Adept Telecom (LON:ADT) (ADT, 22p, £4.63m) Interims to September 2010 saw revenues fall to £12.09m ( £13.01m) due to lower call volumes with gross profits of £4.34m (£4.81m) –a margin of 35.9% (37%), though lower admin charges of £3.60m (£4.37m) helped underlying op profits to £1.90m (£1.83m) with adjusted PBT of £1.0m (£1.16m) and 5.46p (4.85p) underlying EPS. The group ended the period with net debt of £8.16m (net debt £9.22m at the March year end). The group is seeing plenty of take-up for its cost saving advanced data/voice solutions and has the further ability to cross sell products and services. We see forecasts potentially drifting upwards from the existing £1.9m PBT with 7.6p EPS. We still see firm upside and move the group from a speculative buy to a BUY with a modest 35p price target.
Advanced Computer Software (LON:ASW) (ASW, 35.75p, £126.87m) Interims to August 2010 saw revenues up to £47.31m (£11.02m) though that was primarily due to acquisitions with underlying organic growth of 7%. Gross profits rose to £38,91m (£8.13m) or margins of 82.2% (73.8%) with underlying operating profits of £11.56m (£2.71m) and adjust PBT of £10.41m (£2.85m) with reported numbers heavily distorted by amortisation of intangible assets of £7.71m (£0.59m). Adjusting for tax as well the underlying EPS would have been 2.5p (0.6p). The group ended the period with net debt of £33.9m (nil). The group is carrying forward £2.4m of tax losses which will ensure a reduced tax rate for the current year at least. Although the group is dependent on the UK health sector and thus public spending the group does have high levels of repeat revenues at 90% (95%) which will offer some downside protection – though actual contracted recurring revenue, while good, is a more sobering 56% (65%). The February COA acquisition integration has gone well with £2m of annualised savings achieved and the process of cross selling underway with an estimated £6m of the revenue generated this way. We see ASW’s core software as a critical path for the restructuring of the NHS and care provision in the UK and the Managed Services operation as a logical extension of its expertise. As such we maintain the recommendation as a BUY with a 48p price and believe forecasts, currently at £17.3m PBT, are…
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