eg is well-positioned to capitalise on growing demand from multiple industries globally for technologies to transform back-office efficiency. It provides industry-leading workforce optimisation (WFO) solutions already used by around 50 global brands and over 100,000 users worldwide. These address an area of high priority as increased business conducted digitally drives up transaction volumes across all channels. eg software helps users optimise back office processes, meet customer demand for prompt, even real-time responses and comply with increasingly stringent regulation.
The company extended the functionality of its product suite this year to enhance its appeal to a large, loyal client base which already included leading financial services, utilities, telcos and business process outsourcers (BPOs). Its technological edge provides it with significant competitive advantages which it intends to maintain via active investment in its product and operational capacity, and potential acquisitions of complementary software. New management and sales teams have embarked on an energetic marketing push, already reflected in growth in the order book (recurring revenues) from £6m in 2013 to £17.1m currently.
A recent update confirmed that adjusted FY14/15 pre-tax profit will be breakeven, in line with forecasts. It will be achieved on lower than anticipated revenues as certain sales under negotiation will now complete early in FY 16/17, but it added another 11% to the order book since September, to £17.1m. Significant new business this year include new utilities verticals, first wins in telecoms and Local Government, and the insurance division of a challenger bank. Net cash at end January was £3.0m (vs £3.1m at end July 2015). That reflects organic cash generation during a period of investment in product development and sales & marketing capability.
The shares are materially below our view of intrinsic value at c. 100p/share, supported by a growing order book and increasing evidence that new management can access the full potential. The valuation assumes that operational leverage inherent in the financial model translates into a step up in profit/EPS on the back of revenue contributions from a growing order book, which provides three to four years’ visibility. Our forecasts also build in contributions from the developing sales team and new relationships with outsourcers and 3rd party consultancies over the next 12-18 months.