Netcall PLC (LON:NET) Done Deal?

The interims reported yesterday from NetCall (LSE: Net) the software as a service company which helps clients engage effectively with their customers.

Surprised the market as it (at last) showed substantial growth in cloud business with several notable multi-year contracts. Netcall is at the upcurve of the hockey-stick on a line-graph of profits. As it moves from a traditional software business to a high growth digital cloud (Low-code) operation, as the Cloud service bookings exceeding product sales for the first time.

This is a sticky repeat high margin (90% GPM) business with blue-chip customers. Directors also brought 200,000 shares at 33p after the announcement.

Netcall’s Low-code platform uses drag and drop technology that enables organisations to scale and rapidly develop, test and deploy digital enterprise applications. This empowers business users and IT developers to collaboratively develop products and systems that create a leaner, more customer-centric organisation.

The total annual contract value for the six months to 31 Dec 2018 improved 10% to £15.1m with the Low-code ACV up 40% year over year. The adjusted EBITDA at £2.02m was lower but this is after ‘spending’ £0.75m on the investment programme. The profit before tax increased 49% to £0.42m.

Netcall’s customers base covers enterprise, healthcare and government sectors. These include two-thirds of the NHS Acute Health Trusts, major telecoms operators such as BT, and leading corporates including Lloyds Banking Group, ITV and Nationwide Building Society.

After years a development Netcall, seems to become an attractive cash-generating machine that would benefit from increased international sales perhaps with the help of a partner.

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Netcall’s software is highly operationally geared, scalable and easy to deploy and use for enterprises. The Low-code market is worth more than an estimated $6 billion and is expected to grow rapidly in the coming years.

Netcall expects revenues for the year June to be more weighted toward the second half given the transition to a recurring revenue model and the timing of product sales.

The first half strong sales momentum is set to continue as the order inflow was reported to be significantly ahead. Profits are forecast at £2.2m on turnover of £24.2m for a prospective P/E of 24x while yielding 1%.

Financials

Cash and cash equivalents to December were £5.8m and slightly up which gives some change for acquisitive growth.

Trading Strategy

The shares improved after the interims and Directors dealing and we do not like chasing share prices BUT it is at this stage of development that Netcall could become a takeover target again as they were two years ago. Worth buying particularly on any weakness.

NetCall (LON:NET)

35.5p (35-36p)

Mkt Cap: £50m

Next Results: Finals

Sept

 

By Andrew Hore & Jon Levinson

Andrew has been writing about small companies for 25 years, following the fortunes of many companies, both successful and unsuccessful. He worked at the Investors Chronicle for 12 years, ending up as smaller companies editor. He then went on to write AIM Bulletin and he is currently editor of AIM Journal and AimMicro.com. He is a former AIM journalist of the year and was on the shortlist for the journalist of the year at the Small Cap Awards.

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Jon has been an analyst, a journalist, a fund manager and is currently a corporate broker. He will strictly never write on corporate clients. His MBA dissertation was on filling the Smaller Companies Equity Gap. When writing the Penny Share Focus he learned that not all that glitters is gold.

 

 


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