Eleco – increased cash position in spite of lockdown

Eleco is a construction software company that is showing resilience in the face of adversity, writes Mark Watson-Mitchell.

Considering the impact that the Covid-19 pandemic must have had on its sector, this £66m capitalised company did very well in its first half year to end-June.

It showed a decrease of just 4% in its turnover to £12.21m, while its adjusted pre-tax profit was actually up 11% at £2.37m. And, what I always like to see, its recurring revenues were some 57% of the sales total.

Eleco (LON:ELC), which listed way back in 1939, is today an AIM quoted company, specialising in construction software for the international market place.

Its leading integrated software enables a broad range of industries to drive efficient operations through the use of its systems through its centres of excellence in the UK, Sweden, Germany, the Netherlands and the US.

The principal markets at which the company aims its software solutions and services are in the architectural, engineering, construction and interior furnishing sectors.

Elecosoft software solutions, which are trusted by a global customer network of over 50,000 companies, cover project management, estimating, timber engineering, computer aided design and visualisation, asset and facility management, property management, building information modelling and cloud-based digital marketing solutions.

In the group’s interim results, the end-June net cash pile was a very healthy £4.43m, which compared to 2019’s corresponding period of net debt of £0.2m. Its adjusted earnings were up 10% at 2.2p per share. 

The group reinvests 12% of its revenue into research and development. Some 19% of group revenues are derived from services income, 24% from licence sales and the important 57% balance from recurring maintenance, support and subscription revenue.

For the full year to end-December, profit guidance is off; however, the group is expected to deliver a strong financial performance across the whole year. Perhaps a similar set of half-year figures to H1 would be a safe guess.

It is in times like these that efficient systems are the paramount base for any business, just so in the construction planning field, which is where Eleco are product strong.

Chairman Serena Lang commented with the interims that, “Our excellent suite of products, loyal customer base and the strength of our executive team and employees gives me the confidence that we will be able to continue to ride the wave of the storm and address the major opportunities ahead of us.”

There are 82.24m shares in issue, of which the company’s employee share ownership trust holds 0.91m shares. 

Large professional holders include Rights & Issues Investment Trust (5.50%), Investing Profit Wisely (5.01%), JO Hambro Capital Management (4.68%), Henderson Global Investors (3.83%), Hargreaves Lansdown Stockbrokers (3.80%) and Fiske (broker) (3.59%).

This group is an excellent example of the benefits of the software sector. It operates on a high margin, it is very cash generative and it has a host of top-name customers forever using its products and ongoing services.

Last year’s final trading update came out in late January this year. However, I would hope that we might get some indication in the next couple of months on just how the second half has been progressing.

In the last year its shares have been up to 94p and as low as 44p at the end of March. Today they stand at 81.5p. 

I am looking for encouraging news soon, from new contract wins or the like. I now set a target price of 100p.