What’s in a ticker? Usually not much. But in Proactis’s case, ‘PHD’ – with its connotations of world-class university research – aptly describes the firm’s advanced spend-control software. Purchasing systems have been around for ages. But most are too complex to be adopted outside specialist buying departments.
And if companies hope to make savings by bulk purchasing, and to streamline processes without losing control, they must devolve responsibility throughout the organisation and make the IT both user-friendly and functionally rich.
This is where Proactis steps in. It joined Aim with a placing at 43p in June 2006 and is headquartered in Wetherby, near Leeds. Its e-Procurement software is very simple, enabling firms to reduce, control and monitor all internal and external spending. The applications have been implemented by more than 350 customers so far, across many diverse sectors including financial services, oil/gas, charities and the UK government.
In fact, for the year ending July 2009, Proactis added 44 new clients (such as CB Richard Ellis and Yorkshire/Humber councils) and secured another 52 upgrade deals from existing users. Over 40% of revenue is now derived from recurring maintenance contracts. And in a huge endorsement of the product’s quality, in June 2009 Gartner rated the software as “excellent”, achieving the highest overall score when compared with 13 other vendors (including Ariba, Basware, Coupa, Ketera and PurchasingNet) worldwide. And in the event of another economic slump further down the pipe, Proactis might just be in the right place at the right time.
With regard to the numbers, Proactis is forecast to deliver 2010 sales and Ebita of £8.1m and £1.3m respectively, along with paying a 1.1p dividend (3.5% yield). So with £2.35m of cash in the bank, the stock trades on a mean enterprise value (EV)/Ebita (defined on page 48) multiple of 6.4 – which looks good value for the more adventurous investor. The chairman seems to agree – he spent £60,200 in February snapping up 215,000 shares at 28p.
On the downside, the main risks are those associated with being a small firm in a dynamic environment, together with contract slippage, thin liquidity and foreign exchange. House broker Daniel Stewart has a 12-month price target of 60p.
Recommendation: SPECULATIVE BUY at 30p (market capitalisation £10m)
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments