The high price-to-earnings ratio of the shares of Netcall (LON:NET), standing at some 26 times pe does not put me off having a very positive view of its prospects.
In fact, I am looking forward to seeing just what the leading provider of intelligent automation and customer engagement software reports tomorrow morning when it is due to be announcing its 2024 Final Results.
The Business
The UK-based enterprise software company helps organisations achieve digital transformation.
The group’s Liberty software platform, with its Intelligent Automation and Customer Engagement solutions, helps organisations to digitally transform their businesses faster and more efficiently, while empowering them to create a leaner, more customer-centric business.
Its AI-driven tools enable users to transform at speed, it can automate processes and streamline workflows while making the managing of tasks and customer engagement easier, quicker and more productive.
Netcall’s customers span enterprise, healthcare and government sectors.
These include two-thirds of the NHS Acute Health Trusts and leading corporates including Legal and General, NCP, Lloyds Banking Group, the BBC, Aon, Nationwide and Santander.
Recent Trading Update
On Thursday 18th July, the company issued a Trading Update for the year to end-June, it confirmed strong trading, with results expected to be in-line with market expectations.
The consensus market expectation for the 2024 year is for revenue of £39.1m, with adjusted EBITDA of £8.1m and net cash of £28.9m.
Latest Acquisitions
On Wednesday 7th August the company announced the £13m earnings enhancing acquisition of a digital process automation company called Govtech Holdings, which has a complementary offering to Netcall’s existing suite of Liberty solutions, expanding the portfolio and increasing the group’s customer base within Local Government.
This technology company specialises in digital process automation, with a strong focus on local government revenues and benefits processes.
Its platform handles approximately 30m transactions annually, achieving up to 80% automation for its customers.
This high level of automation results in significant productivity savings, with up to a 50% increase in efficiency for revenues and benefits teams, leading to an improved citizen experience and faster service delivery.
It serves around 50 local authorities including Leeds City Council, The City of Edinburgh Council and Bristol City Council.
On Monday 16th September, Netcall acquired Smart & Easy NV, trading as Parble, a provider of intelligent document processing software for €8.7m.
This deal will extend the group’s footprint outside the UK and increase its exposure to the financial services sector.
Analyst Estimates
At Canaccord Genuity Capital Markets, its analysts Hayley Palmer and Kai Korschelt have a Buy note out on Netcall, looking for 130p as their Price Objective.
They look for the year to end- June to show revenues of £39.1m (£36.0m), with adjusted pre-tax profits of £7.2m (£6.5m), generating earnings of 3.3p (3.1p) and a dividend of 0.9p (0.8p) per share.
For the year now underway they go for £47.5m sales, £8.0m profits, earnings of 3.7p and a 1.0p dividend.
Harold Evans, analyst at Singer Capital Markets, also has a Buy for the shares, with 140p as his Price Aim.
His estimates for 2024 are very similar, while he looks for £47.4m revenues this year, £7.7m profits, 3.7p earnings and a 0.97p dividend per share.
In My View
As I stated at the top of this article, this group’s high pe ratio does not disturb me.
Estimates by the brokers suggest that the group at the end of this year, to end-June 2025, will have some £27m of cash in the bank, which gives it a far buffer as it continues upon its strategic acquisition programme.
Having been up to 100p in March this year, its shares now at 85.5p, value the group at £141m.
I agree with the analysts that the shares are a Buy.