In today’s trading update, EU Supply (“EUS”), the e-procurement software provider, has indicated that it expects to report its first annual pre-tax profit, for recently ended FY2018. We forecast continuing growth in FY2019, with potential for EUS to benefit medium term from its investment in developing new services and its scalable SaaS business model
EUS has advised that FY2018 revenue grew by 10% to approx £5.1m, of which approx 70% (FY2017: 66%) is expected to be of recurring or repeating nature. Final results for FY2018 are subject to audit and are expected to be released in April 2019.
Importantly, EUS expects to report its first annual profit before tax, expected to be £0.4m profit compared to a £0.2m loss FY2017. In the latter part of FY2018, EUS capitalised £0.3m (FY2017: nil) in IT development costs (net of amortisation) as required under IFRS.
During H2 FY2018, EUS developed new modules and services for buyers and suppliers to support growing recurring revenue in the medium term. Development of its micro procurement solution (to assist with low value or short-term procurement) is progressing in line with plan, to further aid recurring revenue growth.
With EUS indicating FY2018 revenues slightly behind our previous forecasts, we have reduced FY2018 and FY2019 revenues forecasts to £5.1m (was £5.4m) and £5.6m (was £6m). Following the indication from EUS of clear profitability in FY2018 above our previous forecasts, we have increased our forecast PBT to £0.4m for FY2018 (was nil), in line with today’s trading update, and to £0.5m for FY2019 (was nil).
Having focussed in 2016 and 2017 on moving towards and now achieving its target of profitability and in 2018 on developing additional services for recurring revenues, EUS is well placed to focus on adding sales to its profitable platform to deliver its growth plan. With its software-as-a service model, EUS has potential to benefit from operating leverage with growth.