eg has announced FY15/16 results in line with the January trading update; revenues had been impacted by a disappointing level of channel sales and, we believe, an immaterial contribution from Aspect. Nevertheless, “core” eg (direct) sales remain robust, the group is modestly profitable and the order book has grown to a phenomenal £17.4m (2.5x annual sales). We realign revenue downwards in line with consensus to reflect caution around channel partnerships, but leave FY17 profit expectations unchanged.
Underlying revenue up 17%, PBT breakeven: On an underlying basis, revenue grew 17% in 2016. On a statutory basis, revenue was stable, reflecting the high level of one-off licence fee and support service sales during FY14/15. The group reported breakeven at the pre-tax level, following a year of investment in the eg operational intelligence™ software suite (R&D spend was 65% higher YoY) which compares favourably to our initial forecasts of a small loss.
A troubling Aspect We believe that Aspect Inc, a major sales channel partner for eg, has disappointed – there have been precious few contract announcements, and Aspect itself has recently entered Chapter 11. While Aspect may recover, it is clear that all is not well, and this has been a drag on overall eg performance. We discuss this in further detail overleaf.
Further improvement in visibility: eg’s contracted order book now stands at £17.4m, which is anticipated to be recognised over the next four years. The majority of new orders were based on multi-year hosted solutions. This represents a 42% CAGR over the past five years, and a 12.3% increase since July 2015, the figure equates to around 2.4x FY16 sales – an extremely significant level of visibility.
Forecasts realigned: We choose to reduce our revenue estimates for FY16/17E although we leave our Adjusted PBT forecasts unaltered; we take a more cautious view on FY17/18E to hopefully leave these estimates prudent to allow upgrades in due course.
Overall we view these as a solid set of results. The core business continues to deliver strong momentum as evidenced by the impressive underlying revenue growth. Revenue visibility continues to build, and we believe that channel relationships will either recover or be supplanted.