Allocate Softw Share Price (ALL)

Does anyone think the drop here is nerves ahead of Osbournes budget announcement? Fear that the NHS will be cutting back again and we will be affected.

big trade,,,,,

Valuation: Qualities are underrated Allocate’s P/E rating of 12.2x 2014 earnings is undemanding in our view, and a 30%+ discount to its UK healthcare peer group. In particular, we feel the market is not giving Allocate credit for the strength of its position in the NHS, scope for cross-selling or the progress made in transitioning to a more attractive, recurring revenue model.

Expect robust growth to resume Q3 appears to have started well, with almost as many HealthRoster deals signed in the quarter to date as in the whole of H1. With HealthRoster V10 opening up international opportunities and the NHS renewal cycle set to gather steam, we feel prospects remain robust for the core product. Growth in subscription revenues, thus far driven mainly by Clinical Staff Planning (previously Zircadian), will be complemented by HealthRoster Cloud, for which Allocate has an £8m sales pipeline and took £1.4m in bookings in H1, but recognised less than £0.1m revenue over the period. Our sales estimates are unchanged and still look realistic despite heavy back-end weighting. This implies a return to robust underlying growth, which should continue into 2014. EPS is nudged back by 6% and 3% for 2013 and 2014 on higher costs.

Integrated vision starting to take shape Allocate’s longer-term growth opportunity has become clearer with management’s articulation of its strategy to provide an integrated suite of non-clinical healthcare productivity solutions. Execution is not a given, but with healthcare providers being people-based organisations, workforce optimisation looks a good starting point from which to build a more comprehensive offering. The vision appears to be gaining the ear of some strategic decision makers within healthcare providers.

Shift towards subscription revenues Sales were flat year-on-year at £16.1m and down mid-single digits organically, while higher costs resulted in adjusted EBIT falling from £1.4m to £0.4m. The weak start to the year played a part in this, but subscription revenue growth of 18% to £2.9m and a £3.5m increase in deferred income suggest that underlying growth is continuing, and that a migration to a more subscription-weighted model is the main factor at play.