Australia | Aug 20 2008
By Andrew Nelson
Internet-based IT services company Melbourne IT ((MLB)) yesterday impressed brokers and investors alike with its 1H08 result, which was driven by organic growth across a number of its businesses. While management didn’t provide a formal guidance for the full year, they went on the record saying the second half would be even better than the first.
Bottom line figures for the half included revenue of $86.7m, up 12.2% on the pcp, while the profit of $7.8m was a 20% increase on the previous first half. The positive result was also helped by increases in both gross profit margins, up to 61.9% from 59.7%, and earnings margins, which booked a 118bps improvement on the pcp.
ABN Amro (Morgans) certainly liked the result, which came in ahead of its expectations. The broker upgraded the stock to a Buy from Hold, saying the company has consistently delivered growth and it is confident this will continue.
Specifically noted was the company’s continued focus on process and infrastructure improvements, which both support the scalability of the business and also helps to manage the cost base. This will be the key to growing the business and further improving margins going forward, which ABN believes is likely.
UBS, which already had a Buy on the stock, was a little more reserved in its praise for the result, saying it was pretty much as it had expected. However, the broker is just as upbeat about the company’s medium to long term prospects.
On the outlook, UBS is pretty much bang in line with ABN, saying future earnings should prove largely resilient to the slowing corporate spending cycle.
UBS analysts offer three reasons to support such view:
Firstly, revenue and cost synergies in the Digital Brand Services division offer significant upside, already having delivered a 97% lift in revenue over the first half.
Secondly, a solid exposure to the quickly growing domain name market following proposals to increase name extensions. ABN agrees and is predicting double-digit market growth from that business.
Thirdly, UBS also sees upside in the ease with which the company should be able to make future bolt on acquisitions to establish new markets for yet to be developed products and services in this quickly evolving market.
With only these two brokers covering the stock (out of the ten in the daily FNArena universe), and both on a Buy, the FNArena Sentiment Indicator is sitting at a perfect score of 1 on the stock.
Both stockbrokers expect to see the company achieving some 18% in EPS growth for the current financial year to December. On current expectations, that should increase to some 29% EPS growth in 2009.
As at 14.45 on Wednesday 20 August, shares were trading higher for a second straight day, up 8c at $3.18 versus a twelve month trading range of $3.50 to $2.60.