (driven by growth in mobile licence orders and its dominant NHS111 position), Business Solutions +6% (driven by contract and product extensions) and 365 Managed Services +9% (driven by demand for shared services and cross-selling). Adjusted EBITDA grew 12% y-o-y, although acquisitions of lower-margin businesses resulted in a margin decline from 26.7% to 23.9% y-o-y. Cash conversion continued to be strong at 108%. ACS had net cash of £30.9m at year-end and announced a maiden dividend of 0.4p/share.
Recent acquisition scales up Business Solutions and 365 Managed Services divisions
In March, ACS acquired Computer Software Holdings (CSH) for £107m, funded by cash, a £55m term loan and a £50m revolving credit facility. CSH is a provider of accounting, back-office and document management solutions to the professional services sector, CRM solutions for the not-for-profit sector and accounting solutions for SMEs. In CY12, CSH generated revenues of £61.2m, an EBITDA margin of 21.4% and recurring revenues of 66%. CSH’s proprietary software solutions fit into the Business Solutions and 365 Managed Services business lines, offering opportunities for cross-selling and access to new verticals. There is also scope for cost synergies, particularly through rationalising office space.
Forecasts and valuation: Undemanding
The pro forma order book stood at £189m at year-end, of which 73% is due to be recognised in FY14, equating to c 70% coverage of FY14e consensus revenue. The stock has gained 12% ytd and now trades at a small discount to the UK software sector on FY14 forecasts. With scope for revenue upside from cross-selling and cost synergies from the integration of CSH, we see potential for earnings upgrades.
To Read the Entire Report Please Click on the pdf File Below.