In FY15 Eckoh achieved another year of strong growth, while continuing to invest in building out its US business. Eckoh’s partner strategy continues to deliver new customers, and in the US could yield material contracts this year. The company is keen to drive growth from its existing customer base through cross-selling and has put in place initiatives to support this. We forecast EPS growth of 15% in FY16 and 19% in FY17. While the valuation looks full, successful execution of the growth strategy could drive upside.
Eckoh reported FY15 revenue growth of 22% – while this was lower than our forecast, good cost control resulted in operating profit and EPS marginally ahead of our forecasts. The company won 19 new customers in the UK and six in the US, including a major contract won via Capita in the UK transport sector. The original three-year framework agreement with Capita Customer Management has been revised and will now run for a further five years.
The company continues to focus on winning new business in the US. While the West partnership did not deliver any new customers in FY15, as sales cycles for the larger opportunities are longer, we would hope to see at least one sizeable contract win this year. The majority of new customer wins have been for payments solutions, which tend to have a lower contract value than customer engagement solutions, and this trend has continued into H116, with several international CallGuard contract wins. The company is keen to cross-sell customer engagement solutions to existing payments customers and has put in place internal sales targets and incentives to encourage this. We have revised our forecasts to reflect lower than expected revenues and operating costs in H215; we forecast FY16 revenue growth of 12.7% generating an operating margin of 20.8%, with 11.5% growth in FY17 and an operating margin of 22.0%.
The stock trades above its peers on a P/E basis, which in our view is justified by its strong growth prospects and cash generation. We expect the recent contract wins and future potential wins from Eckoh’s sales partnerships (in both the UK and US) to drive strong growth. Eckoh has a progressive dividend policy, with a dividend yield of c 1% in FY16 and FY17. The company continues to look for acquisitions to expand geographic reach and technology expertise.