Prodware is well positioned both to grow revenues and to drive sales of its higher-margin software, rather than its integration services. The integration and restructuring of the Qurius acquisition is now complete and the balance sheet has been restructured. Furthermore, management is once again focusing on growth, as evidenced by the stated intent to grow revenues to €300m by 2020, the Prodware Academy programme, the creation of the Business Consulting division and the open desire to make acquisitions. Despite this potential, the shares trade at significant sales and earnings multiple discounts relative to European comparators.
The integration and restructuring of the Qurius operations across Europe is now complete and the process of driving up the software revenues in these businesses is fully underway – hopefully following the same path towards higher margins as management achieved with the original Prodware business. The balance sheet is in better shape as a base for the management to grow overall revenues driven by investment in new staff with the Prodware Academy programme, the creation of the Business Consulting division and potentially, bolt-on acquisitions.
Prodware is seeing growth in revenues driven by the strong underlying demand for CRM and ERP systems for SMEs. This growth is driven by a combination of factors including the desire for software provided on a software as a service (SaaS) or otherwise hosted basis and the demand for mobile-capable systems. Our revised forecasts reflect this building demand, together with the impetus from Prodware Academy, but also the temporary compressive effect of this programme on margins.
Prodware’s shares continue to trade at significant revenue and earnings multiple discounts to its European comparators. The extent of the discount is, we believe, unjustified given our growth forecasts. Management has made a clear commitment to drive growth and as the results of this show through in client wins, product launches and financial results, we would anticipate that the shares will be rerated. Placing the shares on the average FY15e P/E multiples of Prodware’s closest listed comparators in margin and business-model terms (K3 and Sword) suggests a share price of €22.6.