There was a pleasingly positive pre-close Trading Update from Netcall this morning, a very recent subject here and investment for me, which saw a positive outcome announced for full year 2024.
Anyone taking a look for the first time can read more on the business here - https://martinflitton1.wixsite.com/privatepunter/post/netcall-generating-the-cash-07-06-24 - where the headline of that piece refers to a major attraction in terms of the investment case.
This is the all-important ability to generate cash and a lot of it, which this morning saw the company delivering well ahead of the expected year end close position.
Broker Canaccord had pencilled in a £28.8m net cash figure, but it has actually come out at a more chunky £34m as the company delivered impressively with circa £12m of free cash flow.
That equates to a near 18% beat on what was expected and is clearly an excellent result, following the integration of the Skore acquisition and ongoing investment into the business development.
Revenue for the full year sees 9% growth to £39.1m, which in turn results in adj EBITDA of circa £8.4m with adj pre-tax profit of £7m and EPS at 3.3p.
At today’s opening share price of 95.5p the shares trade on a PE of 29, which as I mentioned previously can be seen as trading at a real premium that may deter those taking a look at the stock from actually buying at these levels.
However, net cash now makes up for a significant chunk of the market cap and with opportunities continuing alongside a positive growth trajectory and outlook, I am happy to sit tight and add on any weakness.
Another key feature of this morning’s update was the cloud-based solutions, which is a growing aspect of the group’s offering and which saw a 19% progression that should result in some 50% of the total revenue for full year 2024.
The outlook remains positive as NET progresses into financial year 2025 with a number of driving factors, not least a perceived government increased focus on healthcare, an area where NET is largely embedded, providing improved services whilst saving on costs.
Additionally, there is clear earnings visibility along with continuing and accelerating cross-selling opportunities, backed up with the firepower to add another earning enhancing acquisition in order to further cement its expanding position.
Looking ahead to the current financial year 2025, Brokers Canaccord and Singer both envisage another solid period of progress and have set price targets of £1.30p and £1.40p on the stock accordingly.
In terms of numbers, Canaccord is looking for revenues to hit £43.5m with EBITDA at £8.6m, whilst the expectation is for pre-tax profit to come out at £7.4m.
Regarding valuing the stock, the same Broker concludes, “Despite Netcall's consistent financial progress, it trades at a ~30% discount to profitable UK SMIDcap software peers on CY24E EV/Sales of 3.0x, widening to a >40% discount versus global automation vendors.
We reiterate our 130p target price, equivalent to a CY24E EV/Sales of 4.0x to reflect Netcall's profitable and cash generative financial position."
As I mentioned in my previous piece, despite ongoing investment into new products and services, much of the heavy lifting has been done and the company is ideally placed to continue on its growth and excellent cash generation journey.
There is also a small dividend on offer, which serves more as an added complement at this stage as opposed to a driving attraction.
Further down the line as cash continues to swell it is conceivable that a more meaningful payment and accelerating progressive path emerges on the dividend front.
I will hopefully be speaking with management again on or around results day.
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