Kbc Adv.tech. Share Chat (KBC)

Software firm KBC plunged on Tuesday after it said it would miss full year expectations after a poor first half.

Shares were off by 20% after the firm reported a "challenging first half which will impact overall performance for the year".

It added that action was being taken to reduce costs and rebalance resources across the group and the poor figures were a "temporary setback".

Th company has now begun a review of its consulting operations with the objective of a radical restructuring to boost profitability.

Group revenue for the first half was £27.5m, up from £26.0m the year before.

But profits slipped to £0.7m, down from £2.2m in 2011, on higher operating and staff costs.

Chairman Ian Godden, said he expected the second half of the year to show a substantial improvement over the first half.

But he added the exact timing of contract awards, particularly for software licences, would continue to have an impact on the results for the year.

Board Changes

Following the announcement in May that Nicholas Stone had decided that he would like to seek fresh challenges, Mr Stone will step down as a director and leave the business on 31 July 2012. Having worked with the business since 2001 as Finance Director, and as Operations and Finance Director since 2006, Nick has been a key contributor to the development of KBC and the Board would like to thank him for his input over the last 11 years.

The Board is pleased to announce that Caroline Brown will be appointed Finance Director of KBC and will take up office in the early Autumn. Ms Brown is an experienced public company director with over 12 years' experience managing global finance functions in the resources sector, including Petrofac and Gulf Keystone Petroleum. She is a qualified accountant, holds an MBA and is a Chartered Director. An announcement will be made in due course confirming her appointment date.

Confirmation of Board Changes

KBC is pleased to announce the following trading update in relation to the half year results for the six months ended 30 June 2012 that will be released in late September.

Since our AGM statement the Group has continued to make progress and we remain confident that results for the year will be in line with the Board's expectations. Trading continues to be positive across most of Asia, Russia and the Americas but is weaker in some parts of Europe, in response to which we are taking steps to reduce costs in the region and to rebalance resources across the Group. The Latin American software user referred to in our AGM statement in May is now looking to extend the licence period from three to five years, increasing the agreement's value to circa £4m. As a consequence negotiations are now expected to close in the second half, with circa £2m being recognised as a licence fee in the period, increasing the weighting of the Group's performance this year towards the second half.

Contract awards for the first six months of the year were around £17.0m for the first half of 2012 (H1 2011: £23.5m) and the pipeline of opportunities remains strong for the second half. The order book is expected to be around £39.0m at 30 June, compared to £48.7m at the end of 2011, as we continue to successfully work through the backlog associated with the Pemex project.

The acquisition and integration of Infochem has been very successful and our expectations for the value that this business will add to KBC continue to grow. The response from both KBC's and Infochem's clients has been consistently positive and we have been encouraged by their willingness to explore how the combination can enhance both KBC and Infochem's software offerings and strengthen the overall relationship.

............Valuation: Clearer growth strategy gives scope for re-rating
This deal gives KBC a good foothold in the more buoyant upstream oil and gas
segment and investors clarity on the growth strategy. Further acquisitions to enhance
KBC’s technical and economic modelling capability are likely to be considered. We
remain mindful of the need to replace the Pemex business as it drops away next year,
but with clarity on this, we believe that appreciation to a double-digit 2013 P/E rating
would be very justifiable, implying at least 20% share price upside.

An order book of £49 million provides good visibility on future revenues and a 22% increase in the full-year dividend reflects management's confidence in the outlook. Consensus expects earnings per share (EPS) to increase 14% in 2012 and a rating of 8.6 times 2012 forecast EPS of 8.1p, against a sector average of 11.8, does not adequately reflect these growth prospects.

The £39 million cap's Petro-SIM software is a leading reactor-based modelling system. It both underpins the consulting activities of the group and provides a profitable revenue stream in its own right. Since the announcement of 2011 results in March a major Latin American client has committed to a renewal of its Petro-SIM licences, worth £1.1 million a year to KBC.

A volatile oil price, growing demand for energy in emerging economies and pressure on refining margins in mature markets all support an investment in KBC Advanced Technologies (KBC).

These factors are likely to drive demand for the company's two main areas of expertise, consultancy services and software for the energy sector and refining industry. Autumn's interims (11 September) should be strong as a result.

Perhaps the two imho..............................?