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There wasn’t much to lament in Castleton Technology’s (CTP) half-year results to September. Strong revenue growth fed through to a 75 per cent increase in operating profit to £0.62m, albeit on an 80 basis point reduction in the underlying margin (ex exceptional items) since the March year-end. The social housing software specialist said that its cost base has stabilised following the integration of acquired assets, so investors might realistically expect margins to build over the second half. The steep rise in reported profits gave way to a fall in net earnings, but this was expected as the 2017 half-year returns were buoyed by exceptional tax credits.
CTP:LSE
Castleton Technology PLC
1mth
Today change
0.00% Price (GBP)
98.00
Professional services revenues grew by 44 per cent, which also drove a change in the group’s overall sales mix, so that recurring revenues constituted a smaller proportion of the group total from a year earlier. This should be a temporary effect, given the rising number of multi-year contracts, including a Dumfries and Galloway Housing Partnership deal, worth £1.2m over four years, and an extended managed services contract with Circle Voluntary Housing Association.
Broker FinnCap forecasts adjusted pre-tax profits of £5.6m for the year to March 2019, with EPS of 5.9p – up from £4.5m and 5.2p in FY2018.
IC View
Solid half-year numbers were accompanied by news that the group intends to introduce a progressive dividend policy for the full year. Early investor MXC sold out of its stake in Castleton during the period, although the proceeds will be churned back “in line with MXC's stated strategy of investing in technology companies”. Even with the divestment, institutional investors remain prominent on Castleton’s shareholder register. Trading at 16 times forecast adjusted earnings, the shares look reasonably priced against software peers. Buy.
Last IC View: Buy, 89p, 12 Jul 2018
Thank you for posting. Reporters seem to take the view of steady reliable progress.
Worth a note that FinnCap has actually adjusted pre-tax profit up from £5.1m to £5.6m.
Back below that buy rec at 98p.