Technology provider in a sweet spot for economic recovery In the last three months, shares in K3 Business Technology have outperformed the AIM UK 50 index by 65% as improved trading flows through to profits. K3 Business Technology (K3) is a £72m market cap provider of software systems to retailers, distributors and manufacturers. The company’s key offering is to take Microsoft based business planning and management software and add the bespoke functionality that a customer requires for their own business. In addition to Microsoft’s ERP offering, the company is a long-time distributor of Syspro’s popular ERP product.
grown sales significantly in the last five years Today, K3 has around 3,000 customers, including high street retailers such as Jigsaw and The White Company. K3’s software goes beyond Point of Sale (the till) to include multichannel retail (e.g. mail order, internet) and stock control. K3 has grown sales significantly in the last five years. Profits and dividends have also advanced significantly in that time. In 2007, K3 made sales of £34m and reported EPS of 13.5p. Dividends were 0.5p per share. By 2012, sales had reached
£68m, normalised EPS hit 21.1p and dividends were 1p a share. 2013 was a much tougher year for the company, as weaker retail markets combined with multi-million pound investment in a new Microsoft solution hit both the top and bottom line.
Syspro and Sage offering is the bedrock of the operation K3’s Syspro and Sage offering is the bedrock of the operation, delivering high levels of recurring income. This has helped K3 make significant reductions to group debt — recent interim results showing a £2.5m reduction in 12 months to £9.9m. The same results showed an adjusted EPS figure of 7.7p for the half year. Including amortisation of acquired intangibles of £1m and reorganisation costs of £0.5m, brings EPS down to 2.9p. The launch of K3’s Microsoft Dynamics AX solution to the retail market is creating significant excitement. This product accounted for £8.3m of major new contracts announced at the interim stage. The aggregate amount of all new contracts totalled £12.7m, an enormous improvement on the £3.1m managed in the same period one year ago. The company hopes to secure more significant contracts with the AX solution in the second half. Fashion retailers are a high-priority target. This product is the crux of the investment case for K3 shares.
Sentiment in the retail sector appears to be improving at a pace and K3 are perfectly positioned to benefit from a new investment cycle. The big prize for K3 is Europe, which the company hopes to exploit via the Netherlands.
K3 are perfectly positioned to benefit from a new investment cycle According to Stockopedia, 2014 EPS is set to hit 15.9p for FY 2014, rising to 20.8p next year. K3 is a real business with 15 years of trading behind it. The previous success and improvement in trading are clear, yet the shares trade at a significant discount to many comparable technology shares. K3 Business Technology (LON:KBT) FOR Strong sales of new products Consistently profitable business AGAINST More cost needed to support growth Recurring revenues little over half of sales Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high
£72m 227p:230p 14.4 0.5% 93p:240p
Published on Apr 29, 2014