Software stocks that enable corporates to sell more, improve quality, cut costs, save employees time and/or reduce their ‘carbon footprints’ are ideally placed in today’s tech/ESG world. Cue Elecosoft, who said this morning that 2019 PBT would be “ahead of LY” (£3.67m) and “in line with expectations” (consensus £4.1m) - despite being impacted by forex (ED est -2%, weaker SEK vs £) and macro uncertainties (eg Brexit, General Election and subdued Eurozone). We think this is a creditable outcome. Not least because it underlines the resilience of the business - while the results are actually a touch better than our previous (bottom of the range) profit & cashflow estimates, albeit with revenues a smidgeon shy.
Consequently, we have tweaked our 2019 numbers (see below) to: EBIT of £4.40m (margin 17.5%) on turnover up 14% to £23.35m (3% LFL CC) with net cash closing Dec’19 at £1.50m (vs -£1.81m LY). Going forward, the 2020 PBT & EPS targets remain unchanged at £4.6m and 4.5p respectively, notwithstanding a further small forex headwind of c.-1% (£’s recent rise vs $/€).
Elsewhere, our valuation inches up from 100p to 105p/share - reflecting the improved economic climate, new product launches (eg AI visualisation tool), stabilisation in the SEK and significant future up/x-selling opportunities.