Telecoms billing software provider Cerillion (LON:CER) is one of the most consistent companies on AIM and the share price reflects that. Since floating in March 2016, the share price has risen from a placing price of 76p to 1220p.
There were 29.5 million shares in issue when Cerillion joined AIM and roughly the same number now. So, unlike many companies Cerillion has not been issuing millions of shares to finance growth and this has helped the share price to rise. Admittedly, Cerillion was already a stable and profitable business when it joined AIM, but it has managed to grow organically.
In the six months to March 2023, revenues grew 27% to £20.5m and adjusted pre-tax profit was 46% higher at £9.2m. The interim dividend was raised by 27% to 3.3p a share, while net cash was £23.6m at the end of March 2023.
Margins improved because there were a greater proportion of software sales. Larger contracts are being won and more wins are expected in the second half. Annualised recurring revenues have reached £13.1m as customers take up managed services.
The order book is worth £43m and there is a strong pipeline of potential orders. Telecoms companies are digitising their operations and launching new products and business models. The important thing is to retain customers for longer by improving their engagement.
Full year revenues of £38.5m and pre-tax profit of £13.8m are forecast, but the first half performance suggests that could be beaten – particularly if new contracts are won early enough in the second half.
The share price has remained strong over the past 18 months when many other technology company share prices have slumped. The big difference is the cash generation and winning of large contracts. Net cash could be more than £30m by the end of September 2024.
Cerillion is trading on 32 times prospective 2022-23 earnings, falling to 28 next year. The shares always appear fully valued, but the track record means that they can justify this level.