Red tape is a nuisance for most firms, but not for this one. The group makes software that simplifies the process of ordering, shipping and transporting products across borders. Its programs make it easier to handle paperwork surrounding global trade laws and improve logistics between supplier, retailer and consumer so that stock levels can be kept to a minimum and service improved.
Kewill Systems (KWL)
So popular is the software it has been bought by 23 of the world’s 25 largest freight transporters and is used to process over 25% of all US imports. Blue-chip clients include DHL, FedEx, General Electric, Marks & Spencer, and UPS. Kewill is also pioneering “software as a service”. The concept is that rather than forking out for a one-off licence, subscribers only pay for their usage with the applications hosted, upgraded and delivered by Kewill online. This has the advantage of stimulating faster take-up and generating strong recurring income streams, which now account for around 50% of turnover.
With international trade still robust, notably in Asian shipping lanes, Kewill’s future looks bright. In April, chief executive Paul Nichols said profits for the year ended March would beat expectations.
The City expects 2008 sales and underlying earnings per share of £51.6m and 8.6p respectively, rising to £56.5m and 9.7p for the year ended March 2009. That puts the shares on an attractive p/e ratio of around ten (albeit on reduced tax rates), supported by a chunky £10m cash pile (or 12p per share). Kewill is, though, a small fish in a big pond and may be squeezed by better-funded rivals. And a severe recession would hit earnings – so you may wish to wait until the preliminary results are out on 16 June before buying. That said the shares are cheap for such a rapidly-growing software firm, and there’s even an outside chance of a future bid from rivals such SAP and Oracle. House broker Investec has a 126p price target on the stock.
Recommendation: BUY at 91.5p (market cap £74m)
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments