Final Results

ServicePower has reported full-year results that are, more or less, in-line with our expectations, achieving a post-tax loss of £1.11m on revenue of £13.0m. The UK technology company added that trading in 2016 has continued to be in line with management forecasts. We have updated our forecasts for FY16 and FY17, and issued forecasts for FY18. With the shares offering investors exposure to the high-growth mobile workforce and field service management software market, we continue to classify the shares as a growth stock.

Final Results

Reflecting an increase in software sales, total revenue increased by 2% to £13.0m (2014: £12.7m), which is in line with our expectations. Gross margins remained unchanged at 47% (from 47%), resulting in a gross profit increase of 2% to £6.1m (2014: £6.0m), which is 2% better than our expectations of £6.0 million. Reflecting increased investment in R&D, operating costs increased by 4% to £7.20m (2014: £6.92m), leading to an increased operating loss of £1.09m (2014: £0.88m). Including a net interest cost of £117k (2014: £165k) and a tax credit of £95k (2014: £98k), the post-tax loss increased to £1.11m (2014: £0.94m), which compares to our expectations of a loss of £1.14m. Cash reduced to £1.42m (2014: £2.70m), which compares to our forecast of £1.48 million.

Forecasts

We are forecasting revenue of £13.6 million for FY16, growing to £14.4 million for FY17. We have also introduced a revenue forecast of £16.23 million for FY18. A 49% gross margin would suggest a gross profit of £6.7m for FY16, growing to £7.0m for FY17 and £8.0m in FY18. As ServicePower builds its market share, we would expect a gradual decline in the proportion of revenue invested in Sales & Marketing, leading to a further improvement in the EBITDA margin. Accordingly, we are forecasting a decline in the proportion of revenue invested in SG&A to 50% in FY16 and FY17, decreasing further to 45% in FY18. This translates to an operating loss of £136k and EBITDA of £573k for FY16, an operating loss of £144k and EBITDA of £466k for FY17, and an operating profit of £649k and EBITDA of £1.2m for FY18.

Valuation

Peer company ClickSoftware was acquired for an all-cash price of $438m, equating to an EV/sales multiple of 3.1x and representing a 40% premium to its previous share price. The main risk to our forecasts is a slower than expected uptake in the offerings as ServicePower continues to migrate to more of a SaaS model. In addition, we note that the new loan of £1m will require refinancing in December 2016.